EUROPE - Eurostat has ruled that pension payments into government managed defined contribution (DC) schemes cannot be treated as revenue.
The new ruling is likely to hit Poland, which has a significant proportion of government run DC funded schemes. It is estimated that Poland’s fiscal deficit could rise by a further 1-1.5% as a result of the Eurostat ruling. Sweden and Slovakia are also likely to be affected by the ruling.
The statistical office of the European Communities specified that government managed DC schemes cannot be treated as a social security scheme and as a result contributions made to the scheme and pension benefits paid by the scheme are not classified as revenue and do not have an impact on government deficit or surplus.
Eurostat said that in case of DC funded schemes, the company was not acting for public policy purposes but was managing funds on behalf of households, who hold a claim on the schemes reserves.
Eurostat decided that if a government company is responsible for a DC scheme for which there is no government guarantee in case of defaults, then the scheme cannot be treated as a social security scheme and therefore payment flows to and from the scheme cannot be recorded as government revenue or expenditure.
According to this decision, all pension funds where the participants bear the financial risk should be treated in the same way, whatever the nature - public or private - of the unit managing the scheme, or the obligatory or voluntary nature of the scheme.
Eurostat also ruled that where a government unit simultaneously manages two kinds of schemes, one unfunded and the other funded, two different institutional units must be distinguished in national accounts.
The decision refers to the cases of mixed or hybrid schemes where a government unit is involved simultaneously in flows related to different kinds of schemes.
However, Eurostat said the existence of a government guarantee, to a scheme that is not classified as a social security scheme, is not a condition for reclassifying the beneficiary scheme as a social security scheme.
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