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Estimates of Irish Pension Liabilities 2021

Background Notes

Online ISSN: 2565-5744

CSO statistical publication, 15 February 2024, 11am

This is the third publication by the CSO on Irish pension liabilities, covering all occupational pension schemes including those managed by government. The statistics in this publication are consistent with the data transmission under Regulation (EU) No 549/2013 on the European system of national and regional accounts in the European Union. Specifically, the data is compiled into a supplementary table on accrued-to-date pension entitlements in social insurance, known as Table 29. Transmission of this table to Eurostat for reference year 2021 was required by 31 December 2023. The table was first compiled in 2017, referencing data from 2015, and subsequent updates are required at three-year intervals.

Supplementary table to National Accounts

The primary objective of this table is to complement the core National Accounts, enhancing the accuracy and comparability of all pension schemes – both private and public – across EU Member States.

The methodology employed in generating these estimates adheres to the guidelines provided by Eurostat and the European Central Bank, as outlined in the Technical Compilation Guide for Pension Data in National Accounts (2020 edition).

Table 1.1 serves as a valuable supplement to the core National Accounts which only accounts for the amounts owing to households from funded pension schemes. Funded pension schemes accumulate assets to finance retirement benefits and their liabilities are included in the National Accounts. However, the National Accounts do not encompass the liabilities of unfunded pensions. State pensions and most public service employee pensions are unfunded and operate on a pay-as-you-go (PAYG) basis. This means that contributions from current workers are financing current pensioners' benefits without any accumulation of assets.

The data in table 1.1expands upon the core National Accounts by incorporating the liabilities of unfunded pensions in addition to those of funded pensions. By including both types of pensions, it provides a more comprehensive view of pension liabilities, facilitating better-informed decision-making and cross-country comparisons.

Pension benefits and schemes covered in the pensions table

This section describes in more detail the types of pension schemes covered in the pensions table, but it is important to first distinguish between pension benefits and other social benefits, as defined in national accounts.

Pensions can be provided to beneficiaries in various forms, including:

1) Social insurance pension schemes: These schemes encompass employment-related and social security schemes and are the predominant form of pension scheme in EU countries. In Ireland, this category includes employment-related pension schemes[1] and non-means-tested state pension schemes[2].

2) Social assistance: Social assistance benefits are payable without contributions having been made to a social insurance scheme. They are means-tested and fall outside the scope of this publication. An example in Ireland is the State Pension (non-contributory).

3) Individual insurance policies or savings plans related to pensions: This category includes Personal Retirement Savings Accounts (PRSA) and Retirement Annuity Contracts (RAC). These types of plans are treated as life insurance in the National Accounts and are also outside the scope of this publication.

Figure 4.1 illustrates the different pension-related benefits. The cells which appear as BLUE are within the scope of the pensions table and those appearing in GREY are outside the scope and therefore excluded.

[1] Private and public occupational pension schemes.

[2] State Pension (Contributory); Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) and Invalidity Pension.

Columns of the pensions table

The Eurostat table on pension entitlements was designed to record the various pension systems which exist in EU countries and categorise them using the following criteria:

Which institutional sector is managing the pension scheme.

The private sector (columns A to C), or General government (columns D to H).

Is the pension scheme defined contribution (columns A and D) or defined benefit (columns B, E, F and G).
Is the pension scheme recorded in the standard National Accounts.

Funded schemes are recorded in the core National Accounts (columns A to F). Unfunded schemes are not in the core National Accounts and will appear in the Table (columns G and H).

Table 4.1 Columns of the Eurostat supplementary table on pension entitlements

In the case of Ireland, the relevant columns are recorded as follows:

Columns A to C: Funded, privately managed occupational defined contribution and defined benefit schemes. These schemes are included in the core National Accounts and in the pensions table.
Column G: Unfunded, government-managed occupational defined benefit schemes for government employees. These schemes are not recorded in the core National Accounts and will only appear in the pensions table.
Column H: Pay-as-you-go, government-managed state pension benefits (excluding means-tested pension-related benefits). These schemes do not appear in the core National Accounts and will only appear in the pensions table.
Note that Columns D, E and F are not applicable to the Irish pension system.

Table 4.2 Summary of table columns applicable to the Irish pension system

It is important to note that the liability which has accrued in respect of state pensions for those public servants whose occupational and state pensions are integrated, appears in Column H. It is presented in this way due to the column classification for Columns G and H.

Interpreting the rows in the pensions table

The rows in the pensions table contain a reconciliation between the opening pension liability at the beginning of a period and the closing liability at the end of a period. All transactions and other economic flows which lead to changes in the opening and the closing liability within a given period are taken into account.

Pension entitlements (accrued-to-date liability) - Row 1: This is the accrued-to-date liability (ADL) estimated at the beginning of the period and is identical with the closing stock of the previous year.

Column A: For defined contribution schemes this equates to the value of the underlying assets of the pension fund at the start of the period.

Column B: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed in Guidance in relation to Section 34 of Pensions Act, 1990.

Column G: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed by the Eurostat Technical Guide and set out in the DPENDPDR actuarial report.

Column H: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed by the Eurostat Technical Guide and set out in the DSP actuarial report.

Employer and employee actual social contributions - Rows 2.1 and 2.3: These rows contain the value of contributions paid by employers and employees during the period.

Column A: Employer and employee contributions as reported in the Pensions Authority Annual Services Inquiry.

Column B: Employer and employee contributions as reported in the Pensions Authority Annual Services Inquiry.

Column G: The government as an employer does not pay contributions on behalf of its employees; employee contributions captured through payroll system.

Column H: Employer and employee PRSI payments for the year (pro-rated to expenditure for the three relevant pension schemes in the year).

Employer imputed social contributions - Row 2.2: This represents the difference between actual employer and employee contributions in the year and an estimate of “current service costs” (i.e., the actuarial present value of the projected benefits, calculated based on the prescribed ADL methodology and assumptions and attributable to employees’ service in the current year) plus “experience effects” (i.e. the difference between observed outcomes v assumed outcomes in the model).

Column A: This is not applicable to defined contribution schemes as the liability is based on the assets funds.

Column B: This is set to zero for privately funded defined benefit schemes in Ireland as the schemes are regulated and should be adequately funded and therefore no imputed contribution should be necessary. Experience effects are therefore captured in Row 8 of column B.

Column G: calculated as the difference between Current Service Costs in a given year and the employee social contributions paid in that year plus the experience effect.

Column H: This is not applicable to Social Insurance Funds.

Household social contributions supplements - Row 2.4: shows the property income earned or imputed in the schemes, which is routed via the households sector or the rest of the world sector. For defined benefit schemes this is equivalent to the unwinding of the discount rate.

Column A: An estimate of the investment income earned on pension assets in the year.

Column B: As the discount rate for each scheme included in column B is not available, an average “representative” discount rate was estimated and used to estimate the Row 2.4.

Column G: Calculated as the Table 29 discount rate times the opening balance and the equivalent of the unwinding of the discount rate.

Column H: Calculated as the Table 29 discount rate times the opening balance and is the equivalent of the unwinding of the discount rate.

Pension scheme service charges - Row 2.5: This row records the cost of running the pension schemes.

Column A: An estimate of the service charges on defined benefit schemes.

Column B: An estimate of the service charges on defined benefit schemes.

Column G: Eurostat’s guidance in relation to government-managed schemes is that a zero should be entered if the costs are financed through sources such as general taxation.

Column H: The service charge for the Social Insurance Fund is deemed payable out of contribution receipts (any shortfall in the fund is corrected by the Exchequer). Therefore the service charge is recorded for Column H.

Other (actuarial) change of entitlements in social security pension schemes – Row 3: a specific row to deal with the case whereby actual social contributions to the social security pension scheme are not actuarially based, and, therefore, there is an imputed contribution, which is not the responsibility of any employer (captured in Row 2.2). It also captured experience effects.

Column A: Not applicable

Column B: Not applicable

Column G: Not applicable

Column H: This is calculated as a balancing item in Column H and any changes in pension entitlements over the year, not included in the other rows of this column including experience effects, are captured here.

Reduction of pension entitlements due to payment of pension benefits - Row 4: This shows the payment of pension benefits during the period.

Column A: Pensions paid to pensioner members of private defined contribution schemes as reported in the Pensions Authority Annual Services Inquiry.

Column B: Pensions paid to pensioner members of private defined benefit schemes as reported in the Pensions Authority Annual Services Inquiry.

Column G: Pensions paid to pension members of public service occupational pension schemes as estimated through the data collection exercise.

Column H: Pensions paid during the year (excluding increases in benefits due to dependents and Christmas bonuses).

Changes in pension entitlements due to social contributions and pension benefits – Row 5: This is a formula calculated as (sum (Rows 2.1 - 2.4) - Row 2.5 + Row 3 – Row 4).

Transfers of pension entitlements between schemes - Row 6: This shows the transfers of pension entitlements between schemes.

Column A: An estimate of defined benefit scheme liabilities which have moved to defined contribution schemes:

Column B: An estimate of defined benefit schemes which have moved to defined contribution schemes or moved outside the scope of the table to personal pensions such as PRSAs.

Column G: Estimated as Nil.

Column H: Estimated as Nil.

Change in entitlements due to negotiated changes in scheme structure - Row 7: shows the impact of reforms of pension scheme structures on entitlements relating to past service. It is important to underline that two criteria must exist in order to classify to this row: 1) the reform must be enacted and 2) the reform must be negotiated and agreed upon by all parties involved.

Column A: Estimated to be Nil

Column B: Estimated to be Nil in 2021 but “section 50” [3]negotiated changes in pension entitlements are included here.

Column G: No pension reforms to public sector pensions occurred during 2021.

Column H: The repeal of the legislative provisions increasing the State Pension Age (to 67 in 2021 and 68 in 2028) is included here.

Changes in entitlements due to revaluations - Row 8: This shows any changes in entitlements due to changes in the financial assumptions - the discount rate, the wage rate and the inflation rate, or in the case of defined contribution schemes it includes market price changes.

Column A: This is a balancing item and is assumed to capture the market price change in assets.

Column B: This is a balancing item and is assumed to capture changes in financial assumptions such as the annual statutory revaluation.

Column G: Estimated to be Nil.

Column H: Estimated to be Nil.

Changes in entitlements due to other changes in volume - Row 9: This shows changes in entitlements due to changes in other model assumptions such as life expectancy. This row may also include non-negotiated reforms which do not appear in Row 7.

Column A: Estimated to be Nil.

Column B: Estimated to be Nil.

Column G: Estimated to be Nil.

Column H: This includes presumptions on future retirement behaviour. Changes to the ADL resulting from a reduction in the projection period and a switch to a Python-based actuarial model developed by the Department of Social protection’s Actuarial and Investment Analysis Unit used in this actuarial review have been entered here.

Pension entitlements (accrued-to-date liability) – Row 10: This is the accrued-to-date liability (ADL) estimated at the end of the period.

Column A: For defined contribution schemes this equates to the value of the underlying assets of the pension fund at the end of the period.

Column B: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed in Guidance in relation to Section 34 of Pensions Act, 1990.

Column G: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed by the Eurostat Technical Guide and set out in DPENDPDR actuarial review.

Column H: For defined benefit schemes actuarial calculations are required to estimate liabilities; modelling as prescribed by the Eurostat Technical Guide and set out in DSP actuarial review.

[3] If the funding of a defined benefit scheme is not sufficient to satisfy the Funding Standard, the trustees may apply to the Pensions Authority for what is referred to as a 'Section 50 order'. Under such an order, accrued benefits relating to members’ past service can be reduced.

Summary of Model Assumptions and Data Sources

The accrued-to-date liability (ADL) is calculated on an actuarial basis for defined benefit pension schemes including those in the private sector (column B), public service schemes (column G) and state pension schemes (column H).

The assumptions used for column B are sent out in the Pensions Authority Prescribed Guidance on Section 34 of the Pensions Authority Act 1990 (January 2017).

The two main data sources used in the estimation of column A and B:

Annual Scheme Information (ASI) submitted annually to the Pensions Authority by the scheme Registered Administrator;
Annual Actuarial Data Return (AADR) required for defined benefit schemes subject to the Minimum Funding Standard and submitted annually to the Pensions Authority by the scheme trustee.

Table 4.3 Summary of data sources used for the estimation of Columns A and B of the pensions table

Summary of Model Assumptions and Data Sources continued

In its Technical Guide, Eurostat sets out prescribed assumptions to be used and the approach to be taken in deriving the actuarial estimates in order to maintain consistency across pension schemes and comparability across countries. These assumptions were used in the estimate of the ADL of column G and column H.

Details of the data sources and assumptions used in column H can be found in the Department of Public Expenditure, NDP Delivery and Reform report, Actuarial Review of Public Service Occupational Pensions in Ireland as required by Regulation (EU) No 549 / 2013

Details of the data sources and assumptions used in column G can be found in the Department of Social Protection report, Actuarial Review of the Social Insurance Fund 31 December 2021 as required by Regulation (EU) No 549 / 2013

Table 4.4 Summary of actuarial assumptions used to estimate the liabilities of defined benefit schemes

Table 4.5 Summary of important concepts to be considered when interpreting the liabilities presented in Table 1.1

Table 4.5 - Summary of important concepts to be considered when interpreting the liabilities presented in Table 1.1
Accrued-to-date liability (ADL)				The measure of the liability used in Table 1.1 is called the accrued-to-date liability (ADL). It includes future pension benefits due to be paid to those already retired and in the case of current workers, it is the benefit right earned to date (based on past service) which is included.
				The ADL measure therefore does not include an (expected) contribution period ahead of current workers. For example, in the case of a 28 year old worker entitled to the State Pension (Contributory) at age 68, the remaining 40 year contribution period will not be incorporated in the ADL estimate in Table 1.1, only the rights built up during the individual’s career to date will be considered.
Current Service Costs				It represents the actuarial present value of the projected benefits, calculated based on the prescribed ADL methodology and assumptions and attributable to employees’ service in the current year.
Defined Benefit Scheme				In a defined benefit (DB) scheme, the pension paid on retirement is related to the combination of the number of years of employed service and the employee’s earnings (this may be at retirement or in the years immediately preceding retirement or on career earnings). Benefits on retirement are not related to a fund performance.
Defined Contribution Scheme				Defined contribution (DC) schemes are occupational pension schemes where member contributions and employer contributions are both invested into a fund and the proceeds used to buy a pension and/or other benefits at retirement. The value of the ultimate benefits payable from the DC scheme depends on a number of factors such as the amount of contributions paid, the investment return achieved less any fees and charges, and the cost of buying the benefits.
Discount Rate				The discount rate used for the Table 29 transmission programme upon which the statistics of this publication are based on the long-term interest rate assumptions adopted by the Ageing Working Group 2024 Ageing Report [4] , i.e., 2.0% p.a. for the discount rate in real terms and the nominal target discount rate is set at 4.0% p.a. (the inflation target being: 2%).
				The discount rate can be seen as equivalent to the expected risk-free rate of return on assets held by a pension scheme. In the case of pension entitlements to be paid in the future, the discount rate can also be seen as the cost of capital in a sense that the future payments have to be financed by government. The following criteria should be used for choosing a discount rate:
				· In order to obtain a suitable proxy for a risk-free interest rate, it is advisable to base it not on central government debt securities of one single country but on a basket of, for example, European central government debt securities.
				· The maturity of these debt securities should be similar to that of pension entitlements, i.e. at least 10 years, but preferably longer.
				· In order to guarantee comparability across countries, the same discount rate should be applied to all EU countries and all government-managed pension schemes (including social security pension schemes) at whatever level of government.
				· A stable discount rate should be applied to avoid the noise resulting from frequent changes.
Experience Effects				This takes account of where the observed outcome of pension modelling assumptions (real wage growth rate, discount rate, etc.) differs from the levels assumed in the previous estimation.
Household social contribution Supplements				This consists of the property income earned during the accounting period on the stock of pension entitlements. Households’ social contribution supplements are included in property income payable by the administrators of pension funds to households. As this income is retained by the administrators of pension funds in practice it is treated as being paid back by households to pension funds in the form of households’ social contributions supplements. It should be noted that for all defined benefit schemes including social security, whether funded or unfunded, this property income is equivalent to the unwinding of the discount rate. In other words, the value is equal to the discount rate times the pension entitlements at the beginning of the accounting period.

Liabilities and entitlements				Table 1.1 is compiled using data on obligations or liabilities of pension providers in Ireland. These are also entitlements or assets of households and can be viewed as such when interpreting the statistics. The liabilities in Table 1.1 are gross pension liabilities which means the estimates, in the case of funded schemes, do not take account of any assets which have been built up to pay benefits in retirement.
Pay-as-you-go scheme				Often abbreviated to PAYG, this is the method of financing pension promises out of the current income of the employer, there being no advance funding of the pension liabilities. It is used for social welfare schemes and for the vast majority of public service occupational schemes.
Sensitivity Analysis				The size of the pension liability greatly depends on the choice of discount rate. As the ADL is calculated in present value terms, a suitable discount rate needs to be applied in order to calculate the current value of future payments of pension benefits. The discount rate is one of the most crucial assumptions since the accumulated impact of the rate chosen to discount back projected cash-flows over a prolonged period is very high. Sensitivity analysis highlights the importance of using a representative discount rate and the care which should be taken when interpreting the liability value. An ADL for column G and H are calculated at 3% and 5% (ie a sensitivity analysis of +/- 1%) to estimate the effect of different discount rates on the ADL.
Social Insurance Pensions				These are benefits which beneficiaries receive upon retirement, usually under predetermined legal or contractual terms and typically in the form of a guaranteed annuity.
Unwinding of the discount rate				At the end of an accounting period, the level of the pension entitlements due to past and present employees can be calculated by estimating the present value of the amounts due to be paid in retirement using actuarial calculations. One element, in the increase of this amount year by year, is the fact that the present value of the entitlements existing at the beginning of the year, and still due at the end of the year, has increased because the future is one year nearer. So a discount factor less must be used to calculate the present value. It is this unwinding of the discount that accounts for the past service increase in entitlements.

Open in Excel: Estimates of Irish Pension Liabilities 2021 Table 4.5 (XLS 13KB)

[4] 2024 Ageing Report. Underlying Assumptions and Projection Methodologies

Sustainability measure

While the ADL approach is a valuable measure to be reported in the National Accounts and offers insight into household wealth in terms of assets at a point in time, it may not be the most suitable indicator for assessing fiscal sustainability.

The ADL approach only considers current pensioners and current workers (for past service benefits earned), thus excluding future entitlements earned by the current workforce and individuals not yet in the workforce. In contrast, the open-system liability (OSL) measure of pension liabilities takes into account future entitlements of both current and future workers, as well as future contributions. This approach provides a more comprehensive assessment of a pensions system’s sustainability.

Furthermore, the ADL measure is compiled on a gross basis and does not incorporate the net present value of future contributions. To assess economic sustainability more accurately it is crucial to compare pension obligations with respective assets.

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Table 4.1 Columns of the Eurostat supplementary table on pension entitlements
Recorded in Standard National Accounts						Not in Standard National Accounts
Funded pension schemes						Unfunded (pay-as-you-go) schemes
Non-government managed (private)			Government managed
Occupational defined contribution schemes	Occupational defined benefit schemes¹	Total	Defined contribution schemes	Defined benefit schemes for general government employees			Social security pension schemes
				Funded schemes classified in financial corporations	Funded schemes classified in general government	Unfunded schemes classified in general government
A	B	C	D	E	F	G	H
¹Column B includes other non-defined contribution schemes, often described as hybrid schemes which have both a defined benefit and defined contribution.

Table 4.2 Summary of table columns applicable to the Irish pension system
	Column A	Column B	Column G	Column H
Scope	Defined Contribution occupational pension schemes	Defined Benefit occupational pension schemes Includes Commercial Semi States	Defined Benefit occupational pensions of public service workers • Civil Service • Defence • Education • Health • Justice • Local Authorities • Non-Commercial State Agencies (NCSAs)	Social Security pension schemes • State Pension (Contributory) • Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) • Invalidity Pension
Exclusions (outside the scope of the table)	Excludes personal savings plans such as PRSAs and RACs	Excludes those schemes not subject to the Minimum Funding Standard (MFS)	Excludes the state pension liability of ‘integrated’¹ public service employees (included in Column H)	Excludes pension related means tested benefits: • State Pension (Non-Contributory) • Widow’s, Widower’s or Surviving Civil Partner’s (Non-Contributory)
Included in the core national accounts	Yes	Yes	No	No
Government-managed schemes	No	No	Yes	Yes
Funded schemes	Yes	Yes	No	No
¹Post-1995 public service workers who pay full PRSI are eligible for the State Pension (Contributory). Therefore that portion of their pension entitlement comes from the Social Insurance Fund and appears as a liability of Column H.

Table 4.3 Summary of data sources used for the estimation of Columns A and B of the pensions table
Column	Data source used	Description
A – Defined contribution funded occupational schemes	Annual Scheme Information (ASI) returns to the Pensions Authority	• Individual scheme data submitted annually by the Registered Administrator to the Pensions Authority • Captures both defined contribution and defined benefit scheme information • Annual data collected from 2008 onwards • Variables collected include asset values, contributions, benefits paid, membership numbers, scheme type, transfers
B – Defined benefit funded occupational schemes	Annual Scheme Information (ASI) returns to the Pensions Authority Annual Actuarial Data Return (AADR) data from the Pensions Authority	ASI return as described for Column A above AADR: • Trustees of defined benefit schemes subject to the minimum funding standard are required to submit an AADR to the Pensions Authority. • This is an annual return from 2012 • Defined benefit scheme information only • Assets and liabilities reported • Transfer value of liabilities recorded • Actuarial assumptions set by the Pensions Authority

Table 4.4 Summary of actuarial assumptions used to estimate the liabilities of defined benefit schemes
Table Column	B: Defined Benefit funded occupational pension schemes	G: Defined Benefit occupational pensions of public service workers	H: Social Security pension schemes
Source	Pensions Authority defined benefit AADR data	DPER Actuarial Review of Public Service Occupational Pensions in Ireland as required by regulation (EU) No 549/2013	DSP Actuarial Review of Social Security Pension Schemes in Ireland as required by EU regulation 549 / 2013
Accrued-to-Date Liability	Yes	Yes (general increase in wages taken into account)	Yes
Projected Benefit Obligation (PBO)	Accumulated Benefit Obligations (ABO) approach	Yes (general increase in wages taken into account)	Yes
Nominal Discount Rate	2.5% average	4% (2% real)	4% (2%real)
Wage Growth Assumptions	Salary escalation not considered	Ageing Working Group assumptions	Ageing Working Group assumptions
Demographic Assumptions	Mortality assumptions per Prescribed Guidance v2 (issued by the Pensions Authority)	Society of Actuaries in Ireland. Retirement Benefit Schemes Transfer Values Mortality Bases Review	Eurostat mortality assumptions
Inflation	2%	2%	2%

Estimates of Irish Pension Liabilities 2021

Background Notes

Background Notes

Supplementary table to National Accounts

Pension benefits and schemes covered in the pensions table

Columns of the pensions table

Interpreting the rows in the pensions table

Summary of Model Assumptions and Data Sources

Summary of Model Assumptions and Data Sources continued

Sustainability measure

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