Methodological Notes

1. Following the requirements established in both the European System of Accounts (ESA 2010; EU Regulation 549 of 2013 of the European Parliament and of the Council of 21 May 2013) and System of National Accounts (SNA 2008), EU Member States are required to record their total pension entitlements accrued by members of employment-related pension schemes or social security pension schemes. Mandatory transmissions of the supplementary table are performed every 3 years.

2. The rows of the supplementary table (Table 29), as transmitted to Eurostat, are defined as follows:

1. The opening stock of pension entitlements (equal to the closing stock of the previous year).

2.1  Actual social contributions made by employers during the reference year.

2.2  Balancing item for defined benefit pension schemes, recording any changes in entitlements not included in any other rows of Table 29.

2.3  Actual social contributions made by employees during the reference year.

2.4 Relates to the property income earned, or imputed on the schemes. This is equivalent to the unwinding of the discount rate, equal to the nominal discount rate for the base year multiplied with the pension entitlements recorded at the beginning of the year.

3. The imputed transactions of social security pension schemes. This row is used as a balancing item for social security pension schemes. Therefore, figures may be either positive or negative, with a positive value implying that the discount rate is lower than the scheme’s annual rate of return.

4. Pension payments made during the year.

5. Changes in pension entitlements due to contributions and pension benefits.

6. Amount of entitlements transacted from one pension fund to another.

7. Changes in entitlements due to any pension reforms introduced during the year.

8. Changes in entitlements due to changes made to the key model assumptions, such as the discount rate, wage rate and inflation rate.

9. Other changes to the volume of assets that are not classified under row 8. 

10. Total pension entitlements recorded at the end of the year. 

3. In 2015, the National Statistics Office (NSO) embarked on a project in collaboration with the Research Centre for Generational Contracts (RCG) at Freiburg University to compile a suitable model able to estimate Malta’s pension entitlements for its two pension systems; (i) the Social Security Pension system and (ii) the Treasury Pension system.

Anonymised data was collected for each of the reference years and inputted into the ADLs model. Data used included current pensioners’ micro data, reflecting each individual’s pension intake categorised by type of pension payment (Old Age, Survivors or Disability), and contributions micro data, where for each individual the number of contributions paid were categorised by class (1 to 3). Credited contributions given to each eligible person along with data on person’s wage history (from 1982 onwards, when available) were also covered in the contributions database.

The model takes a forward-looking approach to estimating pension entitlements, making use of each current contributor’s historical data to project their future entitlements. No projection is required for current pensioners as they have already accrued their full pension rights.

4. The present value of future pension rights is determined by applying a real discount rate of 2 per cent to the model, or a nominal rate of 4 per cent with the inflation target being 2 per cent in line with both the European Central Bank’s (ECB) target over the medium term and the Ageing Working Group’s (AWG) long-term price inflation assumptions. This represents one of a set of standard assumptions established in the Eurostat/ECB Technical Compilation Guide for Pension Data in National Accounts and which all countries, bar different inflation targets set by Poland, Romania (both 2.5 per cent) and Hungary (3 per cent), applied in their calculations to ensure comparable results.

7. Glossary:

7.1  Accrued-to-date pension entitlements (ADLs) amount to the present value of pensions to be paid in future periods to members of a pension system based on their acquired accrued rights. Hence, it represents the current cost to settle the outstanding pension liabilities if the pension scheme was to be closed. ADLs are equivalent to the sum of social contributions paid by current contributors together with the remaining pension entitlements of existing pensioners.

7.2  In Defined Benefit (DB) pension schemes a formula is used to determine the amount of pension benefits to be paid to each individual, normally taking into consideration years of service, the person’s salary over a certain period of time, the age at retirement and the pension indexation rules.

7.3  Disability Pensions are benefits paid to persons below the legal/standard retirement age suffering from a disability which prevents them from working or earning above a certain minimum level as legislated. 

7.4  The Discount Rate represents an interest rate used to convert a future sum of money to its present value.

7.5  The Gross Domestic Product (GDP) is the total value of all goods and services produced, deducting the value of any goods and services used in their production within a certain period in a country.

7.6  The Inflation Rate is the rate at which the general level of prices for goods and services is increasing during a particular reference period.

7.7  Old Age Pensions are benefits paid to persons who have retired from gainful employment at the legal/standard retirement age, in return for years of service and/or social insurance payments.

7.8  Pension Indexation refers to the method used to update pensions on an annual basis. In Malta’s case, pensions are updated by a sum equivalent to 70 per cent growth in average national wage and 30 per cent of the inflation rate.

7.9  The Present Value represents the current worth of a future sum of money.

7.10  The Projected Benefit Obligations (PBO) approach takes into consideration future wage increases, obtained either through promotions or a general increase in wages, when estimating the ADLs of a pension system.

7.11  Survivors Pensions are paid to the close relatives (wife or children) of a deceased person who would have been eligible to receive an old age pension upon reaching retirement age.

7.12  Working age implies persons between the ages of 15 and 64.