Recent debates concerning an alleged ‘hidden deficit’ in the pension system have highlighted the significant impact of the accounting conventions used to assess the resources allocated to funding the pensions of civil servants. In this chapter, we show that the current accounting convention fails to take account of the demographic imbalance in the scheme and that it results in a very high employer contribution rate, which in fact encompasses an implicit state subsidy to cover this imbalance. We propose a revised accounting framework that separates the employer’s contribution from this implicit subsidy in order to provide transparency regarding the actual resources allocated to pensions. The issue goes beyond the question of pensions alone and affects the allocation of the state budget: these accounting conventions do, in fact, influence the estimation of the wage bill for civil servants, and therefore all items of public expenditure.
Pensions of civil servants: should the accounting standard be changed?
Reference Budget Outlook 2025 – Chapter 3
Presentation
Key Results
- The ‘demographic compensation’ transfers currently in place between pension schemes fall far short of the reality of demographic imbalances. This discrepancy results in an implicit state subsidy, whereby schemes with a demographic profile significantly worse than the average subsidise those with a better demographic profile, including private-sector employee schemes.
- If we were to set aside separate funding for this subsidy, as well as for certain entitlements specific to particular professions, The break-even contribution rate for employers of civil servants would be 34.7 per cent in 2020, which is well below the stated rates of 74.28 per cent for civilian staff and 126.07 per cent for military personnel.
- The amount of the implicit state subsidy to cover the demographic imbalance is estimated at €18 billion (0.8 per cent of GDP). More broadly, the proposed reclassification of part of the current employer’s contribution as an aggregate transfer from the State – including for occupational benefits, disability and child allowances – is estimated at €25.8 billion (1.1 per cent of GDP).
- Taking the rate of 34.7 per cent into account leads to a revision of most budgetary aggregates. The impact is particularly striking on those relating to national education, given the number of staff employed for this purpose. For example, the budget allocated to school education would thus amount to €70.7 billion in 2023 instead of €81.3 billion, and domestic expenditure on primary education would be €7,726 per pupil, instead of €8,450. This expenditure is therefore overestimated by 9.37 per cent.
View the presentation of the study given at the conference on 30 June
