Measuring and reporting obligations of social security retirement systems: Actuarial perspectives

The article is based on the International Actuarial Association (IAA) Social Security Committee's principles‐based paper with commentary on measurement and reporting obligations of social security retirement systems (SSRSs) and proposals for appropriate disclosure requirements, for consideration by national and international organizations when developing reporting standards in respect to SSRSs. The article argues that the method of measuring and reporting obligations should be consistent with the financing basis of the SSRS. In particular, SSRSs financed on a pay‐as‐you‐go (PAYG) or partially funded basis should use an open‐group method for measuring and reporting actuarial obligations. Only SSRSs that purport to be fully funded should use a closed‐group basis, since SSRSs are not analogous to large private‐sector pension plans. For most PAYG and partially funded SSRSs, accounting for obligations on a closed‐group basis would indicate huge actuarial unfunded liabilities, which might not be understood by the general public and could inappropriately create pressure to move towards fully‐funded systems. The methodologies used for accounting and/or statistical reporting should enable the accurate assessment of the long‐term financial sustainability of any SSRS without a bias for or against a particular financing approach. The article prefers measures of sustainability of an SSRS to measures of its funding level. A system that is fully funded currently may not be sustainable while a pure PAYG SSRS may be sustainable. In the case where there is a requirement to disclose obligations on a closed‐group basis, such disclosures should be supplemented by an open‐group analysis, with appropriate reconciliations and explanations (i.e. a multiple disclosure approach).