Pension obligations in the European Union: A case study for EPSAS and transnational budgetary supervision

Pension obligations constitute a critical issue for public finance and budgets. This is especially true for the European Union whose institutional mechanism aims to supervise Member States’ spending through centralised budgetary rules based upon financial covenants. In this context, accounting methods of recognition and measurement of pension obligations become an integral and critical aspect of Europe’s transnational budgetary and financial supervision. Drawing upon a comprehensive overview of pension management and regulation, this article aims to analyse the ongoing debate on accounting for pension obligations with a specific attention to the harmonization of European Public Sector Accounting Standards (EPSAS). While the European Commission has been favouring the ‘indisputable reference’ to the International Public Sector Accounting Standards (IPSAS), European Member States’ practices and views remain inconsistent with the normative solution imposed by the IPSAS 25, which favours and facilitates Definite Contribution pension schemes. This normative solution is based upon a view of pension management as a funded financial placement on behalf of each single beneficiary. Accordingly, pension obligations must be accounted for through an actuarial representation and added to the liability-side of the balance sheet of their sponsors. This accounting method adopts then a stock basis of accounting consistent with an asset-liability accounting approach. The latter solution adopts an actuarial representation, while, according to our frame of analysis, a variety of viable modes of pension management exists and may be acknowledged. In this context, we do summarise the IPSAS position mimicking the Internation Financial Reporting Standards (IFRS), review the pension’s accounting in national statistics and EPSAS debate, and provide some building blocks for a comprehensive model of accounting for pension obligations that admits and enables several viable modes of pension management and protection, that is, the assurance of continued provision of pension payments at their agreed levels.