Monday, October 14, 2019
Korean Gov’t Considers Excluding Accrued Pension Liabilities from National Financial Statements
Fiscal Gimmicks
Korean Gov’t Considers Excluding Accrued Pension Liabilities from National Financial Statements
  • By Yoon Young-sil
  • May 24, 2018, 11:24
Share articles

The Korean government is checking whether the OECD countries include accrued pension liabilities in their national financial statements.
The Korean government is checking whether the OECD countries include accrued pension liabilities in their national financial statements.

The South Korean government is considering excluding nearly 845 trillion won (US$780.6 billion) worth of accrued public employee pension liabilities from the national financial statements. It is aninternal working-level review yet. However, controversy is expected to grow as a considerable amount of national debts will appear when accrued pension liabilities, which account for more than half of national debts, are excluded.


According to the Ministry of Strategy and Finance (MOSF) on May 23, the government is checking whether the Organization for Economic Cooperation and Development (OECD) countries include accrued pension liabilities in their national financial statements.

Out of 25 OECD countries adopting the accrual basis of accounting, which records accounting transactions for revenue when earned and expenses when incurred, 13 countries, such as Belgium and Denmark, don’t include accrued pension liabilities in their national financial statements. Out of the 13, three countries display accrued pension liabilities as annotation alone. A high-ranking government official said, “Some say that we are not providing accurate information to the people as the size of national debts greatly changes depending on interest rates. Currently, we are internally considering ways to exclude accrued pension liabilities from the national financial statements.”

An accrued pension liability is the amount of pension to pay retired public servants and soldiers at some point in the future for benefits earned under a pension plan. Since a pension is money to be paid in the future, it is not clear when and how much it would be provided. Also, it is the amount only expenditure is considered, excluding pension income. However, an accrued pension liability should be included in the financial statements in order to determine the approximate level of national debts, according to experts. Over 10 trillion won (US$9.24 billion) of government compensations have been used to provide a pension for public officials alone over the past five years.

South Korea’s national debts stood at 1,555.8 trillion won (US$1.44 trillion) at the end of last year based on the accrual basis of accounting. Its pension liabilities for public officials came to 845.8 trillion won (US$781.34 billion), accounting for 54.3 percent of the total. About 75 percent of 122.7 trillion won (US$113.35 billion) of the last year’s increases came from pension liabilities for public officials. The national debts dramatically decrease from 1,555 trillion won (US$1.44 trillion) to 710 trillion won (US$655.89 billion) when pension liabilities for public officials are excluded from the national financial statements. This is why the government considering the exclusion of accrued pension liabilities itself is so controversial. A senior official from the accounting industry said, “It is hard to know rough figures of national debts when excluding accrued public employee pension liabilities from the national financial statements. It can be seen as a kind of accounting fraud.”

The government is also reviewing the fact that a general government liability (D2) is used in some countries. The D2 combines accounting funds of central and local governments and debts of non-profit public institutions but excludes accrued pension liabilities. The figure stood at 717.5 trillion won (US$662.82 billion) at the end of 2016, which was at the similar level with 710 trillion won (US$655.89 billion) of the amount excluding public official pension liabilities from the national financial statements. The MOSF said, “It is true that we are considering it at the working-level but nothing is confirmed yet.”