Compendium of Methodological Clarifications - Esspros:: 2021 Edition

Compendium of
methodological clarifications
— ESSPROS:
EUROPEAN SYSTEM OF
INTEGRATED SOCIAL PROTECTION STATISTICS 2021 edition
MSAT N
A TUIAS LCST IACNADL
GUIDELINES
Compendium of
methodological clarifications —
ESSPROS:
EUROPEAN SYSTEM OF
INTEGRATED SOCIAL PROTECTION STATISTICS 2021 edition
Manuscript completed in January 2021
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Collection: Manuals and guidelines
PDF: ISBN 978-92-76-29427-6 ISSN 2315-0815 doi: 10.2785/96986 KS-GQ-21-003-EN-N

Introduction
Introduction
Social protection systems vary considerably between countries and are continuously adapted to emerging
needs by national governments. While the European System of Integrated Social Protection Statistics
(ESSPROS) aims to collect comparable statistical data by enforcing a common methodology, inevitably
there are cases of interventions for which the methodology does not provide clear guidance on whether or
not they belong in ESSPROS and how they should be reported.
Eurostat receives numerous requests for methodological clarification from both data providers and data
users and through the ESSPROS data validation process, many of which are addressed by referring to
specific parts of the ESSPROS methodology. However, for cases where the methodology does not provide
an immediate answer, additional in-depth analysis of the manual, the legislation and current practice is
required. This often leads to the identification of potential improvements to the methodology. Such analysis
and the subsequent proposals for improving the manual are reviewed by the ESSPROS Task Force on
Methodology and then the Working Group on Social Protection Statistics before being formally introduced
into the manual.
This document provides a compendium of the analysis performed in order to give methodological
clarifications, including cases where changes to the ESSPROS methodology were proposed and adopted
by the Working Group on Social Protection Statistics. Each chapter of this document is dedicated to a
specific clarification and follows the same structure with five sections:
Summary: Basic overview of the issue, analysis performed and subsequent conclusions
Problem statement: Details of the issue under consideration
Analysis: In depth analysis of the issue and review of relevant paragraphs of the manual and legislation are
supplemented, where relevant, with a review of practices in other data collections (e.g. national accounts,
…etc.)
Conclusions: Summarises the approach agreed upon by the ESSPROS Task Force and/or Working group
and identifies any necessary changes to the ESSPROS Manual and legislation
Examples: Identifies practical example cases in countries participating in ESSPROS.
ESSPROS: Compendium of methodological clarifications 3

Content
Contents
ESSPROS: Compendium of methodological clarifications .............................................. 2
Introduction ......................................................................................................................... 3
1 Payable Tax Credits ....................................................................................................... 10
1.1. Summary .............................................................................................................. 10
1.2. Problem statement .............................................................................................. 10
1.3. Analysis ............................................................................................................... 11

General background ..............................................................................................................11
What are payable tax credits? ..............................................................................................12
Are payable tax credits within the scope of social protection? ........................................12
Are payable tax credits ‘direct’ interventions to households? .........................................13
Are payable tax credits distributive transactions? ............................................................13
Can payable tax credits be considered part of the accounts of a social protection
scheme? 13
Treatment of payable tax credits in ESSPROS ...................................................................14
Treatment prescribed in the ESSPROS manual and user guidelines ......................................14
Legal references .......................................................................................................................14
Treatment in practice ................................................................................................................15
New treatment of payable tax credits in National accounts ..............................................15
1.4. Conclusions......................................................................................................... 16
1.4.1 Main conclusions ..................................................................................................................16
1.4.2 Recommended modifications in the ESSPROS Manual ....................................................16
1.4.3 Recommended modifications to the ESSPROS regulation(s) ..........................................20
1.5. Examples ............................................................................................................. 20
2 Collective services ......................................................................................................... 22
2.1. Summary .............................................................................................................. 22
2.3. Analysis ............................................................................................................... 22

2.3.1 Collective services in ESSPROS .........................................................................................22
2.3.2 Note on COFOG (Classification of Functions of Government) ........................................24
2.4. Conclusions......................................................................................................... 25

Content
2.4.2 Recommended modifications in the ESSPROS Manual/legislation ................................25
2.5. Examples ............................................................................................................. 26

2.5.1 Citizens Information Board, Ireland ....................................................................................26
3 Definition of means-tested benefits .............................................................................. 27
3.1. Summary .............................................................................................................. 27
3.3. Analysis ............................................................................................................... 28

3.3.1 Implicit vs explicit means-testing .......................................................................................28
3.3.2 Entitlement, amount or both ................................................................................................28
3.3.3 Comparability vs representativeness .................................................................................29
3.3.4 Implementation in practice ..................................................................................................29
3.4. Conclusions......................................................................................................... 30
3.5. Examples ............................................................................................................. 31

3.5.1 Means-tested social benefits, Italy......................................................................................31
3.5.2 Means-tested social benefits, Romania ..............................................................................31
4 Withheld taxes and withheld social contributions ....................................................... 32
4.1. Summary .............................................................................................................. 32
4.3. Analysis ............................................................................................................... 33
4.4. Conclusions......................................................................................................... 35
4.5. Examples ............................................................................................................. 37

4.5.1 Pensioners Solidarity Contribution, Greece ......................................................................37
4.5.2 Contributions associated with unemployment benefits, Spain .......................................38
5 Social contributions: Ensuring consistency between the Core system and the Net
module ............................................................................................................................... 39
5.1. Summary .............................................................................................................. 39
5.3. Analysis ............................................................................................................... 39

5.3.1 Social contributions paid by pensioners and other persons (2123000) ..........................40

Content
5.3.2 Average itemised social contribution rates (AISCR) .........................................................40

5.3.3 Comparing the data ..............................................................................................................41
5.3.4 Plausibility checks ................................................................................................................43
5.4. Conclusions......................................................................................................... 44
5.5. Examples ............................................................................................................. 44

5.5.1 Latvia .....................................................................................................................................45
Social contributions paid by pensioners and other persons (2123000) in the Core system .....45
Social contributions inferred by applying the AISCRs in the Net module .................................45
Applying the plausibility check and investigation by Latvia. .....................................................46
6 Capital transfers ............................................................................................................. 47
6.1. Summary .............................................................................................................. 47
6.3. Analysis ............................................................................................................... 48

6.3.1 Capital transfers: definition and treatment in national accounts ....................................48
Definition of capital transfers ....................................................................................................48
Treatment of capital transfers ...................................................................................................48
6.3.2 Capital transfers in ESSPROS: Methodology ....................................................................49
Capital transfers and receipts ...................................................................................................49
Capital transfers and expenditure.............................................................................................52
Recording capital transfers .......................................................................................................54
6.3.3 ESSPROS and capital transfers: In practice ......................................................................54
6.4. Conclusions......................................................................................................... 56
6.4.2 Recommended modifications in the ESSPROS Manual ...................................................56
Part 1 ........................................................................................................................................56
Part 2 ........................................................................................................................................59
6.5. Examples ............................................................................................................. 60
7 Benefits and recipients above/below the standard retirement age ............................ 62
7.1. Summary .............................................................................................................. 62
7.3. Analysis ............................................................................................................... 63

7.3.1 Purpose of establishing the retirement age for ESSPROS ...............................................63
7.3.2 Guidance in the ESSPROS Manual and user guidelines ..................................................63

Content
7.3.3 Possible improvements to the guidance ............................................................................65
7.4. Conclusions......................................................................................................... 67
Part 2 ........................................................................................................................................67
APPENDIX I: The ESSPROS questionnaire detailed classification .........................................69
APPENDIX III: Methodology of the module on pension beneficiaries ......................................69
Commission Regulation (EC) No 10/2008................................................................................69
8 Re-routed social contributions ..................................................................................... 70
8.1. Summary .............................................................................................................. 70
8.3. Analysis ............................................................................................................... 71

8.3.1 Re-routed social contributions ............................................................................................71
8.3.2 Treatment of type ii re-routed social contributions ...........................................................72
8.3.3 Breakdown of expenditure on re-routed social contributions by function .....................72
8.4. Conclusions......................................................................................................... 73
Treatment of type ii of re-routed social contributions................................................................74
Treatment of re-routed social contributions on the expenditure side........................................74
9 Social contributions reporting basis ............................................................................ 75
9.1. Summary .............................................................................................................. 75
9.2. Problem Statement .............................................................................................. 75
9.3. Analysis ............................................................................................................... 75

9.3.1. Social contributions in national accounts ..........................................................................76
9.3.2. Social contributions in ESSPROS and comparability with national accounts ................79
9.4. Conclusions......................................................................................................... 82
9.4.1. Main conclusions ...................................................................................................................82
9.4.2. Recommended modifications in the ESSPROS Manual/ legislation ................................82
10 Distinction between disability pension and early retirement in case of reduced

ability to work .................................................................................................................... 84
10.1. Summary .............................................................................................................. 84

Content
10.3. Analysis ............................................................................................................... 85
10.4. Conclusions......................................................................................................... 85
10.4.1. Recommended modifications in the ESSPROS Manual/ legislation ................................85
11 Treatment of multifunction benefits ........................................................................... 87
11.1. Summary .............................................................................................................. 87
11.3. Analysis ............................................................................................................... 88

11.3.1. Overview of current guidelines ............................................................................................88
11.3.1.1 Definition of ESSPROS functions .........................................................................88
11.3.1.2 Classification of benefits .......................................................................................89
11.3.2. Key issues ..............................................................................................................................91
11.3.2.1 Main guidance on the procedure to be applied .....................................................92
11.3.2.2 Supplements .........................................................................................................93
11.3.2.3 Consistency with other aspects of the ESSPROS methodology ..........................93
11.3.3. A way forward ........................................................................................................................94
11.3.3.1 Definitions of multifunction benefits ......................................................................94
11.3.3.2 Treatment of multifunction benefits .......................................................................95
11.3.3.3 Supplements .........................................................................................................97
11.3.3.4 Consistency with other aspects of the ESSPROS methodology ..........................97
11.3.3.5 Additional useful clarification.................................................................................99
11.3.3.6 Overall approach and decision-tree for multifunction benefits ............................100
11.4. Conclusions....................................................................................................... 102

11.4.1. Main conclusions .................................................................................................................102
11.4.2. Recommended modifications in the ESSPROS manual ..................................................102
11.4.2.1 Part 1 ..................................................................................................................102
11.4.2.2 Part 2 ..................................................................................................................105
11.4.3. Recommended modifications to the ESSPROS regulation(s) .........................................105
11.5. Examples ........................................................................................................... 106

11.5.1. Benefits in cash: Up-to employment benefit in Croatia ...................................................106
11.5.2. Benefits in kind: Child day care in Sweden ......................................................................107
11.5.3. Supplements: Survivors’ supplements to old-age pensions in Switzerland .................108
11.5.4. Guaranteed minimum benefit and supplement for children in Croatia ..........................109
11.5.5. House assistance in Croatia ...............................................................................................111
11.5.6. Survivors’ supplements to disability pensions in Switzerland .......................................112
11.5.7. Pensions for children in Switzerland .................................................................................113

Content
11.5.8. Paid leave in Switzerland ....................................................................................................115

11.5.9. Compensation for accommodation in a foster family in Croatia ....................................116
11.5.10. Unemployment benefits and supplement for children in Switzerland ..........................117
11.5.11. Guaranteed Minimum Income (GMI) benefit and housing supplements in Cyprus .....119
11.5.12. Targeted allowance for rent payment in Bulgaria ...........................................................120
11.5.13. Rent assistance for persons with disabilities in Bulgaria ..............................................121
11.5.14. Preferential rates of reimbursement for healthcare expenditure in Belgium ...............122
11.5.15. Family allowance in Hungary ............................................................................................123
11.5.16. Public transport price reductions in Hungary .................................................................125

Payable Tax Credits 1
1 Payable Tax Credits
1.1. Summary
The use of tax systems to deliver social benefits is increasing. In particular, through the use of ‘payable tax
credits’ which are a form of tax relief wherein the value of the relief granted is payable to
individuals/households irrespective of the amount of tax due. Payable tax credits (PTCs) can be granted,
and paid in cash, to people with no tax liability and thereby represent an alternative means of delivering
social protection benefits.
The 2012 edition of the ESSPROS Manual and user guidelines(1) did not offer any explicit guidance on the
treatment of payable tax credits (PTCs) in the ESSPROS Core system. As a result, there has been
differential treatment of benefits delivered as PTCs amongst the countries that have introduced them.
Some countries have included the relevant amounts — either wholly or partially — in the ESSPROS Core
system, while others have not.
Following in-depth investigation into the issue, the Working Group on Social Protection Statistics agreed
that ESSPROS should follow the approach of national accounts (ESA 2010) — which treats the total value
of PTCs as expenditure — and that the ESSPROS Manual should be adapted to specify the following
treatment:
 The full value of PTCs delivering social benefits should be reported in the Core System under one or
more separate schemes
 Information on relevant PTCs should be reported in the Qualitative Information
 The impact of PTCs included in the Core system should be excluded from the calculation of the
AITRs/AISCRs in the net module
Recommendations for the necessary changes to the 2012 edition of the ESSPROS Manual were made
accordingly. No changes are needed to the any of the ESSPROS regulations.
1.2. Problem statement

Extensive research on the treatment of payable tax credits (PTCs) in the ESSPROS system was carried
out between 2011 and 2014. A compendium of the results(2) and an in-depth review of the relevant
methodological rules and guidelines(3) were then presented to the Working Group in March 2015.
The ESSPROS Manual and user guidelines – 2012 edition did not explicitly include or exclude payable tax
(1) See http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-RA-12-014

(2) See DOC SP-2015-09
(3) See DOC SP-2015-10

credits from the ESSPROS Core system and, as a result, countries that provide social benefits through
PTCs have adopted different approaches to their reporting.
Until 2015, national accounts data were compiled on the basis of SNA 1993 and the European equivalent
ESA 1995, which did not provide any guidelines on the treatment of tax credits. However, the new version
ESA 2010(4), which was adopted following SNA 2008, advises that payable tax credits should be considered
akin to cash transfers and that the total value of such credits should be treated as government expenditure.
There is strong interest to reinforce the position of ESSPROS as a satellite account of national accounts
and to clarify the links between the methodologies of the two statistical systems. The provision of explicit
guidance on payable tax credits in the ESSPROS Manual, in line with that in national accounts, will help to
strengthen the coherence between the two systems.
1.3. Analysis
General background
Since 1996, the European System of Social PROtection statistics (ESSPROS) has been defined to include
two components: The Core system and the modules.
The Core system covers data on social protection expenditure and receipts using concepts, definitions and
accounting rules that are largely harmonised with those of national accounts. The concept of modules was
introduced to provide the flexibility to collect data beyond the scope of the core system and to extend
ESSPROS (‘Full ESSPROS’) without adjusting the boundaries of the core system and impacting its links
with national accounts.
The Core system and the modules share the definition of social protection as defined in the ESSPROS
Manual5 (Part I, § 16) and in Regulation 458/2007 (article 2(b)). The ESSPROS Manual (Part I, §34)
applies three main restrictions to the Core system compared to the full ESSPROS system:
‘Firstly, as stated in paragraph 18, the Core system deals only with social protection given in the form of
cash payments, reimbursements and directly provided goods and services to households and individuals.
Secondly, the statistical description is confined to receipts and expenditures of social protection schemes.
Finally, the Core takes only distributive transactions into account.’
This implies that interventions that are consistent with the definition of social protection (and thus part of the
‘full ESSPROS’ system) but which do not comply with these three conditions cannot be part of the Core
system but may be included in additional ESSPROS modules.
The first condition is probably the most difficult to check when analysing possible borderline cases.
However, two relevant guidelines were provided in the ESSPROS Manual 1996:
(4) See http://ec.europa.eu/eurostat/web/esa-2010
(5) For the sake of simplicity, in this document reference is always made to ‘ESSPROS Manual and user Guidelines – 2012 edition’

 In §6 ‘the extent to which social benefits are provided in the form of tax rebates or tax reductions’ was
identified as among a list of examples of themes for possible modules. This implies that
interventions in the form of ‘fiscal benefits’ (as opposed to ‘cash payments, reimbursements and
goods and services directly provided to protected people’) should be excluded from the Core
system.
 At the end of §13 it stated that ‘preferential tax rates or tax rebates which are primarily directed at the
production side of the economy but which indirectly protect households, such as wage subsidies
paid to employers to encourage the recruitment of long-term unemployed and similar types of
intervention, may give rise in future to supplementary ESSPROS modules.’ This indicates that
indirect interventions such as subsidies or fiscal reductions to employers which indirectly protect
households should be excluded from the Core system.
What are payable tax credits?

Tax credits are a form of tax relief — i.e. a mechanism to reduce the amount of tax ultimately paid by a tax
unit. Whilst other forms of tax relief such as allowances, exemptions or deductions are applied to the tax
base in order to reduce the amount of income that is subject to taxation and reduced tax rates impact the
calculation of the tax liability from the tax base, tax credits are amounts subtracted from the tax liability (i.e.
the amount of tax due). There are two forms of tax credit:
 Non-payable tax credits, also known as wastable or less often as non-refundable tax credits, are
limited in value to the value of the tax liability. As such, non-payable tax credits can only ever be
granted to taxpayers with a non-zero tax liability.
 Payable tax credits, also known as non-wastable or refundable tax credits, are not limited and can
exceed the value of any tax liability, including a liability of zero, and may therefore be granted to
non-taxpayers. The amount of any payable tax credit that exceeds the tax liability is paid directly to
the beneficiary in cash. In some cases, such credits may even be paid fully in cash (in these cases
the original tax liability, if any, will have to be paid in full by the tax-payer).
Non-payable tax credits are a means of reducing the amount of taxes paid and may, therefore, be
considered equivalent to a negative tax (reduction in government revenue) rather than a positive cash
transfer (government expenditure). As a consequence, non-payable tax credits (together with tax
allowances, exemptions, deductions and reduced tax rates) have characteristics that qualify them as ‘fiscal
benefits’. In contrast, payable tax credits have two components — a cash component and a fiscal
component. The cash component clearly has the characteristics of a cash transfer (government
expenditure), while the fiscal component has the characteristics of a fiscal benefit.
Sections 1.3.3 to 1.3.6 of this document consider whether payable tax credits adhere to the criteria for an
‘intervention’ that can be included in the Core system (see section 1.1) then sections 1.3.7 and 1.3.8
consider whether payable tax credits should be considered a cash payment (and therefore be included in
the Core system) or a fiscal benefit (and therefore be excluded from the Core system).
Are payable tax credits within the scope of social

protection?
A payable tax credit may or may not serve to provide social protection. However, this is also the case for
other forms of interventions from public or private bodies.
Any form of intervention (cash payments, reimbursements, goods and services directly provided, payable
tax credits, non-payable tax credits, other forms of tax break) has to conform to the general definition of
social protection to be included in the ESSPROS system (see section 1.3.1 above).

This approach is further clarified in Regulation 458/2007:

 Article 2 (d) ‘Social protection benefits’: transfers, in cash or in kind, by social protection schemes to
households and individuals to relieve them of the burden of one or more of the defined risks or
needs
 Article 2 (e) ‘Fiscal benefits’: social protection provided in the form of tax breaks that would be defined
as social protection benefits if they were provided in cash, (…).
Are payable tax credits ‘direct’ interventions to

households?
Payable tax credits may be granted to households or to units belonging to other sectors of the economy
(e.g. corporations). Payable tax credits granted to non-household institutional units are not included in the
Core system even if their intention is to ‘indirectly’ protect households.
Are payable tax credits distributive transactions?

ESA 2010 provides the definitions for the categories of transactions used in national accounts. Those for
distributive transactions are defined in chapter 4.
If payable tax credits granted to households for the purpose of social protection are considered a cash
transfer (and thus ‘cash social protection benefits’) in ESSPROS then they should be classified in national
accounts as ‘social benefits other than transfers in kind’ (D.62).
If payable tax credits granted to households for the purpose of social protection are considered ‘fiscal
benefits’ in ESSPROS then they would be classified in national accounts as (a negative component of)
‘current taxes on income, wealth, etc.’ (D.5).
Both D.62 and D.5 are distributive transactions thus a payable tax credit can be considered a distributive
transaction.
Can payable tax credits be considered part of the

accounts of a social protection scheme?
Article 2(c) of Regulation 458/2007 defines a social protection scheme as: ‘a distinct body of rules,
supported by one or more institutional units, governing the provision of social protection benefits and their
financing.’ This is further clarified in the ESSPROS Manual, Part I, section 4.1.
In the case of payable tax credits the ‘distinct body of rules’ that defines the scheme would be the rules in
tax legislation that define the payable tax credits. The institutional unit managing this scheme would
probably be the Ministry of Finance or other Tax Authority, in most cases.
The definition of a scheme is further clarified in the ESSPROS Manual, Part I, section 4.1, and more
specifically in §42: ‘(…) it must be possible to draw up a separate account of receipts (…)’.
General government contributions would probably be the main type (or only type of) receipts of this
scheme.

Treatment of payable tax credits in ESSPROS

TREATMENT PRESCRIBED IN THE ESSPROS MANUAL AND USER GUIDELINES
The ESSPROS Manual and user Guidelines – 2012 edition(6) did not explicitly include or exclude payable
tax credits from the Core system. Indeed, the issue of whether or not to report social protection benefits
provided in this way is not directly addressed.
§93 of Part I of the manual informs that ‘fiscal benefits’ are excluded: ‘Finally, government may provide
social protection through other channels (such as by granting fiscal benefits and paying subsidies to market
producers), but these are not recorded in the Core system of the ESSPROS.’ However, there is no
definition of fiscal benefits or clarification as to whether a payable tax credit (at least when issued in cash)
should be considered as a fiscal benefit or as a cash benefit.
In fact, a definition of fiscal benefits is only provided in Appendix IV on the net module: ‘Fiscal benefits are
social protection provided in the form of tax breaks that would be defined as social protection benefits if
they were provided in cash, excluding tax breaks promoting the provision of social protection or
promoting private insurance plans’. This is the same definition used in the Regulation 458/2007 (article
2(e)) and it effectively defines fiscal benefits to be non-cash benefits (i.e. exemptions or reductions to
amounts due) and therefore implies that payable tax credits issued in cash are not fiscal benefits.
Indeed, this is reiterated and further clarified in §63 of Appendix IV on the Net module which implies that
payable tax credits paid in cash should be included in the Core: ‘In the case that a social benefit has a cash
part and a fiscal part then it should be treated as two separate benefits with the cash part included in the
gross benefits and the fiscal part treated as any other fiscal benefit.’
Then Appendix VII detailing the possible types of disbursement begins with ‘1. The Government pays a
sum of money to households to relieve them from the burden of a social risk or need:’ which should be
treated as cash benefits (or in kind if reimbursement of costs). In the case of payable tax credits that are
always paid in cash and are not directly linked to tax liabilities (as is the case, for example, in the UK,
where the amounts due are calculated in advance based on anticipated income during the year) then it is
reasonable that people should interpret them to fall under this category of cash benefits — and therefore be
reported in the Core system — rather than consider them as ‘6. The Government allows reductions or
rebates on taxes or contributions to social security funds:’ which the manual states should not be included
in the Core.
Ultimately, there was nothing in the manual that precluded payable tax credits issued in cash from being
treated as ‘cash payments to protected people’ as per §18 of Part I, which gives further explanation to the
general definition of social protection. On balance, therefore, it would seem that the methodology supported
the inclusion of payable tax credits disbursed in cash and the exclusion of payable tax credits provided
through reduced taxation from the Core system.
LEGAL REFERENCES
The ESSPROS regulation 458/2007 does not explicitly include or exclude payable tax credits from the Core
system. In terms of articles relevant to payable tax credits it includes the following articles:
 Article 2 (d) ‘Social protection benefits’: transfers, in cash or in kind, by social protection schemes to
households and individuals to relieve them of the burden of one or more of the defined risks or
needs
 Article 2 (e) ‘Fiscal benefits’: social protection provided in the form of tax breaks that would be defined
as social protection benefits if they were provided in cash, excluding tax breaks promoting the

provision of social protection or promoting private insurance plans.

As in the case of the ESSPROS Manual and user guidelines, payable tax credits may be intended to
relieve households and individuals of the burden of a defined set of risks or needs that may give rise to
social protection and any part of such credits paid in cash may then be considered a social protection
benefit as defined in article 2(d). However, any fiscal part may be considered a fiscal benefit as defined in
article 2(e).
However, article 3 of the Regulation gives guidance on the scope of the Core system (article 3(1)) and the
modules (article 3(2))(7) which provide some indication of where payable tax credits may be reported.
It indicates that the Core system should include the financial flows (expenditure and receipts) of social
protection schemes, while the net benefit module should include other financial flows that are not included
in the Core system. Thus, if a financial flow qualifies as expenditure of a social protection scheme, then it
should be included in the Core system (and not in the Net benefit module). As a consequence, if payable
tax credits provided through reduced taxation are considered as expenditure of a social protection scheme,
then they would be included in the Core system.
This suggests that the interpretation given by 2012 Manual in §63 of Appendix IV (‘payable tax credits
provided through reduced taxation are excluded from the Core system’) was not the only interpretation
permitted by the Regulation 458/2007.
TREATMENT IN PRACTICE
Consultation of the Working Group between 2011 and 2014(8) revealed that payable tax credits that can be
considered as social benefits exist in many countries. However, the way they are reported in the
ESSPROS Core system varies. While some include the full value of payable tax credits (both the cash part
and the fiscal part), some include only the cash part of the payable tax credits (excluding the fiscal part)
and some exclude payable tax credits altogether.
This lack of consistency is a result of a lack of clear guidance in the section of the ESSPROS Manual 2012
dedicated to the Core system. Indeed guidance on whether or not to include payable tax credits in the Core
system is only given in the last section (‘3.4.3 further clarifications’) of Appendix IV, which is dedicated to
the net benefits (restricted approach) module. According to the philosophy of article 3 of Regulation
458/2007 the opposite approach would be expected: that Parts I and II of the Manual should make clear
what is included (or not) in the Core system while Appendix IV should deal only with the treatment of the
residual (non-Core system) transactions.
The lack of clear guidance in the manual 2012 resulted in inconsistencies in reporting which impacted on
the comparability and quality of the ESSPROS data.
New treatment of payable tax credits in National

accounts
ESSPROS was originally conceived as a possible satellite account of national accounts and accordingly
there are numerous links between the methodologies of the two statistical systems, but also some
differences. There is, however, increasing interest to reinforce the links between the two systems.
(7) Article 3(1): ‘the statistics related to the ESSPROS core system shall cover the financial flows on social protection expenditure and receipts.
These data shall be transmitted at social protection scheme level. (…)’. Article 3(2): ‘In addition to the ESSPROS core system, modules
covering supplementary statistical information on pension beneficiaries and net social protection benefits shall be added’.
(8) See DOC SP-2015-09

Until recently, national accounts data was compiled on the basis of SNA 1993 and the European equivalent
ESA 1995. Neither of these documents provided any guidelines on the treatment of tax credits. However,
the issue has been addressed in SNA 2008 and the European equivalent ESA 2010(9).
The latest revisions of the ESA consider payable tax credits as akin to cash transfers and therefore treat
the total value of such credits as government expenditure. This treatment requires that tax revenues are
recorded as the total tax liability before the application of payable tax credits (see §20.167-20.168 of ESA
2010). Adopting the same approach in ESSPROS would require payable tax credits for social protection
purposes to be included, in full, in the ESSPROS Core expenditure data, rather than just the part paid in
cash.
This further implies that the effect of PTCs in reducing the amount of tax paid will have to be excluded from
the calculation of the AITRs/AISCRs in the net restricted approach module to prevent double-counting of
the benefit. With the full value of PTCs included in the Core system the net module should record the rates
of tax applied to cash benefits before the application of PTCs in order to avoid counting again the value of
any reduced taxation of benefits. The scope of any proposed net enlarged approach would also have to be
adjusted accordingly.
This approach would be consistent with Regulation 458/2007.
1.4. Conclusions
1.4.1 Main conclusions
The ESSPROS Manual and user Guidelines – 2012 edition(10) did not explicitly advise on the treatment of
social benefits delivered in the form of payable tax credits (PTCs). Consequently, countries have adopted
different approaches to their reporting. The 2016 Working Group on Social Protection Statistics agreed that
ESSPROS should align with the approach of national accounts (ESA 2010) in considering the total value of
PTCs as expenditure and that the ESSPROS Manual should therefore be adjusted to adopt the following
treatment:
 The full value of PTCs delivering social benefits should be reported in the Core System under one or
more separate schemes
 Information on relevant PTCs should be reported in the Qualitative Information
 The impact of PTCs included in the Core system should be excluded from the calculation of the
AITRs/AISCRs in the net module
Recommendations for modifications to the manual are documented accordingly below. There appears to
be no need to adjust any of the ESSPROS regulations.
1.4.2 Recommended modifications in the ESSPROS

Manual
Amendments to the ESSPROS Manual were recommended as listed below (changes are shown in red).
(9) See http://ec.europa.eu/eurostat/web/esa-2010

(10) http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-RA-12-014

Note that guidelines on classification of PTCs were not necessary. PTCs should be treated as any other
benefits so the existing classifications in the manual should be applied.
Part I:
1. Amendment to §93:
§93 The sub-sector Central government (ref. 121) covers all general government institutional units of
type (i) above whose authority extends over a whole national territory and all units of type (ii) they
control and finance.
The sub-sector State and local government (ref. 122) covers all general government institutional
units of type (i) mentioned above whose authority is restricted to a part of the national territory and
all units of type (ii) they control and finance. State (regional) governments occur in countries with
federal constitutions such as Belgium, Germany, and Austria.
The sub-sector Social security funds (ref. 123) combines all general government units of type (iii)
irrespective of the geographical area in which they are active (11).
Within the framework of social policy, general government usually runs a variety of contributory
and non-contributory schemes. It may also grant current and capital transfers to other institutional
units, in particular non-profit institutions, to finance and support the social protection schemes they
administer. Government secures benefits for public servants and its other employees by paying
actual employers' social contributions.
Normally, it will also provide certain social benefits directly to its employees.
Finally, government may provide social protection through other channels (such as by granting
fiscal benefits and paying subsidies to market producers), but with the exception of payable tax
credits (see §112A) these are not recorded in the Core system of the ESSPROS.
2. Add two new paragraphs after §112:

§112bis Cash benefits include payable tax credits, which may also be known as non-wastable or
refundable tax credits. Payable tax credits are benefits delivered through the fiscal system that are
paid irrespective of any tax liability and may therefore be granted to non-taxpayers. The part of any
payable tax credit in excess of any tax liability is always paid directly to the beneficiary in cash.
The part that offsets any tax liability may also be paid directly in cash or received as a fiscal benefit
— i.e. reduced liability to pay tax.
§112ter Irrespective of the delivery method, the full value of a payable tax credit (cash and fiscal parts) is
treated as a cash benefit in ESSPROS. The only exception is in the case that the tax credit is
provided to reimburse the recipient in whole or in part for certified expenditure, when the full value
of the credit is treated together with other forms of reimbursement as a benefit in kind (see §
115A). The treatment of payable tax credits in ESSPROS is consistent with the approach applied
in national accounts where payable tax credits are treated as government expenditure (and not as
reduced tax revenues).
(11) The ESSPROS does not define the concept of ‘social security scheme’. Social security funds are institutional units that may run schemes with
widely diverging characteristics.

Part II:
3. Replace existing §79C with the following:

§79C Housing benefits may be provided through the fiscal system using tax breaks. These measures
are not included in the ESSPROS Core system unless they take the form of payable tax credits.
As housing is considered a reimbursement for a certified expenditure (see §76) any payable tax
credits that meet the risk/need of housing are to be classified as benefits in kind (see §112B).
Appendix IV:
§9 The second element — fiscal benefits — potentially enlarges the scope of the net benefits module
compared to the Core system because it includes the value of social benefits implemented solely
through the fiscal system, which are not included in the Core system (with the exception of payable
tax credits). Fiscal benefits reduce the amount of taxes and/or social contributions paid on all
forms of income (e.g. from employment) and therefore increase the disposable income of
beneficiaries in addition to the social benefits recorded in the Core system. Moreover, fiscal
benefits may accrue to persons who receive no social benefits paid in cash or in kind who are
therefore not members of the population of benefit recipients covered by the Core system. Adding
the value of fiscal benefits to the value of net benefits according to the restricted approach is
known as the ‘enlarged’ approach to measuring net benefits(12). The two approaches can be
summarised as follows (13)
5. Add a new paragraph after §19:

§19bis Taxes and social contributions in the net benefits module should not take into account the
reduction in taxation provided by payable tax credits reported in the ESSPROS Core System, to do
so would introduce double counting.
§22 The value of taxes and social contributions to be taken into account should always be the final
liability, takingtake into account any post year-end adjustments and, where relevant, the impact of
any fiscal benefits (excluding payable tax credits reported in the ESSPROS Core System) as they
apply to liabilities derived from social benefits. In the case that this is not possible, residual fiscal
benefits may be reported as complementary amounts (see below).
7. Replace existing §27 with the following:
§27 A tax break is an advantage granted to fiscal units in the form of a total or partial reduction in the
compulsory levies applied by general government. Tax breaks can take the form of a tax
allowance, exemption, or deduction — which is subtracted from the tax base; of a reduced tax rate
(12) Note that part of the value of fiscal benefits is in fact included in the restricted approach since any relief on the levies paid on income from
social benefits will be accounted for in the actual value of taxes and social contributions deducted from the gross benefits. See the section on
residual fiscal benefits.
(13) Both definitions are given for matter of clarification. According to the decision taken by Member States, the approach to be used for compiling
net social protection benefits is the restricted approach. The enlarged approach is at an experimental stage only.

— which cuts the tax liability derived from the tax base; or of a tax credit — which is subtracted
directly from the tax liability otherwise due by the beneficiary household or corporation.
There are two forms of tax credit:

o Non-payable tax credits, also known as wastable or less often as non-refundable tax
credits, are limited in value to the value of the tax liability. As such, non-payable tax
credits can only ever be granted to taxpayers with a non-zero tax liability.
o Payable tax credits, also known as non-wastable or refundable tax credits, are not limited
and can exceed the value of any tax liability, including a liability of zero, and may therefore
be granted to non-taxpayers. The amount of any payable tax credit that exceeds the tax
liability is paid directly to the beneficiary in cash. In some cases, such credits may even be
paid fully in cash.
Fiscal benefits in the form of payable tax credits are, as per §112A and 112B in Part 1, included in full
in the ESSPROS Core System while all other forms of fiscal benefit are excluded from the Core
System and dealt with in the Net modules (the existing restricted approach module and the planned
enlarged approach module).
8. Add a new paragraph after §30:
§30bis Fiscal benefits in the form of payable tax credits are always outside the scope of the restricted
approach as these are included in the ESSPROS Core System. This means that their impact
should not be taken into account in the taxes and social contributions paid on cash benefits by
recipients or in residual fiscal benefits.
§56 While fiscal benefits in the form of payable tax credits are reported in full in the ESSPROS Core
System, theThe major part of fiscal benefits belongs only to the enlarged approach to measuring
net social protection benefits (§paragraph 9). In the restricted approach, the part of the total value
of fiscal benefits that pertains to reduced liabilities on social benefits should normally be taken into
account in the levies calculated from AITRs and AISCRs. However, when this is not the case, any
further amounts accruing to recipients as a result of reduced liabilities on benefits can be reported
as residual fiscal benefits. Amounts reported are then added to the net value after deduction of
levies to give a final value of net benefits.

§58 The calculation of residual fiscal benefits shall always be limited to the portion of fiscal benefits
(excluding payable tax credits) that is lowering the liability to taxes or to social contributions paid
on social protection benefits.
11. Remove §63 and set existing §64 to §63

12. Add a new paragraph §64:

§64 Fiscal benefits in the form of payable tax credits are always outside the scope of the restricted
approach as these are included in the ESSPROS Core System. However, it may not always be
possible to exclude their impact from the calculation of the AITR/AISCR. Where this is the case
negative amounts may be reported as residual fiscal benefits in order to correct for this and avoid
double counting of payable tax credits between the restricted approach and the ESSPROS Core
System.
Appendix VII:
13. Replace the final paragraph (item 6) with the following:

Fiscal benefits (i.e. tax breaks granted to households for social protection purposes) in the form of
payable tax credits are recorded as social benefits in the Core system.
Other reductions or relief from taxes or social contributions payable on income from social benefits,
whether granted for social protection purposes or not, are taken into account in the ESSPROS module
on net social protection benefits (restricted approach).
The impact of fiscal benefits on non-benefit income is not currently recorded in ESSPROS. Nor is
relief from indirect taxation granted for social protection purposes. In the future, both might be included
in an additional module on net social protection benefits (enlarged approach).
1.4.3 Recommended modifications to the ESSPROS

regulation(s)
The ESSPROS regulation does not explicitly deal with the inclusion or exclusion or the treatment of
payable tax credits in the Core system. Such methodological details are left to the ESSPROS Manual. The
legislation is intended to provide the very basics of the methodology and should not be used in isolation
from the manual. The current legislation is generalised but not inconsistent with the approach to be
adopted for payable tax credits. Any further specifications regarding payable tax credits constitute
additional clarification / guidance on a very specific form of social protection. It would therefore be
inappropriate to include an explicit statement about their treatment in the regulations. For this reason, there
appears to be no real need to revise the legislation.
1.5. Examples
Some examples of payable tax credits reported to ESSPROS include:
Belgium
Three payable tax credits granted for a social purpose are reported to exist in Belgium:

 A refundable tax credit on low income from professional activities (Crédit d'impôt pour faible revenus
professionnels) was introduced in 2001 ;
 A refundable tax credit for dependent children (Crédit d'impôt pour enfants à charge) was introduced in
2002 ;
 A refundable tax credit for low income workers (Crédit d'impôt pour travailleurs à bas salaire) was
introduced in 2011.
Germany
Three payable tax credits granted for a social purpose are reported to exist in Germany.
 A tax credit related to the family compensation system (1. child benefits) was introduced in 1996;
 A tax credit related to the family compensation system (2. child tax credits) was introduced in 1996 and
further developed in 2002.
 A tax credit related to the family compensation system (3. child bonus) was in force only in 2009.
France
Three payable tax credits granted for a social purpose are reported to currently exist in France:
 The tax credit for low income workers (Prime pour l'emploi en faveur des contribuables modestes
déclarant des revenus d'activité) was introduced in 2001 and remained in force until 2015;
 The « Crédit d'impôt pour frais de garde des enfants âgés de moins de 6 ans » was introduced as a tax
reduction in 1988 and transformed into a tax credit in 2006 ;
A tax credit related to invalidity and old-age (Crédit d'impôt pour dépenses d'équipements de l'habitation
principale en faveur de l'aide aux personnes) was introduced in 2005
Austria
Three payable tax credits granted for a social purpose are reported to exist in Austria:
 A tax credits for children (‘Kinderabsetzbeträge’) was introduced in 1994;
 the Sole earner's tax credit and the Single parent's tax credit (‘Alleinverdiener- und
Alleinerzieherabsetzbetrag’) turned from non-payable tax credits to payable tax credits 1994;
 the Employee's tax credit (‘Arbeitnehmerabsetzbetrag’) became a payable tax credit 1994.
A complete list of payable tax credits included in ESSPROS gross social benefits is published on Eurostat
web site:
http://ec.europa.eu/eurostat/cache/metadata/Annexes/spr_esms_an1.pdf

Collective services 2
2 Collective services
2.1. Summary
Collective services are outside the scope of ESSPROS. However, the guidelines in the ESSPROS Manual
and user guidelines – 2012 edition(14) dealing with this issue (§100 of part 1) were not clearly presented.
The ESSPROS Task Force of November 2015 agreed that changes to Part 1 of the ESSPROS Manual
would be welcome to clarify the treatment of collective services in ESSPROS and ensure consistent
interpretation and application of the relevant guidelines.

The main body of the ESSPROS 2012 manual and user guidelines did not define the terms ‘collective
services’ and ‘individual goods and services’ or explicitly differentiate their treatment. The specific reference
to collective services appears in appendix VII of the manual on ‘The classification of various government
disbursements’ which states ‘Collective services, not recorded in the ESSPROS’.
Indeed, two data providers raised queries about the treatment of collective services during 2014-2015
thereby demonstrating that the existing guidelines on this issue were not clearly presented and could have
been improved.
2.3. Analysis
2.3.1 Collective services in ESSPROS
Although not defined in the ESSPROS 2012 manual and user guidelines, the term ‘collective services’ and
its counterpart ‘individual goods and services’ are defined in national accounts (ESA 2010) as follows:
3.101 Definition: goods and services for individual consumption (‘individual goods and services’) are
goods and services acquired by a household and used to satisfy the needs and wants of members
of that household. Individual goods and services have the following characteristics:
(a) it is possible to observe and record the acquisition of the goods and services by an individual
household or member thereof and also the time at which the acquisition took place;
(14) Available from http://ec.europa.eu/eurostat/web/social-protection/methodology

(b) the household has agreed to the provision of the goods and services and takes the action nec-
essary to consume the goods and services, for example by attending a school or clinic;
(c) the goods and services are such that their acquisition by one household or person, or by a
group of persons, precludes its acquisition by other households or persons.
3.102 Definition: collective services are services for collective consumption that are provided
simultaneously to all members of the community or all members of a particular section of the
community, such as all households living in a particular region. Collective services have the
following characteristics:
(a) they can be delivered simultaneously to every member of the community or to particular
sections of the community, such as those in a particular region or locality;
(b) the use of such services is usually passive and does not require the agreement or active
participation of all the individuals concerned;
(c) the provision of a collective service to one individual does not reduce the amount available to
other in the same
The general treatment of collective services was also not explicitly laid out in the main body of the
ESSPROS Manual although some examples described the treatment of specific cases. Indeed, §18 in part
I, which sets out the forms of benefits that are within the scope of ESSPROS, made no reference to either
collective or individual services. However, §100 of part I defines social benefits in a way that implies that
collective services must be excluded:
§100 In the Core system, social benefits refer exclusively to cash payments, reimbursements and
directly provided goods and services. These are all direct benefits in the sense that they are
advantages that imply an equivalent rise in the (adjusted) disposable income of the beneficiaries.
Transfers in cash and transfers in kind of individual goods and services both imply an equivalent rise in the
disposable income of beneficiaries. Collective services are not received by specific individuals and are
recorded as collective consumption expenditure in national accounts. Therefore they do not imply any rise
in the income of beneficiaries. Collective services therefore fail to meet the requirements laid out in §100 of
part I and are outside the scope of ESSPROS.
Some examples in the manual explicitly exclude certain collective services:
 §124 of part I gives an example of the costs to be taken into account in the valuation of benefits in kind.
This states that ‘the salaries of doctors and nurses of State hospitals are included, but the salaries
of personnel in the Ministry of Health are excluded because they produce collective rather than
individual services.’
 §11 of part II gives an example of where collective services are excluded from the sickness function:
‘Only preventive measures through which an individual benefit (for example, a medical check-up)
is provided to a protected person or household fall under the Sickness function and in general

within the scope of ESSPROS. Preventive campaigns to alert the general public to health hazards
(for example, smoking, alcohol or drug abuse) are not recorded by the ESSPROS.’
However, the only statement that explicitly refers to the treatment of collective services in general appears
in appendix VII of the manual on ‘The classification of various government disbursements’ which states
‘Collective services, not recorded in the ESSPROS’.
2.3.2 Note on COFOG (Classification of Functions of

Government)
A distinction between individual services and collective services is used to distinguish between different
functions of government (COFOG) in the government finance statistics (GFS). COFOG provides a three
tier classification system to describe the purpose for which expenditure transactions are undertaken. These
tiers are referred to as Divisions, Groups, and Classes respectively, and are defined in the COFOG 2011
manual(15). The classification by group separates expenditure related to individual services from those
related to collective services (see COFOG Manual, Section 3.5.2, p37-38). Only government expenditure
falling within the COFOG divisions ‘health’ and ‘social protection’ under groups defined as individual
services are expected to be reported in ESSPROS — namely COFOG 7.1-7.4 and 10.1-10.7 (see Table 1).
(15) Available from http://ec.europa.eu/eurostat/documents/3859598/5917333/KS-RA-11-013-EN.PDF

Table 1: Individual and collective services in COFOG division 7 and 10

Individual Collective
1 Digit Division / 2 Digit Group
services services
7. Health
7.1 - Medical products, appliances and equipment X

7.2 - Outpatient services X
7.3 - Hospital services X
7.4 - Public health services X
7.5 - R&D Health X
7.6 - Health n.e.c. X
10. Social protection
10.1 - Sickness and disability X

10.2 - Old age X
10.3 - Survivors X
10.4 - Family and children X
10.5 - Unemployment X
10.6 - Housing X
10.7 - Social exclusion n.e.c. X
10.8 - R&D Social protection X
10.9 - Social protection n.e.c. X
2.4. Conclusions
The 2012 edition of the ESSPROS Manual and user guidelines did not provide adequately clear guidance
on the treatment of collective services. The ESSPROS Task Force of November 2015 discussed the issues
laid out in the above analysis and concluded that the current methodology rules out collective services and
that an explicit statement to this effect should be added to the manual.

Manual/legislation
It was proposed that the following paragraph should have been added after §100 of part I to define
collective services and inform that they do not form part of the social benefits to be recorded in ESSPROS:
§100bis Collective services are services for collective consumption that are provided simultaneously to all
members of the community or all members of a particular section of the community (e.g. all

households living in a particular region). In ESSPROS social benefits refers only to goods and
services for individual consumption and therefore excludes collective services.
No changes to the ESSPROS legislation are required.
2.5. Examples
2.5.1 Citizens Information Board, Ireland
In Ireland the Department of Social Protection (DSP) provides a grant to the Citizens Information Board. In
2011 this amounted to EUR 45 million.
The ‘Citizens Information Board’ is a government run service which provides information, advice and
advocacy on a broad range of public and social services in Ireland. It also funds and supports the Money
Advice and Budgeting Service (MABS) and the National Advocacy Service for People with Disabilities
(http://www.citizensinformation.ie/en/about_citizens_information.html). The advice it provides is wide
ranging so that advice in relation to social protection only constitutes a small part of the service. Advice is
provided through the organisations website, via telephone and from local centres. It therefore appears to be
provided simultaneously to the general public and is not targeted at specific groups of individuals or
households.
On this basis the ‘Citizens Information Board’ can be identified as a collective service as defined in §3.102
of ESA 2010 that is not provided directly to protected persons. It therefore should be considered outside
the scope of ESSPROS. There may be a small part of the service which does not constitute a collective
service and which is provided directly to specific beneficiaries. However, it is safe to assume that this is
insignificant and identifying the expenditure corresponding to this would not be feasible so for practical
reasons it is better to exclude it.

3 Definition of means-tested
benefits
3.1. Summary
The ESSPROS Manual and user guidelines (2012 edition)(16) provided a definition of means-tested social
benefits but in doing so used some terms/phrases that are potentially open to different interpretations. Two
points warranted further clarification to ensure consistent application of the guidelines: (1) the meaning of
implicit conditionality alluded to in the definition and (2) whether the conditionality based on income/wealth
applies only to entitlement or also to calculation of the amount of benefit.
The ESSPROS Task Force in November 2015 agreed that appropriate clarifications should have been
added to Part 1 of the ESSPROS Manual and recommendations were made accordingly.

A definition of means-tested social benefits is provided in §117 of Part 1 of the ESSPROS Manual – 2012
edition:
§117 Means-tested social benefits are social benefits which are explicitly or implicitly conditional on the
beneficiary's income and/or wealth falling below a specified level.
This refers to explicit or implicit conditionality based on the beneficiaries’ income/wealth but the ESSPROS
Manual offered no further guidance on how to interpret this.
Further, the definition was open to interpretation as to which types of means-testing were covered. The
reference to conditions based on ‘a specified level’, which §117A clarifies may vary by benefit, by scheme
or according to family composition, tended to imply that the ESSPROS definition refers only to conditions
dealing with entitlement, rather than also to conditions determining the amount of benefit:
§117A This specified level is not necessarily uniquely defined at the national level; it may change from
scheme to scheme and may even differ between various types of benefit provided by a single
scheme. Usually, the specified level takes account of the beneficiary's family composition.
However, it was not clear if this implied that means-tested benefits were conditional only on entitlement or if
conditions determining both entitlement and amount were covered. Finally, it was also not explicit that
conditions determining only the amount of benefit were excluded from the concept.

Definition of means-tested benefits 3
3.3. Analysis
3.3.1 Implicit vs explicit means-testing
§117 referred to explicit or implicit conditionality based on the beneficiaries’ income/wealth but the 2012
ESSPROS Manual offered no further guidance on how to interpret this. Logically, explicit conditionality can
be understood to mean that the rules associated with a benefit include conditions that specifically refer to a
beneficiaries’ income/wealth and restrict access to the benefit on this basis. Implicit conditionality is less
clear but can reasonably be understood to refer to cases where the rules on access to a benefit include
conditions that do not directly reference a beneficiary’s income/wealth but either reference situations that
imply previous testing of income/wealth (e.g. the benefit is only available to persons already in receipt of
another means-tested benefit such as income support) or reference characteristics of the individual that
may be considered a proxy for income/wealth (e.g. homelessness or refugee status).
3.3.2 Entitlement, amount or both

As noted in a 2013 review of means-testing undertaken in the context of the MISSOC database(17), a broad
interpretation of means-testing encompasses conditions that affect either entitlement to a benefit or the
amount of benefit or both. These are combined in three types of income/wealth-related rules associated
with social benefits:
1. Income/wealth is used to determine only entitlement: Eligible persons with an income/wealth
above a certain threshold are not entitled to receive any benefits.
An example is the ‘monthly allowance for a child’ (Meсечна добавка за дете) in Bulgaria (scheme
12 – 1152113). Entitlement is dependent on the average monthly income of the family for the last
12 months being less than or equal to a specific income level defined in the annual state budget.
The amount paid is a flat-rate dependent on the number of qualifying children in the family.
14. Income/wealth is used to determine entitlement and amount: The amount of benefit received is
degressively linked to income/wealth and tapered to zero — i.e. eligible persons with
income/wealth above a certain threshold have no entitlement.
An example is the child allowance (barnabætur) in Iceland (scheme 3 – 1152113). The qualitative
information informs that ‘where a couple's annual income (in 2010) exceeds ISK 3 600 000
(€ 22 398) and that of a single parent ISK 1 800 000 (€ 11 199) the allowance will be reduced by 3
per cent of the earnings exceeding the maximum amount for one child, 5 per cent for two children
and 7 per cent for three or more children between 0 and 18 years.’ Clearly this information is out of
date and the July 2015 update of MISSOC indicates that the thresholds have been increased and
the rate of reduction increased to 4 % (and 6 %/8 %). Irrespective of this, the point is that if the
parents’ income is high enough the value of the reduction will match or exceed the value of the
benefit so that there is no entitlement. Although it is not explicitly defined in this case, this
effectively equates to an income threshold for entitlement.
15. Income/wealth is used to determine only the amount of benefit received: The amount of benefit
(17) http://www.missoc.org/INFORMATIONBASE/OTHEROUTPUTS/ANALYSIS/2013/MISSOC%20Analysis%202013_1%20EN.pdf

received is degressively linked to income/wealth and tapered to a minimum level as income rises.
In this case all eligible persons have an entitlement to some benefit.
An example would be a child benefit where different amounts are granted depending on the level
of family income: e.g. € 500/month for families with annual income less than € 20 000,
€ 400/month in case of annual income between € 20 000 and € 40 000, and € 300/month in case
of annual income exceeding € 40 000.
3.3.3 Comparability vs representativeness

The definition of means-testing in ESSPROS under §117 was open to interpretation as to which of these
types of means-testing were covered. The reference to conditions based on ‘a specified level’, which
§117A clarifies may vary by benefit, by scheme or according to family composition, tended to imply that the
ESSPROS definition referred only to conditions dealing with entitlement.
However, it was not clear if this meant only entitlement (type 1 above) or if conditions determining both
entitlement and amount (type 2) were covered. It was also not explicit that conditions determining only the
amount of benefit (type 3) were excluded from the concept. In practice it was important to recognise that
different methods exist and that an overly strict definition might exclude some methods of means-testing
and thereby reduce the representativeness of the data.
§117A provided flexibility in allowing the ‘specified level’ to vary within a country. This is important because
the threshold at which benefits are payable or not should be relevant to the purpose of the benefit and, as
noted in §117B, is not necessarily linked to indigence. That being said, the specific case of benefits granted
in relation to indigence possibly represents the only situation in which a standardised threshold might be
considered. Since indigence represents extreme poverty, an entitlement linked to the standard measure of
poverty (60 per cent of median household income) might be applied. However, the adoption of such an
approach might require more active intervention (e.g. legislative updates each year to keep pace with
changes in income levels) and therefore imply more work for government than a non-standardised
threshold that can be adjusted as required.
It is also worth noting that the existence of a specified level that determines entitlement to a benefit is not
always linked to a direct assessment of a social risk or need. A high cut-off threshold can also be used to
exclude groups with high levels of income/wealth who clearly have no need in order to cut expenditure.
This is quite different from the concept of means-testing as a way to ensure that a benefit reaches those
with a clearly identifiable need.
3.3.4 Implementation in practice

A limited review of family/child allowances reported in ESSPROS found that benefits using only the first two
types appeared to have been reported as means-tested benefits in ESSPROS, though the information
available to make this assessment was limited as the qualitative information often failed to describe the
type of means-testing applied to specific benefits in detail. Moreover, what was not entirely clear is whether
countries reporting means-tested benefits based on entitlement only (type 1) might also report as non-
means tested benefits that have amount related conditions (types 2 and 3). Although the qualitative
information related to non-means tested family/child allowances did not include any obvious reference to
conditions regarding either entitlement (to be expected) or amount, it was possible that such conditions
existed but were not considered relevant.

3.4. Conclusions
The definition of means-tested social benefits provided in §117 of Part 1 of the 2012 edition of the
ESSPROS Manual and user guidelines(18) did not provide adequate clarification of (1) the meaning of
implicit conditionality and (2) whether the conditionality based on income/wealth applies only to entitlement
or also to calculation of the amount of benefit.
The ESSPROS Task Force of November 2015 discussed the issues laid out in the above analysis and
concluded the following:
 Explicit and implicit conditionality: The Task Force agreed with the interpretation of explicit and implicit
conditionality presented and that it would be useful to clarify the meaning of implicit means-testing
in the guidelines.
 Types of means-testing covered: The Task Force agreed that means-tested benefits should be limited
to those of type 1 and type 2 as entitlement is the key to the definition. The guidelines need to be
improved to ensure that this is clear. Type 3 should not be considered as means-tested benefits in
ESSPROS. Indeed, the incidence of type 3 benefits is so high that considering this to be means-
testing would completely devalue the distinction. For example, in France all family/children benefits
would be means-tested benefits if the definition also covered type 3.

Manual/legislation
Based on the conclusions of the consultation with the ESSPROS Task Force, the 2012 ESSPROS Manual
should have been adjusted in order to clarify the definition of means-testing. The definition provided in §117
is used in 1.3.2.3 of Commission regulation (EC) No 10/2008 so that changing this paragraph would also
require a change in the legislation. To avoid this, it was proposed to add the following paragraphs to
section 7.3 of part 1 the ESSPROS Manual:
§117bis Means-tested social benefits refer to benefits where entitlement is explicitly or implicitly conditional
on the beneficiary's income/wealth. This covers cases where income/wealth is used to determine
(1) only entitlement or (2) both entitlement and amount. The latter case refers to a benefit that is
degressively linked to income/wealth and reduced to zero as income rises, the point at which the
amount tapers to zero being the level of income/wealth at which there is no entitlement. Benefits
where income/wealth is used to determine only the amount of benefit received (i.e. degressively
linked to income/wealth but only to a certain minimum level so that there is always some
entitlement) are not considered to be means-tested.
§117ter Implicit conditionality in the case of means-tested benefits refers to rules do not directly reference a
beneficiary’s income/wealth but either reference situations that imply previous testing of
income/wealth (e.g. the benefit is only available to persons already in receipt of another means-
tested benefit such as income support) or reference characteristics of the individual that may be
considered a proxy for income/wealth (e.g. homelessness or refugee status).

3.5. Examples
3.5.1 Means-tested social benefits, Italy
Italy noted that whilst §117 appears to imply that benefits should only be considered as means-tested if the
income/wealth of the beneficiary is below a specific threshold (i.e. income/wealth affects entitlement) this
was not the case for all benefits classified as means-tested in Italy as in some cases income/wealth affects
only the amount of benefit received (i.e. there is always some minimum entitlement). It was this observation
that prompted Eurostat to review the definition of means-tested benefits, culminating in the
recommendations detailed in section 3.4 above, which should now be applied by all countries.
3.5.2 Means-tested social benefits, Romania

In Romania examples of means-tested benefits are:
 Allowance for family support (scheme 31) that is an allowance granted depending on the number of
family members and their income
 The guaranteed minimum income (scheme 26), where both the social aid and the aid for heating are
granted depending on the number of family members and their income.

4
Withheld taxes and
withheld social
contributions
4.1. Summary
The 2012 edition of the ESSPROS Manual and user guidelines(19) did not clearly distinguish transactions
performed by schemes on their own behalf for the benefit of their beneficiaries from transaction performed
by schemes on behalf of their beneficiaries. As a result it did not provide adequate clarification of the
treatment of withheld social contributions and how these are distinguished from re-routed contributions.
The ESSPROS Task Force in November 2015 agreed that changes to Part 1 and Appendix IV of the
ESSPROS Manual were needed to clarify references to re-routed contributions and to taxes and social
contributions withheld at source.

Re-routed social contributions are defined in §82 and §104 of Part 1 of the ESSPROS Manual – 2012
edition as ‘payments that a social protection scheme makes to another scheme in order to maintain or
accrue the rights of its protected people to social protection from the recipient scheme.’ This should be
interpreted as payments made by the scheme on its own behalf for the benefit of its beneficiaries (i.e.
payments that are a liability of the scheme and not the protected persons), which corresponds to the
concept of re-routing.
However, §82 and §82B use the term ‘on behalf of’ suggesting that social contributions payable by the
protected persons, withheld at source by the scheme and transferred to the recipient scheme on behalf of
the beneficiaries (i.e. payments that are a liability of the protected persons and not the scheme), could also
be recorded as re-rerouted social contributions. In other words, according to the 2012 ESSPROS Manual,
codes 31 (in both the expenditure and the receipts side of the ESSPROS accounts(20) could be interpreted
as including not only re-routed social contributions (liability of the scheme) but also social contributions
withheld at source by the scheme paying out the benefits and transferred to a recipient scheme on behalf
of the protected persons (liability of the protected persons).
This implied that withheld social contributions could potentially be recorded under two different codes in the
receipts side of the ESSPROS accounts of the recipient scheme (see Table C in Part 1 of the ESSPROS
Manual 2012):
 code 123: ‘social contributions by pensioners and other protected persons’ (see §75A)
 code 31: ‘social contributions re-routed from other schemes’ (see §82B (ii))
(20) See Tables E and C, in the Part 1 of the Manual.

Withheld taxes and withheld social contributions 4
Further, they could be recorded under two different codes in the expenditure side of the ESSPROS
accounts of the scheme paying out the benefits (see Table E in Part 1 of the ESSPROS Manual 2012):
 code 1: ‘social benefits’ (see §129)
 code 31: ‘social contributions re-routed to other schemes’ (see §82B (i)).
Another implication of this was that in order to ensure consistent treatment between taxes and social
contributions withheld at source, withheld taxes may be recorded under two different codes in the
expenditure side of the ESSPROS accounts of the scheme paying out the benefits (see Table E in Part 1 of
the ESSPROS Manual 2012):
 code 1: ‘social benefits’ (see §129)
 code 42: ‘other’ (see §108)
Further, Appendix IV of the 2012 ESSPROS Manual (‘Methodology of the module on net social protection
benefits (restricted approach)’) provided the following guidance under §24-25:
§24 Withholding taxes are taxes due on income from social benefits that are calculated in advance of
payment, withheld by the payment authority and paid directly to the tax authority on behalf of the
recipient. Withholding taxes should not be taken into account when calculating taxes paid on social
benefits in the case they are not included in the gross amount paid to the recipient, which is
effectively already net of these taxes. In this case to include withholding taxes in the net module
would introduce a double counting.
§25 The same applies to re-routed social contributions, which are not included in gross benefits paid to
recipients but transferred directly to the appropriate social protection scheme.
The wording of §24 ‘ … in the case they are not included … ‘ appeared to imply that the treatment of
withheld taxes was not clearly defined in the Core System — they may or may not be included in gross
benefits reported in the Core System. This was not ideal and a single approach should have been made
clear in the Core system and reiterated in Appendix IV.
4.3. Analysis
§129 in Part 1 of the ESSPROS Manual – 2012 edition states that ‘the Core system records social benefits
without any deduction of taxes and other obligatory levies payable on benefits by beneficiaries.’ This
paragraph makes clear that in the Core System, social benefits received by individuals or households
should include the value of any obligatory levies (taxes and social contributions) that the beneficiaries are
liable to pay on the benefits. This is consistent with the application of the ‘gross recording principle’ in the
Core System (ESSPROS Manual 2012, Part 1, §135).
Indeed, it is not the role of the Core System but of the net benefit module (restricted approach) to quantify
the ultimate value of the benefits receivable by individuals or households, after the deduction of obligatory
levies payable on social benefits by beneficiaries (ESSPROS Manual 2012, Appendix IV, §4). This is
achieved by calculating appropriate average itemised tax rates (AITRs) and average itemised social
contribution rates (AISCRs) which are applied to the gross value of each social benefit to derive their net
value (ESSPROS Manual 2012, Appendix IV, §38).
The provision of §129 is absolute, i.e. without any exception. This means that §129 refers not only to the
obligatory levies payable on benefits on their own behalf by beneficiaries but also to obligatory levies
payable by beneficiaries and withheld at source by the scheme and transferred to a corresponding
collection authority (e.g. tax office, social protection scheme…etc.) on behalf of the beneficiaries.

This interpretation is also confirmed by §75A in Part 1 of the ESSPROS Manual 2012 (‘Social contributions
paid by protected persons may be deducted at source from pay-rolls or collected separately. …’). This
paragraph has an explanatory role and does not seem to point to an exceptional treatment of social
contributions deducted at source as opposed to social contributions ‘separately’ payable by households on
their own behalf. If a different treatment was intended then this would have been expressed here.
This interpretation was further confirmed when §20.160 of ESA 2010 was considered. It clarifies that the
procedure of withholding taxes at source does not modify the legal and economic reality of the transaction
— i.e. these taxes are payable by beneficiaries (and not by the scheme).
For the sake of completeness, it is useful to also consider obligatory levies paid by the scheme on its own
behalf. Here a distinction needs to be made between re-routed social contributions and other obligatory
levies paid by the scheme on its own behalf. Generally, obligatory levies payable by the scheme on its own
behalf have to be classified under expenditure item 42 ‘Other’ (ESSPROS Manual 2012, Part 1, §108).
Exceptionally, social contributions payable by the scheme on its own behalf for the benefit of its
beneficiaries are defined as ‘re-routed social contributions’ and therefore reported under a separate sub-
category of scheme expenditure (ESSPROS Manual 2012, Part 1, §104). Here, the crucial point that
differentiates re-routed social contributions (§104) from social contributions withheld at source (§75A) is
that re-routed contributions are a liability of the scheme and not the protected person, they do not constitute
part of the gross value of the benefit due and are instead paid by the scheme on its own behalf, in addition
to the benefit due to the beneficiary.
Note that this additional payment (re-routed social contributions) is made by the scheme for the benefit of
its beneficiaries, in the same way that employers social contributions are payments made by the employer
on its own behalf (liability of the employer) for the benefit of its employees. This parallel is reinforced by the
use of the concept of ‘re-routing’ for both types of transactions (see §1.74 of ESA 2010) (21).
Overall the treatment intended by the ESSPROS Manual – 2012 edition can be summarised as shown in
Table 2.
Table 2 – Treatment of taxes and social contributions paid by social protection schemes
Type of levy Liability Expenditure Receipts
Protected Social benefit expenditure of the

Taxes person scheme that withholds the levies. N/A
Other expenditure of the scheme

Taxes Scheme liable to pay the levies. N/A
Social Protected Social benefit expenditure of the Social contribution receipts of the
contributions person scheme that withholds the levies. scheme receiving the contributions.
Re-routed contributions expenditure Re-routed contribution receipts of
Social of the scheme liable to pay the the scheme receiving the
contributions Scheme levies. contributions.
(21) The re-routing technique is used in national accounts to bring out the economic substance of a transaction beyond its legal reality. For
example, when the employer has to pay employers social contributions to a scheme, the employer is legally liable, while the employees have
no legal role in this transaction; however, in economic terms, the employees are indeed the only beneficiaries of the transaction.

4.4. Conclusions
The 2012 ESSPROS Manual did not clearly distinguish transactions performed by schemes on their own
behalf for the benefit of their beneficiaries from transactions performed by schemes on behalf of their
beneficiaries. As a result it did not provide adequate clarification of the treatment of withheld social
contributions and how these are distinguished from re-routed contributions. This means that the
methodology left open the possibility of two different ways of reporting withheld social contributions.
An in depth analysis of the issue suggested that the correct approach should be that presented in Table 2
in section 4.3. The ESSPROS Task force of November 2015 agreed with this analysis and supported draft
proposals to modify the 2012 ESSPROS Manual presented at the meeting.

Manual/legislation
The ESSPROS Task Force in November 2015 agreed to the following proposals to modify the manual:
1. Amendments to Part 1 of the ESSPROS Manual to clarify existing paragraphs by systematically
using the expression ‘payable by ENTITY A (on its own behalf) to ENTITY C, for the benefit of
ENTITY B’ when defining ‘re-routed transactions’ and the expression ‘payable (by ENTITY B and
withheld at source) by ENTITY A (and ‘transferred’) to ENTITY C on behalf of ENTITY B’ when
defining ‘taxes and social contributions withheld at source’.
2. Amendments to Appendix IV of the ESSPROS Manual to rephrase §24 and § 25 so that it is fully
consistent with the suggested treatment in the Core System. Specifically, it should be clear in the
Net module methodology that the Core System records withheld taxes and social contributions as
part of social benefits and, as a consequence, the AITRs and AISCRs in the Net module should
take into account the effect of withheld taxes and social contributions.
On this basis, the following amendments to the ESSPROS Manual were proposed (changes compared to
the 2012 manual are shown in red):
Part 1:
§75bis Social contributions which are the liability of the protected persons but withheld at source by the
social protection scheme and transferred to other social protection schemes on behalf of protected
persons are recorded as social contributions paid by protected persons in the ESSPROS data on
receipts of the recipient scheme.
§82 Re-routed social contributions are payments that a social protection scheme makes on its own
behalf to another scheme in order to maintain or accrue the rights of its protected people to social
protection from the recipient scheme. Even if such payments only involve one transaction from one
scheme to another, the ESSPROS records the following two flows of equal value:
1. in the expenditure of the paying scheme, the amount of transfers to other schemes made on its
own behalf for the benefit of on behalf of protected people (Social contributions re-routed to other

schemes; see paragraph 104);

2. in the receipts of the recipient scheme, social contributions paid by the paying schemes on their
own behalf for the benefit of on behalf of protected people (Social contributions re-routed from
other schemes ref. 31).
§82B In practice, the following two cases fall within this category:
1. social contributions that social protection schemes pay on their own behalf for the benefit behalf of
their beneficiaries to other social protection schemes. For example, when an unemployment
benefit scheme pays social contributions to the sickness scheme behalf for the benefit of its
beneficiaries;
2. the transfer of funds relating to an insured person moving from one scheme to another. In the
United Kingdom, payments of this type occur when an insured person decides to opt out of
SERPS and out of their Occupational pension plan in order to set up an Appropriate Personal
Pension Plan. In this case, the National Insurance Fund transfers his/her social contributions to
the selected Plan.
§82bis Social contributions which are the liability of the protected persons but are withheld at source by
the social protection scheme and transferred to other social protection schemes on behalf of
protected persons are recorded in the ESSPROS data on receipts as social contributions paid by
protected persons (see paragraph 75bis) and not as re-routed social contributions.
§83A Transfers from/to other schemes exclude:

1. payments for delivery of goods or services (there is a quid pro quo);
2. the transfer of funds relating to an insured person moving from one scheme to another (this is
recorded as Social contributions re-routed from other schemes, see paragraph 82);
3. social contributions that social protection schemes pay on their own behalf for the benefit of on
behalf of their beneficiaries to other social protection schemes. These payments are treated
analogous to case (ii) as Social contributions re-routed from other schemes;
4. payments made by the government acting in its capacity of public authority rather than as an
administrator of social protection schemes. Such payments are classified as General government
contributions;
5. payments between schemes as a consequence of transactions carried out by one scheme on
behalf of the other, for example, when a lower government scheme acts as an intermediary for a
central government scheme. These payments are not shown, because the ESSPROS only
records transactions in the accounts of the principal transactors. See paragraphs 137 to 139;
6. unrequited payments that resident social protection schemes receive from/pay to non-resident
schemes. As the latter belong to the sector Rest of the World (see chapter 9), which is defined as
a grouping of units without any characteristic functions and resources, they are not identified
separately. The payments in question will therefore be classified as Other receipts.
§104 Re-routed social contributions are payments that a social protection scheme makes on its own
protection from the recipient scheme. For a more detailed explanation, see paragraph 82.
§129 The Core system records social benefits without any deduction of taxes and other obligatory levies
payable on benefits by beneficiaries.

§129bis Taxes and social contributions which are the liability of the protected persons but withheld at
source by the social protection scheme and transferred to other social protection schemes on
behalf of protected persons are recorded as part of expenditure on social benefits of the scheme
that withholds the taxes and contributions.
Appendix IV:
§24 Withholding Withheld taxes and social contributions are taxes and social contributions due on
income from social benefits that are calculated in advance of payment, withheld by the payment
authority and paid directly to the tax collection authority (either tax authority or another social
protection scheme) on behalf of the recipient. Withholding Withheld taxes and social contributions
are included in the gross benefits paid to recipients reported in the Core System and should
therefore be taken into account when calculating taxes and social contributions paid on social
benefits. in the case they are not included in the gross amount paid to the recipient, which is
effectively already net of these taxes. In this case to include withholding taxes in the net module
would therefore introduce a double counting.
§25 The same applies to Re-routed social contributions, which are not included in gross benefits paid
to recipients reported in the Core System but transferred directly to the appropriate social
protection scheme, should not be taken into account when calculating taxes and social
contributions paid on social benefits.
No modifications to the legislation are required to support these changes.
4.5. Examples
4.5.1 Pensioners Solidarity Contribution, Greece
The issue concerning the treatment of withheld taxes and social contributions was originally raised as a
result of discussions of how to treat a special case in Greece.
In Greece, Act No. 3863/2010 introduced a Pensioners Solidarity Contribution (PSC) payable on all
pensions of €1,400 or more from 1st August 2010 in order to fund deficits across the pension system. The
tiered contribution rates set in the original act were increased a year later in Act No. 3986/2011. The
amounts due, which represent a liability of the beneficiary, are withheld at source from the gross amount of
pensions and transferred directly by the pension scheme to the state insurance fund for intergenerational
solidarity (ΑΚΑΓΕ) established in 2008 by Law 3655/2008. This contribution is part of the gross amount of
pensions and therefore does not result in a reduction in the burden of pension expenditure for the pension
schemes.
For the purpose of compiling national accounts, analysis concluded that the PSC is not a ‘social
contribution’ but a tax payable on income (pensions) by beneficiaries (pensioners). Indeed, first of all, the
payment does not give any right to future social security benefits and, as a consequence, cannot be
considered as a ‘social contribution’. Second, the tax is not payable by the scheme, since it does not
reduce the amount of the ‘gross pensions’ payable by the scheme to the beneficiaries. Finally, the ΑΚΑΓΕ
is not to be considered as a social security scheme and should be classified as a Central Government unit.
Eurostat therefore recommended that Greece record gross pensions (i.e. including the PSC) as ‘social
benefits other than social transfers in kind’ (D.62) payable to households. The ‘contribution’ (PSC) is then
recorded as a tax on income (D.51) payable by households to Central Government.

The suggested treatment of PSC in ESSPROS mirrors the treatment suggested in national accounts. The
PSCs paid to ΑΚΑΓΕ do not seem to serve as a means to secure individual entitlement to social benefits
and cannot be interpreted as social contributions according to the definition provided in §79A of Part 1 of
the ESSPROS Manual 2012. On this basis, they constitute either ‘taxes’ or ‘other obligatory levies’ payable
on benefits by beneficiaries (using the terminology of §129 of part 1 of the ESSPROS Manual 2012) and
should be reported as part of the gross benefits in the ESSPROS Core System and taken into account in
the AITR applied in the ESSPROS net social protection benefits module.
4.5.2 Contributions associated with unemployment

benefits, Spain
In Spain the Public Employment Service (SEPE) pays social security contributions associated with the
unemployed while they receive unemployment benefits to secure entitlement to social benefits. These
include two types of social contributions:
Social contributions that are a liability of the unemployed person but which are withheld by SEPE to be
transferred to the Social Security fund on their behalf.
Social contributions that are the liability of the scheme which are re-routed by SEPE to the Social Security
fund. These are similar in nature to employer contributions.
The recent review of the ESSPROS Manual 2012 and the changes to the ESSPROS Manual detailed
above made clear that in the ESSPROS Core system:
 social contributions that are a liability of the unemployed person but which are withheld by SEPE should
be reported as part of the unemployment benefit expenditure of the scheme that withholds the
levies and as social contribution receipts of the scheme receiving the contributions.
 social contributions that are the liability of the scheme which are re-routed by SEPE should be reported
as re-routed contributions expenditure of the scheme liable to pay the levies and as re-routed
contribution receipts of the scheme receiving the contributions.
Further, the AISCR applied to unemployment benefits in the in the ESSPROS module on net social
benefits should take into account the contributions withheld by SEPE.

Social contributions: Ensuring consistency between the Core system and the Net module 5
Social contributions:
5 Ensuring consistency
between the Core system
and the Net module
5.1. Summary
The receipts side of ESSPROS Core System includes a classification for social contributions paid by
pensioners and other persons (2123000). This data is a partial counterpart to the social contributions
inferred by applying the average itemised social contribution rates (AISCRs) reported in the ESSPROS Net
module to the ESSPROS Core system data on gross social benefits.
An assessment of this correspondence was presented to the 2017 Working Group on Social Protection
Statistics (see DOC SP-2015-06_Annex 5). In follow-up, Eurostat assisted Latvia in a practical exercise to
assess the differences between the reported receipts and inferred contributions in their national data.
While there is no way to systematically cross-check the data to clearly identify potential issues in one or
other element, comparison of the reported receipts and inferred contributions can be a useful indication of
plausibility. This chapter provides guidance on the correspondence in the data and how it can be used to
assess plausibility.

The classification social contributions paid by pensioners and other persons (2123000) in the receipts side
of ESSPROS Core System should have at least a partial counterpart in the social contributions inferred by
applying the AISCRs reported in the ESSPROS Net module to relevant gross social benefits. However, the
extent to which the two figures should be aligned is not immediately clear. A review of the ESSPROS
methodology and data was therefore undertaken in order to assess whether a comparison of the data
would be feasible and meaningful, and to clarify what issues might need to be taken into account.
5.3. Analysis
The analysis presented below first reviews the methodological specifications for social contributions paid by
pensioners and other persons (2123000) and for the average itemised social contribution rates (AISCR). It
then uses this to evaluate the extent to which data for the latter can be compared to the value of social
contributions derived by applying the former to data on gross benefit expenditure. Lastly, on the basis of
this analysis, a guide to evaluating the plausibility of the data is presented.

5.3.1 Social contributions paid by pensioners and other

persons (2123000)
Social contributions (2100000) are defined in part 1, §70 of the 2016 ESSPROS Manual as ‘costs incurred
by employers on behalf of their employees or by protected persons to secure entitlement to social benefits’.
Social contributions paid by pensioners and other persons (2123000) are a detailed sub-category of social
contributions paid by protected persons and are defined in §75-76 and §76A:
§75 Social contributions paid by protected persons (ref. 12) are payments made by individuals and
households to social protection schemes in order to obtain or keep the right to receive social
benefits.
§76 Social contributions paid by protected persons are broken down by category into:
1. (i) Social contributions paid by Employees (ref. 121);
2. (ii) Social contributions paid by Self-employed persons (ref. 122);
3. (iii) Social contributions paid by Pensioners and other persons (ref. 123).
§76A These categories refer to the circumstances in which a person contributes to the social protection
scheme and not to the person's wider circumstances. For instance, someone receiving an old age
pension may still pay employees' social contributions (ref. 121) through a full-time or part-time job.
Social contributions paid by pensioners and other persons (2123000) therefore covers all social
contributions paid by protected persons (both directly and withheld at source by a third party) except those
paid in relation to income from employment (as an employee or self-employed). This includes:
 Compulsory social contributions paid as a result of receiving social benefits with the exception of
those associated with the receipt of employment-related social benefits stemming from an
ongoing employer-employee relationship, particularly those benefits intended as wage
replacements such as paid sick leave and maternity leave, which may instead be reported under
social contributions paid by employees (2121000).
 Compulsory social contributions paid as a result of receiving income other than that from
employment or social benefits.
 Compulsory social contributions paid as a result of other factors unrelated to income.
 Voluntary social contributions made by a protected person on their own initiative.
§76A specifically notes that contributions paid by an individual (protected person) may need to be split
between the sub-categories of social contributions paid by protected persons if they derive from multiple
sources of income (work and other).
5.3.2 Average itemised social contribution rates (AISCR)

Appendix IV of the 2016 ESSPROS Manual, §15, states that ‘the net benefits module (restricted approach)
determines the final net value of social benefits by deducting from gross social benefits the part of the
combined value of two forms of obligatory levy applied by general government to the income of fiscal units
that relates to liable cash social benefits:
1. Taxes on income
2. Social contributions’
Further, §17 and §18 clarify that social contributions in the net benefits module refer only to compulsory
social contributions paid by protected persons as defined in part 1, §75 of the 2016 ESSPROS Manual

(shown above) and therefore that voluntary contributions are not included.
Social contributions are taken into account in the net module via the average itemised social contribution
rates (AISCR) which are defined in §40 as follows:
§40 ‘The AISCR for a benefit (or group of benefits) is defined as the sum of social contributions paid on
that benefit by recipients, divided by the total income from that benefit (i.e. gross benefits received). A
social benefit that is not liable to social contributions will always have an AISCR of zero.’
AISCRs can be applied to any detailed cash benefit classification.
5.3.3 Comparing the data

The methodological specifications imply limited scope to directly compare data on social contributions paid
by pensioners and other persons (2123000) in the Core system with the social contributions inferred by
applying the average itemised social contribution rates (AISCRs) in the net module because of potential
differences in both directions:
 ‘Social contributions paid by pensioners and other persons’ (2123000) excludes contributions paid on
employment-related benefits which are included in AISCRs.
 ‘Social contributions paid by pensioners and other persons’ (2123000) includes voluntary contributions
which are excluded from AISCRs.
 ‘Social contributions paid by pensioners and other persons’ (2123000) includes social contributions
paid as a result of receiving income other than that from employment or social benefits, or paid as
a result of other factors unrelated to income. These, which are excluded from AISCRs, seem
unlikely to occur in practice and are thus expected to be negligible.
In order to be able to make any reliable comparison it would be necessary to split data in the net module
and isolate AISCRs related to benefits that are not employment-related. If this can be achieved then, in
case of at least one non-zero AISCR, social contributions paid by pensioners and other persons (2123000)
should be positive. Note, however, that the inverse would not hold because social contributions paid by
pensioners and other persons (2123000) could be non-zero due to voluntary contributions or other
compulsory contributions (not based on income from employment or social benefits) even if all AISCRs are
zero. Moreover, at present there is no clear way to isolate benefits based on their links to employment.
Overall, an automated validation rule to systematically compare data on social contributions paid by
pensioners and other persons (2123000) in the Core system with the social contributions inferred by
applying the AISCRs in the Net module to gross social benefits does not seem viable. Indeed, if the value
of social contributions deducted from gross benefits using the AISCRs in the Net module is compared with
social contributions paid by pensioners and other persons (2123000) important differences in both
directions can be observed (see Table 3). In order to assess these differences, it would be necessary to
know what each country reports under social contributions paid by pensioners and other persons
(2123000).

Table 3 – Contributions in Net module and Core system, 2013

Core Higher
NET Module
System value
(Sum across detailed
cash benefits of Gross * (2123000)
AISCR/100)
BE 1,193.4 1,460.5 Core

BG 4.3 0.3 NET
CZ 1,066.2 138.2 NET
DK 0.0 0.0 -
DE 45,168.4 50,358.7 Core
EE 0.1 0.0 NET
IE 4.5 0.0 NET
ES 1,619.6 1,075.7 NET
FR 3,296.7 22,944.6 Core
HR 432.6 155.2 NET
IT 291.7 684.0 Core
CY 0.0 0.9 Core
LV 7.8 39.7 Core
LT 25.3 0.0 NET
LU 317.8 220.2 NET
HU 29,758.9 327.8 NET
MT 0.0 0.0 -
NL 31,417.5 0.0 NET
AT 3,097.8 2,269.8 NET
PL 2,574.3 0.0 NET
RO 0.0 22.2 Core
SK 17.8 86.4 Core
FI 680.6 670.2 NET
SE 0.0 0.0 -
UK 558.4 32.5 NET
IS 2,281.1 33.4 NET
NO 0.0 0.0 -
CH 8,577.5 5,689.7 NET
RS 11,677.7 3,637.8 NET

5.3.4 Plausibility checks
The theoretical differences observed imply that plausibility checks could be applied in case of large
differences in order to verify that there are no issues in the data.
For instance, if social contributions paid as a result of receiving income other than that from employment or
social benefits or paid as a result of other factors unrelated to income are assumed to be negligible then, in
theory, social contributions inferred by the application of AISCRs to gross social benefits should be higher
than social contributions paid by pensioners and other persons (2123000) in countries where compulsory
contributions on employment-related social benefits exceed voluntary social contributions and lower in the
reverse case.
On this basis, countries for which there are particularly significant differences in the actual and inferred
contributions could be asked to confirm that the difference observed provides a plausible reflection of the
situation in their countries. For example, the current data for France imply relatively high levels of voluntary
social contributions while those for Hungary imply relatively high levels of compulsory contributions on
employment-related social benefits.
Adding possible practical reasons to the theoretical reasons, the following scenarios could potentially
explain, in general, why social contributions paid by pensioners and other persons (2123000) may be
higher than social contributions inferred by applying the average itemised contribution rates (AISCRs) to
gross social benefits:
1. A high level of voluntary contributions (covered only in the Core system data but not in the
AISCRs in the Net module) exceeding the level of contributions paid in relation to income from
employment-related benefits (covered in the AISCRs in the Net module).
2. Compulsory social contributions paid as a result of receiving income other than that from
employment or social benefits or paid as a result of other factors unrelated to income are reported
in the Core System. These are not covered in the contributions derived by applying the AISCRs in
the Net module to gross expenditure on social benefits.
3. AISCRs are missing or under estimated because compulsory contributions paid directly to the
collection authority by beneficiaries of social protection as a result of the income they receive from
social benefits have not been taken into account while these are correctly reported in the Core
system.
4. AISCRs are missing or under estimated because compulsory contributions withheld at source by
the organisation responsible for disbursing social benefits have not been taken into account while
these are correctly reported in the Core system.
5. Re-routed contributions have been mistakenly included under social contributions paid by
pensioners and other persons (2123000) in the Core system and correctly excluded from the
AISCRs in the Net module.
6. Social contributions paid by employees on their work income have been mistakenly reported
under social contributions paid by pensioners and other persons (2123000) but those associated
with non-benefit income are correctly excluded from the AISCRs in the Net module.
7. Gross expenditure in the ESSPROS Core system for benefits with AISCRs exclude either
withheld contributions or some expenditure on benefits paid to beneficiaries which is subject to
social contributions paid directly by beneficiaries.
8. Other mistake in the data for social contributions paid by pensioners and other persons (2123000)
or the calculation of the AISCRs.
Similarly, the following scenarios could potentially explain, in general, why social contributions inferred by
applying the average itemised contribution rates (AISCRs) to gross social benefits may be higher than
social contributions paid by pensioners and other persons (2123000):
1. A high level of contributions paid in relation to income from employment-related benefits (covered

in the AISCRs in the Net module) exceeding the level of voluntary contributions (covered only in
the Core system data but not in the AISCRs in the Net module).
2. The social contributions paid by pensioners and other persons (2123000) are under estimated
because compulsory contributions paid directly to the collection authority by beneficiaries of social
protection as a result of the income they receive from social benefits have not been taken into
account while these are correctly taken into account in the AISCRs in the Net module.
3. The social contributions paid by pensioners and other persons (2123000) are under estimated
because compulsory contributions withheld at source by the organisation responsible for
disbursing social benefits have not been taken into account while these are correctly reported in
the AISCRs in the Net module.
4. Re-routed contributions have been mistakenly taken into account in the AISCRs in the Net
module and correctly excluded from social contributions paid by pensioners and other persons
(2123000) in the Core system.
5. Social contributions paid by employees on their work income have been mistakenly taken into
account in the AISCRs in the Net module but are correctly excluded from social contributions paid
by pensioners and other persons (2123000) in the Core system.
6. Employers social contributions have been mistakenly taken into account in the AISCRs in the Net
module but are correctly excluded from social contributions paid by pensioners and other persons
(2123000) in the Core system.
7. Gross expenditure in the ESSPROS Core system for benefits with AISCRs include some
expenditure which is not subject to social contributions paid directly by beneficiaries but this has
not been factored into the calculation of the AISCR.
8. Other mistake in the data for social contributions paid by pensioners and other persons (2123000)
or the calculation of the AISCRs.
5.4. Conclusions
The classification for social contributions paid by pensioners and other persons (2123000) on the receipts
side of ESSPROS Core System is a partial counterpart to the social contributions inferred by applying the
AISCRs reported in the ESSPROS Net module to relevant gross social benefits. While there is no way to
systematically cross-check the data to clearly identify potential issues in one or other element, comparison
of the reported receipts and inferred contributions can be a useful indication of plausibility.
With this in mind, a plausibility check has been devised. This makes use of list of reasons (both theoretical
and practical) to explain, in general, why social contributions paid by pensioners and other persons
(2123000) and social contributions inferred by applying AISCRs to gross social benefits may differ. The aim
of this check is to assist countries in identifying the real reason(s) for differences and whether these result
from issues in the data. It is recommended that all countries in which significant differences are observed
apply this plausibility check to identify the reason for them and ensure that they are not due to errors in the
data.
5.5. Examples

5.5.1 Latvia
In the Latvian data, social contributions paid by pensioners and other persons (2123000) reported in the
ESSPROS Core system amount to 39.7 million Euro in 2013 while the value of social contributions paid on
social benefits received by this group, inferred by applying the average itemised contribution rates
(AISCRs) in the Net module to the relevant gross benefits, is just 7.8 million Euro. Voluntary contributions
are thought to be negligible so the data in the Core system and in the Net module were reviewed in detail
to try and identify what is causing such a difference.
SOCIAL CONTRIBUTIONS PAID BY PENSIONERS AND OTHER PERSONS (2123000)

IN THE CORE SYSTEM
The detailed data by scheme for social contributions paid by pensioners and other persons (2123000) in
the receipts side of the Core system are presented in Table 4. This shows that such contributions represent
just 6.5 % of social contribution paid by protected persons (2120000) and the majority of these (78.6 %) are
associated with the receipts of scheme 23 (State pension insurance [Valsts pensiju apdrošināšana (VPA)]).
Table 4 – Data by scheme social contributions paid by protected persons, 2013
Scheme
All 3 6 10 11 15 23 24 25
2120000 Social contributions by the protected persons 612.7 36.1 0.5 3.4 0.0 86.0 480.0 4.0 2.7
2121000 Employees 570.2 33.6 0.5 3.4 0.0 80.0 446.5 3.7 2.6
2121005 Households 570.2 33.6 0.5 3.4 0.0 80.0 446.5 3.7 2.6
2121007 Rest of the World 0.0
2122000 Self-employed 2.8 0.2 0.0 0.0 0.0 0.4 2.2 0.0 0.0
2122005 Households 2.8 0.2 0.4 2.2 0.0 0.0
2123000 Pensioners and other 39.7 2.3 0.0 0.0 0.0 5.6 31.2 0.3 0.2
2123005 Households 39.7 2.3 0.0 5.6 31.2 0.3 0.2
There are no footnotes associated with these data but the quality report for the Core system informs that
the breakdown of social contributions (2100000) by scheme for schemes financed from state special
budgets (schemes 3, 6, 10, 11, 15, 23, 24 and 25) is missing so aggregate data for social contributions by
protected persons (2120000) are split across schemes according to the proportion of benefit expenditure in
each.
There is therefore no evidence to suggest that there are known issues which result in over or
underestimation of the total social contributions paid by pensioners and other persons (2123000) at all
scheme level. However, the distribution between schemes is estimated.
SOCIAL CONTRIBUTIONS INFERRED BY APPLYING THE AISCRS IN THE NET

MODULE
The detailed data by scheme for the benefits with a non-zero AISCR in the Net module are presented in
Table 5. There are just three cases.
Table 5 – Data by scheme on social contributions inferred by applying the AISCRs, 2013
Gross expenditure Contributions
Scheme Code AISCR
(million EURO) (million EURO)
10 1161122 11.0 3.9 0.4
10 1161123 10.4 19.4 2.0
15 1111121 11.0 48.7 5.4

Total: 7.8

The benefits which have an AISCR applied are the following according to the qualitative information:
 Scheme 10: Passive employment policy [Pasīvā nodarbinātības politika (PNP)]:
o 1161122: Severance Pay [Atlaišanas pabalsts]
o 1161123: Satisfaction of employee's claims from the employee claims guarantee
fund [Darbinieku prasījumu apmierināšana no darbinieku prasījumu garantiju fonda] +
Severance Pay (in all other cases set by the Labour Law) [Atlaišanas pabalsts ( visos
citos gadījumos saskaņā ar Darba likumu)].
 Note: only Severance Pay (in all other cases set by the Labour Law) is subject to social
contributions.
 Scheme 15: Disability pensions and sickness benefits [Invaliditātes pensijas un slimības pabalsti
(IPSP)]:
o 1111121: Sick leave payment by the employer [Slimības pabalsts vispārējā gadījumā
(no darba devēja līdzekļiem)]
There are no footnotes associated with these data but the quality report for the Net module informs that the
AISCRs applied to these benefits correspond to the typical social contribution rate for employees (11 %). In
the case of scheme 10 – 1161123 the rate is slightly lower because the classification also includes a
relatively small proportion of benefits which are not subject to social contributions and adjustments are
made accordingly. As the benefits subject to social contributions (severance pay and sick leave payment
by the employer) are both employment related, this method seems reasonable.
APPLYING THE PLAUSIBILITY CHECK AND INVESTIGATION BY LATVIA.

In the case that applies here — e.g. social contributions paid by pensioners and other persons (2123000)
are higher than social contributions inferred by applying the average itemised contribution rates (AISCRs)
— the plausibility check identified in 0 proposes 8 possible explanations.
The first in the list could already be ruled out in the case of Latvia as the delegate previously informed that
voluntary contributions are negligible. Further, the benefits with an AISCR applied all appear to be
employment related and therefore the contributions concerned could potentially be excluded from social
contributions paid by pensioners and other persons (2123000).
The method used and the AISCRs that have been applied seem reasonable, suggesting that either there
are some benefits subject to social contributions that do not have AISCR applied in the Net module or there
is an issue in the data for social contributions paid by pensioners and other persons (2123000) in the Core
system.
Indeed, further consultation with the Latvian delegate revealed that social contributions paid by pensioners
and other persons (2123000) for schemes 3, 6, 15, 23, 24 and 25 actually covered compulsory social
contributions related to income from employment. This approach was applied because pension
beneficiaries may still work while receiving a pension. For example, at the start of 2013 12.6 % of old age
pension beneficiaries still worked while receiving an old age pension. However, on the basis of §76A, the
social contributions which are currently reported under item social contributions paid by pensioners and
other persons (2123000) should actually be reported under social contributions paid by employees
(2121000). The data will be reviewed accordingly.

Capital transfers 6
6 Capital transfers
6.1. Summary
Capital transfers are a form of distributive transaction defined in national accounts that involve the
acquisition or disposal of an asset, or assets, by at least one of the parties to the transaction. In certain
circumstances, such transactions may be recorded as receipts and expenditures of social protection
schemes in ESSPROS Core system.
The 2016 edition of the ESSPROS Manual and user guidelines(22) acknowledges this possibility but does
not offer systematic guidance on what cases might be covered. As a result, the extent to which capital
transfers should, in theory, be reported in ESSPROS, and whether they have been included in practice is
unclear.
Work undertaken in 2014 to clarify the links between ESSPROS and National Accounts opened discussion
of whether capital transfers are covered in ESSPROS, where they should be (or are) reported and how.
Indeed, an understanding of where capital transfers are reported in the ESSPROS data is needed to
compare data from ESSPROS with data on social contributions and social benefits (D.6) from national
accounts as the latter specifically exclude capital transfers, which are reported under a separate dedicated
classification (D.9).
Extensive research on the treatment of capital transfers in the ESSPROS system was carried out in 2015
and 2016, with a review of the relevant methodological rules and guidelines and current practices among
countries presented to the Task Force in 2015(23) and 2016(24) and to the Working Group in 2016(25).
As a result of this work, it is now clear where capital transfers may, in theory, be reported in ESSPROS.
Recommendations for the changes to the ESSPROS Manual in order to improve the guidance on capital
transfers are made accordingly. Note that these imply no changes to the actual approach adopted by
ESSPROS, just a clarification, and no changes are needed to any of the ESSPROS regulations.

ESSPROS records receipts and expenditures of social protection schemes in the form of ‘distributive
transactions, whether current or capital’ and ‘administration costs charged to the scheme’ (§36, Part 1,
ESSPROS Manual 201622). This implies that capital transfers fall within the scope of the transactions
covered by ESSPROS, a notion supported by specific reference to them in various parts of the manual.
(22) See http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-GQ-16-010

(23) See DOC SP-TF-2015-02.2
(24) See DOC SP-TF-2016-04.1
(25) See DOC SP-2016-09.3

Capital transfers 6
In practice, however, the ESSPROS Manual provides no systematic guidance as to which ESSPROS
transactions might take the form of a capital transfer so that it is not clear as to where capital transfer might
actually be included in ESSPROS. Further, the little guidance that is provided on capital transfers is unclear
and open to misinterpretation. Indeed, consultation with data providers demonstrated that there are
different interpretations across countries and that further instruction on the issue is needed to ensure
consistent reporting.
6.3. Analysis
The analysis below gives an overview of the methodological specifications related to capital transfers and
their coverage in ESSPROS and reviews how they are currently reported in the data.
6.3.1 Capital transfers: definition and treatment in national

accounts
DEFINITION OF CAPITAL TRANSFERS
The ESSPROS Manual defines capital transfers as transfers which ‘involve the acquisition or disposal of an
asset, or assets, by at least one of the parties to the transaction’ (ESSPROS, Part 1, section 5.2, footnote
to §77B). In fact, this definition is taken directly from national accounts, the latest version of which (ESA
2010(26), §4.145) defines capital transfers (D.9) as follows:
‘capital transfers require the acquisition or disposal of an asset, or assets, by at least one of the parties to
the transaction. Whether made in cash or in kind, they result in a commensurate change in the financial, or
non-financial, assets shown in the balance sheets of one or both parties to the transaction.’
The category of capital transfers in national accounts (D.9) includes three sub-categories:
 Capital taxes (D.91) refer to exceptional taxes on assets owned or transferred. An example that is
potentially relevant to ESSPROS could be a one-off tax on property assets owned and put at the
disposal of a scheme by the institutional unit supporting it(27) — e.g. a tax on the increase in value
of land or property affected by changes in land use or planning regulations.
 Investment grants (D.92) refer to transfers to finance the acquisition of fixed assets (buildings, transport
equipment, machinery, etc.). For example, money transferred to a social housing organisation to
facilitate purchase of additional accommodation is a capital transfer in cash.
 Other capital transfers (D.99) refer to redistribution of savings or wealth. Examples include transfers to
cover accumulated or exceptional losses and transfers made to compensate for the impact of a
natural disaster.
TREATMENT OF CAPITAL TRANSFERS

Chapter 4 of ESA 2010 (§4.01) defines distributive transactions as ‘transactions whereby the value added
generated by production is distributed to labour, capital and government, and transactions redistributing
income and wealth’ and notes that ‘a distinction is drawn between current and capital transfers, with capital
transfers redistributing saving or wealth, rather than income.’
(26) http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-02-13-269
(27) Note that ‘asset ownership” is typically a characteristic of an ‘institutional unit” (see ESSPROS manual Part 1, §88 or ESA 2010 §2.12). It is
debatable whether a scheme as defined in ESSPROS (as opposed to the institutional unit(s) that support(s) it — see ESSPROS Manual, Part
1, § 42 and 43) — can be interpreted as an ‘entity” having the legal power to own assets in its own right. In the ESSPROS manual there are
various clarifications of the distinction or relationship between the concepts of scheme and institutional unit: see for example Part 1 §85
(“credited to the scheme by the institutional unit that runs it”), §86 (“such payments are receipts of the institutional unit … and not of social
protection schemes”), §107 (“putting the … asset at the disposal of the scheme via the institutional unit supporting it”). For this reason, the term
‘assets owned and put at the disposal of the scheme by the institutional unit supporting it” is used instead of simply ‘assets owned by a
scheme”.

Capital transfers 6
Social contributions and benefits (D.6) and capital transfers (D.9) are then defined as separate categories
of distributive transaction so that by definition in national accounts capital transfers cannot be part of social
contributions and benefits. Indeed, social benefits include only ‘current and lump-sum transfers’ (§4.85) (28).
6.3.2 Capital transfers in ESSPROS: Methodology

The ESSPROS Core system covers distributive transactions only and excludes production activities,
financial transactions and stock accounts. In national accounts, distributive transactions can be current or
capital and are classified under separate headings. On the contrary, this distinction does not exist in the
ESSPROS Core system. As a consequence, distributive transactions classified in national accounts as
capital transfers can appear under the various ESSPROS classification items, both receipts and
expenditures.
In defining the scope of the ESSPROS Core system, §36 in part 1 of the ESSPROS Manual and user
guidelines is clear that capital transfers are included in the receipts and expenditure to be recorded:
‘The Core system records receipts and expenditures of social protection schemes, but only in the form of:
1. distributive transactions, whether current or capital;
2. administration costs charged to the scheme.’
The next section examines the detailed ESSPROS methodology for receipts and expenditure to
understand in practice where these might be recorded and how.
CAPITAL TRANSFERS AND RECEIPTS
ESSPROS recognises four main types of receipt (ESSPROS, part 1, Table C):
 Social contributions (2100000). As a general rule, in national accounts capital transfers are
distinguished from social contributions which are transactions intended to secure individual
entitlement to benefits. Some capital transfers can however be interpreted as
maintaining/improving the capacity of the scheme to deliver benefits though do not affect the
entitlement of protected persons.
In particular, the case of capital transfer defined in ESA 2010 §4.165 (i) is relevant for social
protection: ‘extraordinary payments into social insurance funds made by employers (including
government) or by government (as part of its social function), in so far as these payments are
designed to increase the actuarial reserves of these funds. The accompanying adjustment from
social insurance funds to households is also recorded as other capital transfers’. While the case of
such extraordinary payments made by government as part of its social function is treated by the
ESSPROS Manual in §77A under government contributions (see below), extraordinary payments
of the same nature but made by employers are not mentioned under the schemes’ receipts. The
ESSPROS task force has discussed a national case of this type(29) and concluded that these
extraordinary payments should be treated as social contributions in ESSPROS.
Another case identified by the task force regards contributions unlikely to be collected. In national
accounts, when the general government accounts record contributions unlikely to be collected
under receipts (due, for example, to the use of data from tax declarations rather than actual
receipts), a capital transfer (D.99) of the same amount from government to the relevant sectors
(28) This is also mentioned in ESA 2010 manual in §22.120 with regards to data on social benefits and how it compared to data in ESSPROS.
(29) In Switzerland, if a pension fund records an exceptional negative balance (or is expected to do so), the pension fund can demand that
employers pay restructuring contributions (Sanierungsbeiträge – Arbeitgeber) and one-off contributions (Einmaleinlagen und Einkaufssummen
– Arbeitgeber) in order to restore (respectively secure) the financial balance.
Switzerland also presented to the task force the case of voluntary lump-sum contributions where insured persons can purchase additional
regulatory benefits through a one-off lump sum contribution (Einmaleinlagen und Einkaufssummen – Arbeitnehmer) to the pension fund. Such
purchases are relatively common (because the payments are tax deductible) and their value can be considerable. It was concluded that in
ESSPROS they fall under social contributions. In the Swiss national accounts these contributions are also recorded as a capital transfer.

Capital transfers 6
has to be recorded to compensate for this (ESA 2010, §4.95). At present, there is no guideline
requiring the application of this approach in ESSPROS. However, if there were, it would certainly
require that the amount for this type of capital transfer be recorded as a negative component under
social contributions.
 General government contributions (2200000). The ESSPROS Manual notes that general
government contributions may include both current and capital transfers (ESSPROS, Part 1,
section 5.2, §77B). Such contributions may include payments to cover deficits of a scheme or
payments to increase actuarial reserves (§77A mentioned above), both of which are recognised as
forms of other capital transfer (D.99) in national accounts.
However, §77B specifies that only transfers received by institutional units in their capacity as
administrators of social protection schemes are included in ESSPROS. Appendix VII of the
ESSPROS Manual, which deals with the classification of types of government disbursement, notes
that government payments (to market producers, other government institutions or non-profit
institutions serving households) ‘to finance capital formation and granted to institutional units
whether or not they are running social protection schemes’, which are covered as investment
grants (D.92) in national accounts, are excluded from ESSPROS (§4(vi) & §5(iii)). This reflects the
general principle that ESSPROS deals with the accounts of schemes, not of institutional units.
The example given in §77B aims to demonstrate that investment grants are to be included when
they are granted to social protection schemes: ‘investment grants specifically for social housing
associations are included, but investment grants on construction in general are excluded’.
However, the wording of the example is perhaps open to misinterpretation and a more explicit
wording could be proposed(30).
The example of social housing is taken up again in the ESSPROS Manual under §127 (part 1), in
the part on accounting conventions and valuation principles. When social housing schemes or
similar schemes are financed solely by the government, the ESSPROS Manual recommends that
the benefits in kind they provide are valued on the basis of the actual government transfers rather
than as the sum of costs incurred by the institutional unit for their production and supply to the
beneficiaries. Footnote 19 to §127 illustrates with an example that the total value of a capital
transfer received by the scheme should be spread across a number of years, with only a fraction of
it entering in the estimated value of the benefits for any given year. This can be seen as a
simplified form of amortisation of the sum received as capital transfer.
In addition, concerning general government contributions, §77D in part 1 of the ESSPROS Manual
also considers the case of a capital transfer from the scheme to general government, such as
withdrawals from the scheme's reserves. These must be treated in ESSPROS as negative general
government contributions.
Another case of national accounts capital transfer to be recorded under general government
contributions emerges in connection with Transfers from other schemes (Part 1, §82 ii). The
transfer of funds between schemes consists in a transfer of social protection rights in exchange for
cash or of other financial assets. When the two sides of the transaction are unbalanced, a capital
transfer is recorded for the amount corresponding to the difference (see ESA 2010, §17.179). In
practice, this case is observed when the general government takes over social protection
entitlements of beneficiaries from employers’ schemes that are outside the general government
sector, and receives a counterpart financial transaction of lower value. The difference is recorded
in national accounts as a capital transfer from government to the employer concerned. In
ESSPROS it should be recorded under general government contributions to the scheme to which
the rights are transferred.
Finally, capital taxes can be earmarked to finance social protection schemes. In this case, they
should be recorded as general government contributions under the sub-classification earmarked
(30) See footnote 27.

Capital transfers 6
taxes, which is defined to include ‘all kind of taxes’ (see Part 1, §79C).
 Transfers from other schemes (2300000)(31). Here ESSPROS identifies two sub-categories of receipt.
It seems clear that in general social contributions re-routed from other schemes (2310000) cannot
include transactions in the form of capital transfers for the same general reason as for social
contributions above. Further, recent work of the Task Force and the Working Group clarifies that
funds transferred between schemes when a beneficiary changes provider (Part 1, §82B (ii)) are
not distributive transactions(32), which also implies they cannot be capital transfers.
Finally, other transfers from other schemes (2320000) includes capital transfers and the case of a
transfer from one scheme to reduce the deficit of another (Part 1, §83) is given as an example
(other capital transfer, D.99, in national accounts). Further, there is the possibility that one scheme
may provide an investment grant to another, even if this seems unlikely in practice.
 Other receipts (2400000). At the top level, other receipts are defined as ‘miscellaneous current
receipts of social protection schemes’ (Part 1, §84) thereby apparently ruling out the inclusion of
capital transfers. However, the definition of the final sub-category of other receipts — other
(2420000) — includes ‘proceeds of collections (mainly gifts from households), net proceeds from
private lotteries, claims on insurance companies and large gifts such as legacies from the private
sector’ (Part 1, §86). From this list, at least the example of legacies is clearly mentioned as a
category of other capital transfer (D.99) in national accounts (ESA 2010, §4.165(e)). It would
seem, therefore that the inclusion of this type of capital transfer is foreseen even if the use of the
term ‘current receipts’ at the higher level is not helpful in this respect.
Summary: receipts
In sum, application of the main body of the ESSPROS Manual allows for receipts in the form of capital
transfers to be recorded in all four categories or sub-categories of receipts. Those in the form of other
capital transfers (D.99 in national accounts) can be included under all types of receipts, while capital taxes
(D.91) are possible only under government contributions. Investment grants (D.92) are possible under
government contributions and transfers from other schemes, though the latter case is likely to be rare.
However, the circumstances under which investment grants can be included would benefit from a clearer
presentation (ESSPROS Manual Part 1, §77B and Appendix VII), in particular to emphasise the need to
differentiate between the scheme and institutional unit as grantee.
Table 6 – Capital transfers in ESSPROS receipts: summary

Type of capital transfer
Type of receipt Investment grants Other capital
Capital taxes (D.91)
(D.92) transfers (D.99)
Social contributions   
General government contributions   
Transfers from other schemes  () 
Other receipts   
(31) Note that this is the counterpart to transfers to other schemes (130000).
(32) This aspect is treated in Chapter 8 on ‘Re-routed social contributions".

Capital transfers 6
CAPITAL TRANSFERS AND EXPENDITURE
ESSPROS recognises four main types of expenditure (ESSPROS, part 1, Table E):
 Social benefits (1100000) are transfers, in cash or in kind, to individuals or households in order to
relieve the burden of one or more risks/needs. Appendix VI, which deals exclusively with
differences between ESSPROS and national accounts, indicates that social benefits in ESSPROS
may include benefits in the form of capital transfers(33):
‘(ii) the ESSPROS definition of social benefits covers both current and capital transfers; the
national accounts definition refers to current transfers only;’
This difference is also mentioned in the ESA 2010 manual under §22.120.
However, in practice there seem to be very limited cases of capital transfers to be included under
social benefits and the ESSPROS Manual provides no clear examples.
In the case of the housing function, which is the only obvious place in which a scheme might
finance an asset owned by a protected person, §79 (ESSPROS, part 2) explicitly rules this out: ‘All
capital transfers (investment grants) are excluded.’
One possible case of a capital transfer to be recorded under social benefits could be in case of
natural disaster when the government provides alternative housing or funds to build new housing
to replace lost stock, though there is a question as to whether such transfers would occur within
the scope of a social protection scheme with a clear set of rules regarding the provision and
financing of such benefits (§42, ESSPROS, part 1). Indeed, ad hoc support is explicitly ruled out in
part 2 of the ESSPROS Manual where §80 reiterates some of the borderlines of ESSPROS in
order to delimit the social exclusion function. In particular, it notes that ad-hoc or incidental types of
support including ‘humanitarian aid and emergency relief in the event of natural disasters’ are by
convention excluded. On the other hand, this does not preclude such support being delivered as
social benefits through a scheme that is established specifically (and so including regular
management and accounting) to provide relief in case of natural disasters. This is also consistent
with ESA 2010, §4.165(a), which classifies under Other capital transfers (D.99) ‘payments to the
owners of capital goods destroyed or damaged by acts of war, other political events or natural
disasters’.
The category of other capital transfers in national accounts (D.99) could offer other cases with
potential relevance to the ESSPROS category of social benefits. In particular, the cancellation of
debt (ESA 2010, §4.165(f)) may warrant further consideration. Indeed, §85C (ESSPROS Manual,
part 2) specifically recognises cancellation of debt as a social benefit. However, it also notes that
simply writing off a debt is not:
‘Cancellation of debt with the scheme's consent is also classified as a social benefit in ESSPROS,
however simple recognition by the scheme that a financial claim on a debtor household can no
longer be collected due to bankruptcy or similar circumstance does not qualify as a social benefit.’
This clarification follows national accounts methodology which says that ‘The unilateral repudiation
of debt by a debtor is also not a transaction and is not recorded.’ (ESA 2010 §4.165(f)). A specific
case of cancellation of debt by general government for social protection reasons — to be treated
as social benefit — is mentioned in Appendix VII, §3(i): the government makes a loan to
households and subsequently cancels out the outstanding debt. Otherwise, the ESSPROS
category of social benefits deals exclusively with transfers to protected persons. In order for a
cancelled debt to be recorded as a social benefit it must, therefore, be a debt owed by a protected
person to the scheme. Hence, the practical relevance of this category appears limited.
(33) In national accounts, capital transfers (D.9) is a separate classification from that on social contributions and social benefits (D.6) thus capital
transfers can only be reported in the former. The fact that a paragraph highlighting differences between ESSPROS and national accounts
refers only to social benefits seems to suggest that there should be no difference for social contributions. However, analysis in section 6.3
suggests that there can be differences.

Capital transfers 6
Another case that could fall within the sub-category are compensatory transactions deriving from
court decisions related to past benefits payments. For example, if a government passes legislation
to reduce the amounts of pension benefits and this is later ruled illegal/invalid by a court decision,
the compensation paid by the scheme to pensioners to compensate for the amounts not received
while the legislation was in force are other capital transfers (D.99) in national accounts and should
be reported as social benefits (1100000) in ESSPROS.
On balance, therefore, the ESSPROS Manual would appear to support the possibility that social
benefits take the form of capital transfers only in a limited number of cases such as the
compensation for the impact of natural disaster by a social protection scheme (i.e. with a regular
management and accounting, aimed at the provision of individual services), the compensation
resulting from court decisions related to past benefits, and the case of debt cancellation.
 Administration costs (1200000) cover the costs of managing and administering a scheme, including
general overheads. Here it is difficult to see where any capital transfer linked to the acquisition or
disposal of an asset could be considered as administration costs and there are no examples in
national accounts to change this view. Further, guidelines on valuation of administration costs are
clear that costs cover only ‘… intermediate consumption, compensation of employees,
consumption of fixed capital...’ (ESSPROS, Part 1, §130), which rules out the inclusion of capital
transfers.
 Transfers to other schemes (1300000). This category of expenditure is the direct counterpart of
transfers from other schemes (2300000) on the receipts side. Consequently, the same arguments
apply to the two subcategories: capital transfers cannot appear in re-routed social contributions
(1310000) but they may be clearly included in other transfers to other schemes (1320000). For
example, a transfer made by one scheme to reduce the deficit of another (ESSPROS, part 1,
§105) and, potentially, the case of one scheme providing an investment grant to another.
 Other expenditure (1400000). This category of expenditure includes the sub-categories of property
income (1410000) and other (1420000). It is clear that capital transfers are not relevant to the
former with §107 (ESSPROS, part 1) explaining that property income usually refers to interest
payable by schemes in respect of loans. There is, however, some scope for capital transfers in
relation to the sub-category of other, §108 (ESSPROS, part 1) making specific reference to the
‘payment of taxes on income and wealth’. Although most taxes on income or wealth are part of a
separate category of current distributive transactions in national accounts (D.5), some capital taxes
(D.91) may be relevant. For example, the type of exceptional levies described in §4.149(b) of ESA
2010 could arise in the case of institutional units managing schemes that have invested in land:
‘occasional and exceptional levies on assets or net worth owned by institutional units. These
include betterment levies, that is taxes on the increase in the value of agricultural land due to
planning permission to develop the land for commercial or residential purposes.’ It should be clear,
however, that whilst regular taxes on capital gains may be part of the ESSPROS category of other
expenditure they are not capital taxes.
Summary: expenditure
In sum, the ESSPROS Manual would appear to support the inclusion of expenditures in the form of capital
transfers under the categories of social benefits, other transfers between schemes and other expenditure
but not as administration costs. There would appear to be no basis for reporting investment grants (D.92)
as expenditure except as a transfer between schemes, even if this seems unlikely in practice. Indeed,
further clarification of this in the manual is needed as it is a common point of misunderstanding.

Capital transfers 6
Table 7 – Capital transfers in ESSPROS expenditure: summary
Type of expenditure Investment grants Other capital
Social benefits   
Administration costs   
Transfers to other schemes  () 
Other expenditure   
RECORDING CAPITAL TRANSFERS

The analysis above has identified the possibility for capital transfers to be included in the receipts and
expenditure of ESSPROS as summarised in Table 6 and Table 7 above. The types of capital transfer that
have thus far been identified by the Task force, also based on the replies from countries to specific
questionnaires, are:
 payments to cover deficits of a scheme;
 payments to increase actuarial reserves;
 legacies and gifts;
 capital taxes;
 compensation resulting from court decisions related to past benefits payments;
 compensation for natural disaster;
 and (possibly) cancellation of debt.
In general, the relevant transfers will be lump-sum cash, though transfers in kind are also possible (e.g.
property legacy).
By definition (ESA 2010, §4.145), capital transfers result in a change in the financial or non-financial assets
of one or both parties to the transaction. Their values should be recorded accordingly in ESSPROS.
Generally, this means the full value of the transfer should be recorded. On the other hand, when assets
received through a capital transfer are used to deliver social benefits over a number of accounting periods
then only the amortisation costs of the asset should be part of the value of the benefit(34).
6.3.3 ESSPROS and capital transfers: In practice

In February 2015, Eurostat circulated a questionnaire to the Working Group to collect information on the
implications of the methodological changes introduced by the adoption of ESA 2010 on the data for
ESSPROS. This included a specific question asking delegates about capital transfers — ‘Do you include
any capital transfers in the ESSPROS data on social benefits? Do you include capital transfers elsewhere
in the ESSPROS data?’ 30 of the 33 ESSPROS countries participating in the ESSPROS data collections
provided a reply to the questionnaire of which 19 replied to the question on capital transfers(35).
Responses to this question appeared to demonstrate some uncertainty amongst providers about what
constitutes a capital transfer. Indeed, the ESSPROS Manual does not give a clear definition and no
(34) See §127 (ii) (ESSPROS, part 1) and the accompanying footnote 19. The paragraph is essentially about the valuation of benefits in kind
financed by government transfers and recommends a specific valuation in relation to the value of the transfer as a proxy of the normal
principles for valuing benefits in kind (as included in ESSPROS, part 1, § 124).
(35) BE, CZ, DE, ES, FR, IT, LV, LT, HU, MT, NL, AT, PT, RO, SI, SK, SE, CH and NO

Capital transfers 6
additional guidance was provided at the time of the consultation. Consequently, a second consultation was
conducted using an extended questionnaire in June 2016 after the 2016 Working Group. A total of 24
countries replied to this consultation(36). Overall, of the 9 countries that did not reply, only 6 also failed to
respond to the question on capital transfers in the 2015 questionnaire so that no information is available for
these (DK, EE, IE, EL, PL and IS).
Results for 27 countries (24 recent responses plus 3 previous responses) are summarised in Table 8Table
8. Ten countries report currently including capital transfers in ESSPROS (BG, DE, HR, CY, LU, HU, MT,
PT, RS and CH) while three (BE, NL, IT) either included capital transfers in the past or acknowledge that
some may be included in the future.
Table 8 – Summary of the reporting of capital transfers in ESSPROS
Investment grants Other capital
Type of receipt
Social contributions - - CH (1)
General government
- BG, LU, CH (3) HR, CY, CH (3)
contributions
Transfers from other schemes - - BG, HR, HU (3)
Other receipts - BG (1) BG, PT, CH (3)
Type of expenditure
Social benefits - DE, LU, MT, RS (4) DE, CY, CH (3)
Administration costs - - -
Transfers to other schemes - - BG, HR, HU (3)
Other expenditure BG (1) - PT (1)
The results are, for the large part, consistent with expectations in that capital transfers of different types
(D.91, D.92 or D.99) are, in practice, reported under ESSPROS classifications consistent with the
theoretical mapping. There is, however, one key inconsistency. A number of countries informed that they
currently report investment grants (D.92) as expenditure on social benefits. For these cases, bilateral
discussion is needed to reaffirm whether investment grants (D.92) are really reported as a lump sum or
whether amortisation has been applied in the valuation of a benefit. There is no clear evidence that
investment grants (D.92) can be directly reported as expenditure on social benefits. For example, some of
the cases concerned include investment grants for housing associations to construct housing which appear
to be explicitly ruled out by §79. A second minor inconsistency is that one country (Bulgaria) informed that
they currently report investment grants (D.92) as other receipts. Again, further bilateral discussion is
needed to investigate this.
(36) BE, BG, CZ, DE, HR, IT, CY, LV, LT, LU, HU, MT, NL, AT, PT, RO, SK, FI, SE, UK, TR, RS, CH and NO

Capital transfers 6
6.4. Conclusions
In defining the scope of the Core system, the ESSPROS Manual clearly indicates that both current and
capital transfers are included in the receipts and expenditures of social protection schemes (Part 1, §36).
National accounts identifies three types of capital transfers: capital taxes (D.91), investment grants (D.92)
and other capital transfers (D.99). In ESSPROS, capital taxes may occur in receipts under general
government contributions in the form of earmarked taxes (item 21) and in expenditures under other (item
42). Investment grants may occur in receipts (§77B) as general government contributions and (potentially,
but less likely) as transfers from other schemes on both sides of the accounts. The majority of capital
transfers relevant to ESSPROS will therefore be other capital transfers. These may include transfers to
reduce accumulated losses or to increase actuarial reserves, compensation to owners of capital goods
damaged by natural disasters, compensation resulting from court decisions related to past transactions and
legacies or gifts or similar. Debt cancellation remains a further possibility but it is rare to encounter this in
practice given that unilateral write-off of debt is explicitly excluded (in national accounts as well as
ESSPROS).
Evidence of current practice demonstrates that some lack of clarity exists amongst data providers. Some
amounts currently recorded in ESSPROS would appear to be out of scope, specifically investment grants
reported as expenditure on social benefits. Further bilateral discussion is needed with the countries
concerned to resolve these issues.
The ESSPROS Manual does not treat capital transfers systematically and the lack of clarity in this respect
causes some uncertainty amongst users, which is not helped by some ambiguous paragraphs. The manual
should be revised to clearly define capital transfers, the types that can be included (with clear examples)
and where.

Manual
Amendments to the ESSPROS Manual are recommended as listed below (changes are shown in red).
Note that none of the changes proposed impact the approach adopted by ESSPROS regarding capital
transfers, they simply seek to clarify it.
Note that the proposals for §82 and §83 (ii) below reflect changes to the current text of the manual required
in relation to the issue of capital transfers only. Further changes to these paragraphs are also proposed in
relation to the treatment of re-routed social contributions in the document for item 8.5. The final result will,
subject to the decisions of the Working Group, therefore be a combination of these proposals.
PART 1
§36 Part 1 is clear that both current and capital transfers are included in ESSPROS. There is no need to
adjust this but a general paragraph to define capital transfers and clarify their coverage in ESSPROS
should be added after this to provide more explicit guidance. This should be consistent with ESA 2010.
§36A Capital transfers require the acquisition or disposal of an asset, or assets, by at least one of the
parties to the transaction. Whether made in cash or in kind, they result in a commensurate change
in the financial, or non-financial, assets shown in the balance sheets of one or both parties to the

Capital transfers 6
transaction.
Capital transfers is a concept used in national accounts, which can be sub-divided into three sub-
categories:
 Capital taxes refer to exceptional taxes on assets owned or transferred. An example that is potentially
relevant to ESSPROS could be a one-off tax on property assets owned and put at the disposal of a
scheme by the institutional unit supporting it — e.g. a tax on the increase in value of land or
property affected by changes in land use or planning regulations.
 Investment grants refer to transfers to finance the acquisition of fixed assets (buildings, transport
equipment, machinery, etc.). For example, money transferred to a social housing organisation to
facilitate purchase of additional accommodation is a capital transfer in cash.
 Other capital transfers refer to redistribution of savings or wealth. Examples include transfers to cover
accumulated or exceptional losses and transfers made to compensate for the impact of a natural
disaster.
ESSPROS includes transactions that fulfil the definition of a capital transfer (and fall within any of
the sub-categories identified above) where these also meet the definitions of the types of
expenditure and receipts of social protection schemes laid out in this manual.
It is important to note that, in general, ownership of assets is associated with the institutional units
running a social protection scheme rather than the scheme in its own right. ESSPROS only covers
capital transfers that relates to assets put at the disposal of the scheme by the institutional units
running them — i.e. those granted specifically for the purpose to finance or provide social
protection.
§77A to be adjusted to clearly indicate that the transactions referred to are capital transfers.
§77A Class (i) includes, for instance, government expenditure on government-controlled schemes that
guarantees a certain minimum income to all residents of the country in question and the cost of
providing goods and services to indigent households as a matter of public assistance.
Class (ii) includes, among others, unrequited payments made by government to government and
not government-controlled social protection schemes to contribute to the cost of benefits provided
by these schemes, supporting their administration costs or covering deficits incurred over current
or previous accounting periods. Also included here are capital transfers in the form of extraordinary
payments by government designed to increase the actuarial reserves of social protection schemes
and the proceeds of lotteries which government puts to their use.
§77B to be adjusted to replace the footnote with a reference to §36A and provide extra clarification.
§77B Both current and capital transfers are included (see §36A). A clear distinction should be made
between transfers that institutional units running a scheme receive in their capacity of
administrators of social protection schemes and transfers which they receive in other capacities.
While the former are recorded as general government contributions, the latter are not recorded at
all in the ESSPROS, as they are not expressly granted to finance social protection. The former
result in assets owned and made available to the scheme by the institutional units, meaning that
they are granted specifically to finance social protection and are thus recorded as general
government contributions. The latter result in assets owned but not made available to the scheme
by the institutional units and are thus not recorded in ESSPROS. For example, investment grants
provided to an institutional unit specifically for the purpose of delivering social housing through a
social protection scheme associations are included, but investment grants on provided to an
institutional unit for the purpose of construction in general are excluded.
§77D, §82B, §83, §83A and, §86 to be adjusted to clearly indicate the transactions referred to are capital
transfers(37).
(37) Concerning the treatment of transfer of funds between schemes linked to an insured person moving from one scheme to another, see

Capital transfers 6
§77D If, for budgetary reasons, the government takes money out of the reserves of government-
controlled social protection schemes, the relative amount of this capital transfer is accounted as
negative General government contributions for those schemes.
§82B In practice, the following two cases fall within this category:
(i) social contributions that social protection schemes pay on their own behalf for the benefit of
their beneficiaries to other social protection schemes. For example, when an unemployment
benefit scheme pays social contributions to the sickness scheme for the benefit of its
beneficiaries;
(ii) the transfer associated with the movement of funds linked relating to an insured person moving
switching from one scheme to another. For example, iIn the United Kingdom, payments of this
type occur when an insured person decides to opt out of SERPS and out of their Occupational
pension plan in order to set up an Appropriate Personal Pension Plan. In this case, the National
Insurance Fund transfers his/her social contributions to the selected Plan.
§83 Other transfers from other schemes (ref. 32)
An example of other transfers from other schemes is contributions in the form of a capital transfer
made by one scheme to reduce the deficit of another.
§83A Transfers from/to other schemes exclude:
(i) payments for delivery of goods or services (there is a quid pro quo);
(ii) the transfer associated with the movement of funds linked relating to an insured person
moving switching from one scheme to another (.tThis is recorded as Social contributions re-routed
from other schemes,. (see paragraph 82);
(iii) social contributions that social protection schemes pay on their own behalf for the benefit
of their beneficiaries to other social protection schemes. These payments are treated analogous
to case (ii) as Social contributions re-routed from other schemes;
(iv) payments made by the government acting in its capacity of public authority rather than as
an administrator of social protection schemes. Such payments are classified as General
government contributions;
(v) payments between schemes as a consequence of transactions carried out by one scheme
on behalf of the other, for example, when a lower government scheme acts as an intermediary for
a central government scheme. These payments are not shown, because the ESSPROS only
records transactions in the accounts of the principal transactors. See paragraphs 137 to 139;
(vi) unrequited payments that resident social protection schemes receive from/pay to non-
resident schemes. As the latter belong to the sector Rest of the World (see chapter 9), which is
defined as a grouping of units without any characteristic functions and resources, they are not
identified separately. The payments in question will therefore be classified as Other receipts.
Remove term ‘current’ from the definition of other receipts to avoid conflict with §86 which indicates that the
sub-category other includes capital transfers and adjust §86 to clearly indicate that certain transactions
referred to are capital transfers.
§84 Other receipts (ref. 4) means miscellaneous current receipts of social protection schemes. They
are broken down into receipts of property income and other.
§86 The category Other (ref. 42) groups miscellaneous receipts not otherwise attributable, such as
proceeds of collections (mainly gifts from households), net proceeds from private lotteries, claims
on insurance companies and large gifts such as legacies in the form of capital transfers from the
private sector.
Chapter 8 on ‘Re-routed social contributions".

Capital transfers 6
§105 to be adjusted to clearly indicate the transactions referred to are capital transfers and ensure
consistency with counterpart §83.
§105 Other transfers to other schemes
An eExamples of other transfers payable to other schemes is the transfer of funds (capital transfer)
made by one scheme to reduce the deficit of another.
§127 to be adjusted to provide further clarity the appropriate use of capital transfers in the valuation of
benefits and make clear that this does not imply capital transfers are to be included as expenditure on
social benefits. Further example in footnote 19 to be replaced with examples in the main body of the text.
§127 If retirement homes, social housing corporations and similar are financed solely by the
government, it would be more convenient to estimate the value of these their services on the basis
to of the actual government transfers to the scheme providing them, rather than according to the
principles above. In this the case this approach is applied, the following two conditions must be
observed:
(i) only that part of the government transfer that applies to the is used as actual social
benefits should be taken into account, excluding any contributions towards other expenditure of
the scheme in the form of administration costs, transfers to other schemes or other expenditure;.
For example, if the government contributes a lump sum to allow a scheme to provide vocational
training to unemployed for a single year and this amount includes amounts to be used for the
administration of the training as well as the actual costs of the training programmes then the
amount intended for the administration costs should be deducted when estimating the value of the
vocational training to be reported as benefits in kind.
3. (ii) where transfers are intended to cover expenditure on benefits spanning several
accounting periods, amortisation should be applied to distribute it across the time span periods
during which the benefits are provided must be taken into account.
4. For example, if the government makes contributeions in the shape of a substantial lumpsum to
allow a scheme to invest in its real estate and enable it to provide social housing during multiple
reference periods (capital transfer in the form of an investment grant to be treated as government
contribution), its this amount should be allotted distributed between to the number of individual
each of the accounting periods during which the social housing funded by the transfer benefits is
are provided using amortisation. This will provide a more accurate reflection of the market price of
the housing services provided during the applicable accounting periods. (19)
(19) For example, a social housing corporation annually receives 210 units from government, of which 10 units
are a contribution to administration costs, and also received, a few years previously, a single capital transfer of
1000 units, allowing rents charged to be reduced over a period of 10 years. In this case, the benefits in kind
provided by the social housing corporation over a single year can be approximated as (210 - 10) + 1000/10 = 200
+ 100 = 300 units.
PART 2
§79 and §79B to be adjusted to provide better clarity
§79 Benefit to owner-occupiers: a means-tested transfer by a public authority to owner-occupiers to
alleviate their current housing costs:. iIn practice this often relates to help with paying mortgages
and/or interest. All capital transfers (in particular investment grants) are excluded.
§79B In principle, social housing benefit should be calculated as the difference between the theoretical
commercial rent and the actual rent paid by the tenant. However, this is difficult to estimate,
because commercial rent depends on many factors, such as location of the social housing unit,
year of construction, type of contract and so on. As a practical alternative, the value of the benefit
can be taken as equal to estimated on the basis of the government's contributions to the scheme

Capital transfers 6
concerned transfer. Further instructions can be found in paragraph 127, Part 1 of the Manual.

regulation(s)
The legislation makes no reference to capital transfers or any of the paragraphs earmarked for
amendments above therefore no adjustments are necessary.
6.5. Examples
Table 9 provide a number of specific detailed examples of capital transfers that are reported in ESSPROS
based on the information gathered during consultations conduced in 2015 and 2016.

Capital transfers 6
Table 9 – Examples of capital transfers reported in ESSPROS
Capital transfers reported in ESSPROS

1. If a person is obliged by law or voluntarily changes their pension scheme,
withdrawing funds from scheme 11 (II. Pillar pension insurance) and
transfers them to scheme 2 (I. pillar pension insurance), their accumulated
contributions a transferred between the schemes. In national accounts these
are recorded as other capital transfers (D.99). In ESSPROS these are
reported as social contributions rerouted to other schemes in the expenditure
of scheme 11 and as social contributions rerouted from other schemes in the
receipts of scheme 2.
2. The government grants scheme 6 small amounts each year (<1 % of the
HR 'scheme’s total receipts) to spend on improving and increasing the capacity
of social welfare homes. In national accounts these are recorded as
investment grants (D.92). In ESSPROS these are reported in the receipts of
scheme 6 as general government contributions. Further, these are also used
in the estimates for expenditure of the same scheme for social benefits
associated with accommodation in the Disability, Old-age and
Family/Children functions (items 1121201, 1131201 and 1151202). Here the
value of the investment grant is used as part of the estimate of the cost of
providing social welfare homes. Amortisation should be applied but in this
case the fact that grants are received each year suggests that it would not
impact on the estimate.
1. The Constitutional Court’s decision of April 2015 invalidated a 2011 article
suspending pension indexation in 2012 and 2013 for pensions three times
higher than the minimum pension. As a result, the government was required
IT to pay pensioners the amounts that they had not received as a result of the
suspension. In national accounts this expenditure is recorded as other
capital transfers (D.99). In ESSPROS these would seem to fall under social
benefits.
1. If a pension fund records an exceptional negative balance (or is expected to
do so), the pension fund can demand that employers pay restructuring
contributions (Sanierungsbeiträge – Arbeitgeber) and one-off contributions
(Einmaleinlagen und Einkaufssummen – Arbeitgeber) in order to restore
(respectively secure) the financial balance. In national accounts these are
recorded as other capital transfers (D.99) but in ESSPROS these would
seem to fall under social contributions.
CH
2. An insured persons can purchase additional regulatory benefits through a
one-off lump sum contribution (Einmaleinlagen und Einkaufssummen –
Arbeitnehmer) to the pension fund. Such purchases are relatively common
because the payments are tax deductable. These extra contributions can be
considerable. In national accounts these are recorded as other capital
transfers (D.99) but in ESSPROS these would seem to fall under social
contributions.

7
Benefits and recipients
above/below the standard
retirement age
7.1. Summary
The ESSPROS Manual and user guidelines restrict the scope of particular types of benefits based on the
age of recipients (either above or below the standard/legal retirement age). In the case that such a
restriction is not applied by default due to the eligibility criteria governing access to a benefit, the
ESSPROS rules mean that countries may be required to split data according to the age of recipients in
order to correctly allocate the expenditure to detailed benefit types. The purpose of these requirements, as
noted in §43E of Part 2 of the ESSPROS Manual, is to facilitate comparison between countries despite
potentially important differences in the way that old age, disability, and survivors’ benefits form part of a
coherent set of benefits and the internal borderlines that exist between them in national systems.
Work on related methodological clarifications in 2014, subsequent investigations, and discussions at the
Task Force meetings in 2015(38) and 2016(39) and Working Group in 2016(40) have revealed that the 2012
edition of the ESSPROS Manual and user guidelines(41) (and also the 2016 update(42)) are insufficient to
support a clear and unambiguous interpretation of what benefit types are affected by this convention and
how it should be applied, as a result of which, procedures are being applied inconsistently across countries.
In particular, the guidance on how to identify the retirement age according to which data should be broken
down is not possible to apply in some countries and to certain types of benefit. Further, it has become
apparent that key guidance on identifying the retirement age needs to be addressed before other
associated issues can be resolved. Accordingly, the 2016 Working Group on Social Protection Statistics
agreed revised specifications for establishing the retirement age.
This document summarises the issue and solutions found and makes recommendations for the necessary
changes to the ESSPROS Manual and regulations.

The 2016 edition of the ESSPROS Manual and user guidelines does not support a clear and unambiguous
interpretation of how to identify the retirement age to be used when splitting data according to the age of
recipients. Further, the existing guidelines appear to be impossible to apply in certain circumstances — that
is when (1) there is no legal/standard retirement age applied across schemes and (2) there is no standard
retirement age for a scheme. Ultimately this means that data are not reported in a consistent manner
(38) See DOC_SP-TF-2015-03.1

(39) See DOC SP-TF-2016-03.1
(40) See DOC SP-2016-9.6

Benefits and recipients above/below the standard retirement age 7
across countries.
7.3. Analysis
7.3.1 Purpose of establishing the retirement age for
ESSPROS
Before looking in detail at the guidance on how to establish the retirement age it is first important to
understand the role that the retirement age plays in the production of ESSPROS statistics.
In each country, certain social benefits form a national pension system in which each benefit plays a
specific role to address a particular risk/need and circumstances, thus targeting different parts of the
population. The boundaries between benefits within national systems, and thus the scope of different forms
of benefit, vary between countries.
Pension systems in some countries make a clear distinction between those intended for persons expected
to remain active in the labour market (though to different extents) and those intended for persons expected
to be fully retired for age related reasons, with the possible exception of survivors’ pensions based on
derived rights. However, this is not always the case. The most notable example of this is the disability
pension. In one country, a disability pension may be paid to all disabled up until they are eligible for
retirement, after which the disability pension ceases and they receive instead an old age pension. This is
essentially an administrative reclassification of the benefits. In another country, a disability pension may be
paid to all disabled irrespective of age, with no possibility of a transfer to an old age pension. In these
circumstances the disability pension effectively acts as an old age pension for recipients over the
retirement age.
If ESSPROS allowed countries to report pension benefits according only to their general overarching
purpose — i.e. all disability pensions are disability irrespective of age of the recipient — then this would
lead to important differences in expenditure by function between countries even if the protection provided
is, in practice, the same. In an attempt to facilitate comparability in the functional breakdown of expenditure
across countries, ESSPROS therefore requires countries to establish a legal/standard retirement age which
can be used to split expenditure on pensions paid to people both above and below this age and to re-
classify, by convention, those above it as old age pensions in the old age function. This is essentially a
statistical reclassification of the benefits. In this way, the old age function clearly separates out benefits
intended for people that have retired from the labour market.
7.3.2 Guidance in the ESSPROS Manual and user

guidelines
The definition of the legal and standard retirement age is given in §43 of Part 2 of the 2016 edition of the
ESSPROS Manual and user guidelines as follows:
§43 The legal retirement age for old age benefits means the age at which old age benefits become
payable, if laid down [in](43) legislation or by contract. This age can vary both between countries
and within Member States, depending on the sector of activity, occupation, gender and so on.
When no legal retirement age exists, a standard retirement age is to be used, which means the
retirement age offered by the scheme that paid the pension to the beneficiary.
§43A to §43F provide further guidance. Most notably, §43A notes that the list of schemes adopted should
allow ‘a legal retirement age to be applied or a standard retirement age to be defined at the scheme level.’
(43) Word missing from the manual.

This suggests that the organisation of schemes can impact the standard retirement age established at
scheme level, though no guidance is offered on how to achieve this.
However, as illustrated in Figure 1, the specification that anticipated old age pensions, disability pensions,
and early retirement benefits (both in case of reduced capacity to work and for labour market reasons) are
paid only to those below the legal/standard retirement age (see §24, §25, §36A and §67) is not possible to
apply if (1) there is no legal retirement age applied across schemes and (2) there is no legal or standard
retirement age applied by the scheme.
Indeed, where a single legal retirement age is not applicable across all schemes there can be
complications in distinguishing anticipated pensions. In the case of a scheme providing several types of old
age pension, including both old age and anticipated pensions, there is likely to be a clearly identifiable
standard retirement age so that differentiation between the different types of pension is relatively
straightforward. However, in the case of a scheme which only provides a disability pension there may be no
clearly identifiable standard retirement age. It would therefore be unclear how it should be reported in
ESSPROS (indeed §24 of part 2 would impossible to apply in this case). Only when such a scheme is
viewed in the context of pensions provided by other schemes may it become clear whether the pensions
should be split by age and what reference age to use when doing so. Further, this issue may also extend to
any other type of benefit where the manual prescribes a split based on the retirement age – anticipated old
age pension, early retirement benefits in case of reduced ability to work, care allowances, etc.
Figure 1 – Determining the ‘reference retirement age’ of a scheme (guidance in the current
manual)
Is a legal retirement age(s) laid down in legislation or

by contract?
Yes
Note: There may be several legal retirement ages Reference retirement age to be applied is the legal
when legislation sets different ages for different retirement age(s)
groups of individuals (i.e. according to sector of

activity, occupation, gender and so on)
No
Is there a standard retirement age, that is a Yes

Reference retirement age to be applied is the standard
retirement age designated by the scheme providing
retirement age set by the scheme
the pension?
No
Further, in many countries it is unworkable to use the statutory retirement age as there are legal ages fixed
for each scheme and age thresholds may vary through time (e.g. linked to increasing life expectancy) and
between different groups of beneficiaries. As shown above, the guidance does not provide a clear
alternative where there is no workable legal/standard retirement age. In such cases, the distinction
between pensions paid to those above or below the retirement age can only be established when the
scheme is considered in the context of other schemes. For these reasons, some countries, such as Italy,
use a set age of 65 to split disability benefits provided to those above and below the retirement age even
though there is no mention of this age in legislation.
On this basis, it is worth considering possible changes to the ESSPROS guidelines for determining the age
of retirement. In order to encourage the use of breakdowns by age, the process should be as simple as
possible, but at the same time provide a sound basis to ensure a meaningful split.
Further, there are several areas where clarification and further work is needed:

 Laid down ‘by contract’: §43 informs that the legal retirement age may be laid down by contract,
although it is unclear from this paragraph what this actually means. The legal retirement age of a
scheme forms part of the body of rules that define a scheme, which (according to §42, part 1) can
take the form of ‘laws, regulations, contracts’ or ‘de facto […] administrative practices’. The phrase
‘by contract’ thus appears to refer either to collective contracts, such as sectoral agreements, or
contracts between the employer and the employee.
 Existence of multiple legal retirement ages: Whether there should be a more specific range of
circumstances in which the legal retirement age can vary may needs to be considered. In some
countries, a legal retirement age may be set for disabled so that they are allowed to retire at an
earlier age than the rest of the population.
 Procedure when no legal/standard retirement age exits: As illustrated in the above decision tree,
there is currently no instruction on the procedure to follow in cases where there is no generally
applicable legal retirement age and no legal or standard retirement age at scheme level. Some
guidance is necessary for clearly differentiating anticipated old age pensions, disability pensions,
and early retirement benefits for both reasons from old age pensions.
7.3.3 Possible improvements to the guidance

In order to address the issues illustrated above, Eurostat proposes to replace the current concept of the
‘legal/standard retirement age’ with a more general concept of the ‘reference retirement age’ based on the
solution shown in Figure 2. The Working Group on Social Protection Statistics was consulted by written
procedure in February 2017 and, according to the comments expressed(44), agreed with this proposal.
(44) Comments received from BE, BG, IE, LT, LV, PT, SK and NO.

Figure 2 – Proposal for determining the reference retirement age of a scheme
Does the scheme providing the pension specify a Yes Reference retirement age to be applied is the standard
standard retirement age or multiple standard
retirement age set by the scheme. (2) (3)
retirement ages? (1)
No
Yes Reference retirement age to be applied is the generally

Is there a generally applicable legal retirement age or applicable legal retirement age in the country. (2) (3)
multiple legal retirement ages in the country? (1)
No
Where there is a single scheme of reference, the

Is there one or more particularly important scheme(s)
reference retirement age to be applied is the
in the national pension system which can be
standard retirement age(s) set by the scheme of
considered representative of the system as a whole
reference. (2) (3)
(i.e. scheme(s) of reference) and for which there is
either a single standard retirement age or multiple
Yes
standard retirement ages that can be used to define
No Where there are two or more schemes of reference, the
a representative standard retirement age for the
country as a whole? (1) reference retirement age to be applied is a
combination of the standard retirement ages set by
the schemes of reference. (2) (3)
No
Reference retirement age to be applied is the
retirement age applied in national statistics. For
example, this could be the age used in demographic
Is there a set retirement age or a conceptual proxy Yes statistics for identifying the start of the old aged
used in national statistics? cohort of the population (or the age at which people
are no longer considered part of the working-age
population).
No
As a last resort, the reference retirement age to be
applied is the retirement age applied in
international/European statistics. For example,
European demographic statistics currently use 65 to
define the old aged cohort of the population (the age
at which people are no longer considered part of the
working-age population which is defined as 20-64 in
EU2020 indicators)
Notes:
1. There may be multiple legal/standard retirement ages when the law/ scheme sets different ages for different groups of
individuals (i.e. according to sector of activity, occupation, gender and so on).
2. In the case of multiple legal/standard retirement ages sets for different group of individuals (see note 1) a split according to all
reference ages should be applied where possible. However, where this is not possible/practical, a pragmatic solution taking into
account the information on various legal/standard retirement ages may be applied. For example, an average of the
legal/standard ages may be one option to be considered.
3. In the case a retirement age interval is defined instead of a single age, or the retirement age is variable over the reference
period, a split according to the specifically applicable retirement ages should be applied where possible. However, where this is
not possible/practical the retirement age to be applied can be set to a specific age (between the limits of the age interval or an
appropriate average between the applicable retirement ages during the reference period) which is the most representative of the
national situation.

7.4. Conclusions
The 2016 edition of the ESSPROS Manual and user guidelines5 does not support a clear and unambiguous
interpretation of how to identify the retirement age to be used when breaking down data according to the
age of recipients. Further, the existing guidelines appear to be impossible to apply in certain circumstances.
In order to address these issues, a solution has been agreed by the Working Group on Social Protection
Statistics in order to provide clear and comprehensive guidance that can be applied in all situations. A
series of changes to the guidelines and regulations are proposed in order to implement this solution.

Manual
PART 2
The key change is to replace §43 of part 2 of the manual with the following text, revise §43A and rename
the heading for section 4.2.3 to ‘Reference retirement age for old age benefits’.
§43 The reference retirement age refers to the age at which the right to receive an old age pension
(see § 35 of part 2) is granted(45). This is a fundamental concept for the definition of the Old age
function (see §33 of part 2).
Determining the reference retirement age for a scheme is not always straightforward and the
method used is liable to vary depending on how retirement ages are set in the national pension
system. In order to understand how this should be determined, first the following definitions need
to be laid out.
Legal retirement age: age at which old age pensions become payable according to the national
legislation.
Standard retirement age: age at which the pension provided by the scheme becomes payable
according to the rules of the scheme (see § 44 of part 1).
Scheme(s) of reference: Important scheme(s) in the national pension system which can be
considered representative of the system as a whole and for which there is either a single standard
retirement age or multiple standard retirement ages that can be used to define representative
retirement age(s) for the country as a whole.
The reference retirement age should be set according to the best available option from the
following list (in descending order of accuracy):
Standard retirement age(s) set by the scheme
Generally applicable legal retirement age(s) in the country
Standard retirement age(s) set by the scheme of reference or combination of the standard
retirement ages set by the schemes of reference
Retirement age applied in national statistics. For example, this could be the age used in
demographic statistics for identifying the start of the old aged cohort of the population (or the age
at which people are no longer considered part of the working-age population).
(45) The use of the term ‘retirement" doesn't imply that the beneficiary must be retired from work to become entitled to an old age pension.

Retirement age applied in international/European statistics. For example, European demographic
statistics currently use 65 to define the old aged cohort of the population (the age at which people
are no longer considered part of the working-age population which is defined as 20-64 in EU2020
indicators)
The reference retirement age should never be set to the average observed retirement age as this
will be influenced by individuals who retire early or continue to work after becoming eligible for
retirement.
§43A It is not always possible to establish a single legal/standard retirement age for each country. There
may be multiple legal/standard retirement ages when the law/scheme sets different ages for
different groups of individuals (i.e. according to sector of activity, occupation, gender and so on). In
such cases a split using the reference age applicable to each group of recipients should be applied
where possible. However, where this is not possible/practical, a pragmatic solution may be
applied, for example taking into account the various legal/standard retirement ages and the
distribution of recipients amongst the groups to which different ages apply.
There may also be cases where a retirement age interval is defined instead of a single age, or the
retirement age is variable over the reference period. In such situations, a split according to the
specifically applicable retirement ages should be applied where possible. However, where this is
not possible/practical the retirement age to be applied can be set to a specific age (between the
limits of the age interval or an appropriate average between the applicable retirement ages during
the reference period) which is most representative of the national situation.
For example, in many countries the standard retirement age for women is lower than that for men,
even if it is progressively being brought into line with the latter. The standard retirement age for the
self-employed is sometimes higher than that for employees, or, vice versa, civil servants can, in
some countries, retire earlier. The definition of schemes (scheme list) should allow a legal
retirement age to be applied or a standard retirement age to be defined at the scheme level. It has
to be kept in mind that the standard retirement age is not an average retirement age.
Difficulties appear, if transitional periods exist or an age frame for retirement is offered to the
protected persons (between 63 and 67 in Finland for example). In these cases a standard
retirement age has to be defined with the aim of identifying properly the pensions that should be
recorded under the item anticipated old age pension.
In The Netherland, on an other hand, it is possible to work until 67 years and to receive a higher
pension.
Consequently, the breakdown between ‘old age pension’, and ‘anticipated old age pension’ and
‘partial retirement pension’ is based on accurately establishing a reference retirement age not easy
to provide,. As a result, the comparability of and data between countries may be limited in some
cases. could be not comparable from country to country.
Replace the term ‘standard/legal retirement age’ with ‘reference retirement age’ in §6 improve consistency
with revised §43.
§6 An important concept to distinguish clearly between the old-age function and others is the concept
of a standard/legal reference retirement age. Old age benefits are generally granted to
beneficiaries above the standard/legal reference retirement age. Disability is then limited to the
integration into the workforce and early retirement benefits are only benefits paid to recipients
below the standard/legal reference retirement age. The specific reference age is mostly usually
defined for each scheme separately according to the standard retirement age set by the scheme,
the legal retirement age of the country or, in a few some cases, the standard retirement age set by
a scheme or schemes of reference. See §43 for further details. determined by a reference scheme.
Replace ‘legal retirement age’, ‘standard retirement age’, ‘legal/standard retirement age’, ‘legal or standard
retirement age’ or ‘legal/standard age’ with ‘reference retirement age’ in §21, §24, §25, §32E, §35, §35A,
§36, §36A, §43B, §43C, §43E, §51A, §62, §67 and §67A.

APPENDIX I: THE ESSPROS QUESTIONNAIRE DETAILED CLASSIFICATION
Replace ‘standard retirement age’ with ‘reference retirement age’ in section on survivors’ function. Changes
to the questionnaire template will also be required.
APPENDIX III: METHODOLOGY OF THE MODULE ON PENSION BENEFICIARIES

Adjust terminology and remove references to Commission Regulation in §16 and §25.
§16 At ‘scheme’ level, figures for the ‘Total’ (Men and Women) column are compulsory just for those
items, out of the 14 (categories and subcategories), treated by that particular scheme.
For any scheme, qualitative information has to be provided with respect to:
(a) Legal or standard Reference retirement age by gender.
A legal/standard reference retirement age by gender must be indicated for each scheme providing
old-age benefits according to the definitions given in the Commission Regulation (EC) No 10/2008.
Further on this in paragraph section 4.1;
(b) Reference date / mode of calculation.
Under Annex II, point 2 of the EP and Council Regulation 458/2007 Ddata provision is established
with reference to the end of the calendar year. This figure refers to the number of beneficiaries on
31 December/1 January. Further on this in paragraph 4.
§25 The concepts of a reference legal and standard retirement age, defined in the Commission
Regulation (EC) No 10/2008, Annex I, are is necessary, as stated in the Part 2 of Manual, to
distinguish clearly between the old-age functions and other functions.
retirement age’ or ‘legal/standard age’ with ‘reference retirement age’ in §19, §24, §26, §27, §45 and §45A
and in the example in section 6A.
Rename section 4.1 to ‘Reference retirement age’.

regulation(s)
Amendments to the ESSPROS regulations are recommended as listed below (changes are shown in red).
COMMISSION REGULATION (EC) NO 10/2008

retirement age’ or ‘legal/standard age’ with ‘reference retirement age’ in §2.1.1, §2.1.2, §2.1.3, §2.1.4,
§2.1.7.
Replace §2.2 with the following.
§2.2 The reference retirement age should be set according to either the standard retirement age(s) set
by the scheme, the generally applicable legal retirement age(s), the standard retirement age(s) set
by the scheme of reference or a combination of the standard retirement ages set by the schemes
of reference, the retirement age applied in national statistics or the retirement age applied in
international/European statistics.

Re-routed social contributions 8
8 Re-routed social
contributions
8.1. Summary
In ESSPROS re-routed social contributions are transactions that represent actual economic flows between
social protection schemes whereby one scheme makes payments on its own behalf to another scheme in
order to maintain or accrue the rights of its protected people to social protection from the recipient scheme.
The distinction between re-routed and withheld social contributions, which are a liability of the protected
person and not the scheme, was discussed by the ESSPROS Task Force in 2015 (see DOC SP-TF-2015-
03.4) and led to a number of clarifying amendments to the ESSPROS Manual being agreed by the 2016
Working Group on Social Protection Statistics (see DOC SP-2016-9.9) and then published in the 2016
edition of the ESSPROS Manual and user guidelines. However, further analysis of the actual treatment of
re-routed social contributions in the ESSPROS Core system identified a number of additional issues that
were discussed by the Task Force in 2016 (see DOC SP-TF-2016-04.4).
The Task Force was in full agreement on two points. Firstly, that the second type of re-routed contributions
defined in the ESSPROS Manual (see § 82 in part 1) are in fact financial transactions and therefore outside
the scope of ESSPROS (see §36 in part 1). Secondly, that the clarification is needed regarding the
functional classification of re-routed social contributions on the expenditure side of the ESSPROS
accounts. The ESSPROS quantitative questionnaire requires a breakdown of re-routed social contributions
by function but the ESSPROS Manual provides no guidance on how to complete it. As a result, countries
are applying different interpretations and the comparability of the data is compromised. Recommendations
for the necessary changes to the ESSPROS Manual are made accordingly. No changes are needed to any
of the ESSPROS regulations.

Analysis of the treatment of re-routed social contributions in the ESSPROS Core system presented to the
Task Force in 2016 (see DOC SP-TF-2016-04.4) identified two clear issues in the 2012 edition of the
ESSPROS Manual and user guidelines(46):
1. The second type of re-routed contributions defined in §82B in part 1 is inconsistent with both the
definition of ‘re-routed contributions’ adopted in ESSPROS (§82) and the requirement that the
ESSPROS Core system only covers distributive transactions and administrative costs (§36, part
1).
2. The reporting of the breakdown of expenditure on re-routed contributions by function is
inconsistent across countries as a result of a lack of clear guidance.

These issues also exist in the 2016 edition of the ESSPROS Manual and user guidelines(47).
8.3. Analysis
8.3.1 Re-routed social contributions
Transfers between schemes are defined in the 2016 edition of the ESSPROS Manual and user guidelines
as ‘unrequited payments received from (receipts side)/made to (expenditure side) other social protection
schemes’ (see §81 and §103 of part 1). ESSPROS records two flows of equal value, one in the expenditure
of the paying scheme and one in the receipts of the recipient scheme. These flows are split between:
 Re-routed social contributions: ‘payments that a social protection scheme makes on its own behalf to
another scheme in order to maintain or accrue the rights of its protected people to social protection
from the recipient scheme.’ (see §82 on the receipts side and §104 on the expenditure side).
 Other transfers to/from other schemes: ‘An example of other transfers from other schemes is
contributions made by one scheme to reduce the deficit of another’ (see §83 and §105).
Re-routed social contributions include two main categories (see §82B):
1. social contributions that social protection schemes pay on their own behalf for the benefit of their
beneficiaries to other social protection schemes. For example, when an unemployment benefit
scheme pays social contributions to the sickness scheme for the benefit of its beneficiaries;
2. the transfer of funds relating to an insured person moving from one scheme to another. In the
United Kingdom, payments of this type occur when an insured person decides to opt out of
SERPS and out of their Occupational pension plan in order to set up an Appropriate Personal
Pension Plan. In this case, the National Insurance Fund transfers his/her social contributions to
the selected Plan.
The distinction between re-routed contributions, defined above, and withheld contributions is not based on
the actual transactions that take place. In practice, re-routed social contributions and social contributions
payable by protected persons and withheld by the paying scheme are both paid directly by the paying
scheme to the recipient scheme. The distinction is instead made only from the legal perspective of who is
liable to pay the contributions. In the case of re-rerouted contributions, the liability is that of the scheme
which pays the contributions on its own behalf, for the benefit of its beneficiaries. In the case of withheld
contributions, the liability is that of the protected persons receiving benefits and the scheme pays these
contributions on their behalf. The methodological basis for this distinction can be found in the ESSPROS
2016 manual §137 in part 1 section 8.6 on ‘Recognising the principal party’ as well as in ESA 2010 § 1.78.
From a legal perspective, therefore, the denomination ‘re-routed social contributions’ seems at odds with
the transactions it covers since re-routed social contributions are, in both a practical and legal sense,
transactions between the paying scheme and the recipient scheme without any third-party involvement (as
opposed to withheld contributions where the transaction is performed on behalf of the beneficiary/protected
person). However, from an economic perspective the protected person remains the beneficiary of the
transaction and, on this basis, can be seen as a third party. The current denomination is thus useful to
reflect the intended treatment of the transactions in ESSPROS, which is to reflect their economic
substance.
In national accounts, the technique of re-routing is recommended to bring out the economic substance of a
transaction beyond its legal reality (ESA 2010 §1.73-1.75). An example is employers’ social
contributions(48), which are recorded twice in national accounts — firstly as a transaction from the employer

(48) Contributions paid by an employer to a social protection scheme for the benefit of its employees.

to their employees and, secondly, as a transaction of equal value from the employees to the social
protection scheme — instead of recording the actual transactions from employers to social protection
scheme.
In the case of a scheme paying social contributions to another scheme for the benefit of its beneficiaries or
protected persons, the re-routing approach would imply recording two imputed transactions (instead of the
one reflecting the legal reality). Firstly, a transaction from the paying scheme to its beneficiaries, which may
be considered a form of ‘para-benefit’ additional to social benefits and, secondly, a transaction of the same
amount from the beneficiary to the receiving scheme, which may be considered a form of ‘para-social
contribution’. There is clear evidence that this treatment was intended in ESSPROS according to the 1996
version of the manual, which required re-routed social contributions to be reported as a sub-classification of
social benefits paid by the scheme to beneficiaries (who belong in the ‘households’ sector) and then as a
sub-classification of social contributions received by the recipient scheme. Indeed, the current ESSPROS
questionnaire maintains a feature that shows that the re-routing treatment is still intended to be applied in
that the questionnaire only allows the reporting of re-rerouted social contributions in the receipts (of the
receiving scheme) originating from ‘households’ and not the sector of origin of the institutional unit
supporting the paying scheme.
In contrast with the actual transaction they replace, the imputed transactions (‘re-routed’) do not ‘occur’
between schemes, but between schemes and households (protected persons). As a result, there are
doubts about whether ‘re-routed social contributions’ should be recorded as a sub-item of ‘transfers
between schemes’(49).
8.3.2 Treatment of type ii re-routed social contributions

The above analysis seems to indicate that the second type of re-routed social contributions identified in
§82B in part 1 — e.g. ‘transfers of funds relating to an insured person moving from one scheme to another’
— do not adhere to the definition of ‘re-routed social contributions’ because the paying scheme does not
transfer the funds to the receiving scheme on its own behalf but on behalf of the protected person, to whom
the funds legally belong and who decides ‘moving from one scheme to another’.
This raises the question about how/if these transactions should be reported in ESSPROS. Indeed, it is
questionable whether they comply with the definition of distributive transactions and thus the requirement in
§36 of part 1 of the ESSPROS Manual that the ESSPROS Core system only covers distributive
transactions and administrative costs.
Distributive transactions are defined in ESA 2010 (§4.01) as ‘transactions whereby the value added
generated by production is distributed to labour, capital and government, and transactions redistributing
income and wealth.’ Transactions that simply move funds and the associated pre-existing liability (to
provide social protection) from one scheme to another therefore cannot be considered distributive
transactions. Rather, they are financial transactions (see ESA 2010 §5.01). There is no net change in either
the funds available or the liability to deliver social protection. This type of transaction between schemes is
therefore outside the scope of the ESSPROS Core system. The definition of re-routed social contributions
in §82B in part 1 should be amended accordingly.
However, the Task Force noted the possibility to keep recording these transactions in ESSPROS, but
separately from the Core System.
8.3.3 Breakdown of expenditure on re-routed social

contributions by function
The quantitative questionnaire for the ESSPROS Core system requires expenditure on re-routed social
(49) This topic has been discussed in the Task Force in 2016, which at the time was not convinced of the need to re-classify the-routed social
contributions outside the item ‘transfers between schemes". Further reflection may be necessary.

contributions transferred to other schemes to be broken down by function. However, there is no reference
to this in the ESSPROS Manual, nor any guidance on how this breakdown should be applied.
The data currently available indicate that some countries complete this breakdown based on the function of
the qualifying benefit (e.g. in Spain, contributions paid by the unemployment scheme for the benefit of
persons receiving an unemployment benefit are reported in the unemployment function, see SP-TF-2016-
04.4-Annex 1) while others complete this breakdown on the basis of the final purpose of the contributions
(e.g. in Serbia contributions for sickness/health care paid by the unemployment scheme for the benefit of
persons receiving an unemployment benefit are recorded under sickness/health care). The lack of
guidance in the manual has therefore led to different interpretations across countries.
However, the detailed classification laid out in Appendix 1 of the manual uses labels such as ‘social
contributions rerouted paid on unemployment benefits’ for these breakdowns, which makes clear that the
intention is for the breakdown to be completed on the basis of the function of the qualifying benefit.
Recording the data on this basis also reflects the history of the classification as re-routed contributions
were previously (see manual 1996) recorded as a sub-classification of social benefits within each function.
It is useful, also, to reflect on the purpose for which the contributions are made. In practice, the
contributions are paid ‘on top of’ the qualifying benefit much as employers’ social contributions (D.12 in
national accounts) are paid in addition to wages and salaries (D.11)(50). In other words, the contributions
are paid (e.g. by the unemployment scheme) because of the current circumstance (e.g. unemployment) of
the protected person and thus have the purpose of counteracting a current materialised risk (e.g. inability to
make pension or health care contributions because of unemployment) rather than to counteract the future
risk that the contributions insure against. It is a fundamental principle of ESSPROS that benefits are
classified according to the ‘primary purpose for which social protection is granted’ (§109) and, following this
principle for re-routed social contributions as a ‘para-benefit’ (see above), it is logical that they are classified
according to the function of the qualifying benefit. This reflects the economic substance of the transaction
but also raises again the question as to whether the classification of re-routed social contributions might
better revert to the 1996 approach.
Further guidance in the manual is needed to make clear how the functional breakdown of re-routed social
contributions should be completed.
8.4. Conclusions
Recently agreed revisions to the manual have helped to clarify the difference between re-routed and
withheld contributions. However, analysis of the treatment of re-routed social contributions in the
ESSPROS accounting framework has revealed that:
 Type ii re-routed contributions (as currently defined in §82B) are not distributive transactions and are
therefore outside the scope of ESSPROS Core system.
 Expenditure on re-routed social contributions by function should be completed on the basis of the
function of the qualifying benefit and not the final purpose of the contribution.
The 2016 ESSPROS Task Force agreed with these observations and the need for appropriate revisions to
the ESSPROS Manual.
(50) See ESA 2010 §4.02

Manual
TREATMENT OF TYPE II OF RE-ROUTED SOCIAL CONTRIBUTIONS

82B In practice, the following two cases fall within this category: (i) social contributions that social
protection schemes pay on their own behalf for the benefit of their beneficiaries to other social protection
schemes. For example, An example of re-rerouted social contributions occurs when an unemployment
benefit scheme pays social contributions to the sickness scheme for the benefit of its beneficiaries;.
Note that the transfer of funds relating to an insured person moving from one scheme to another is outside
the scope of the ESSPROS Core system. Such transactions result in no net change in either the funds
available or the liability to deliver social protection and are therefore financial and not distributive
transactions (see §36).
(ii) the transfer of funds relating to an insured person moving from one scheme to another. In the United
Kingdom, payments of this type occur when an insured person decides to opt out of SERPS and out of
their Occupational pension plan in order to set up an Appropriate Personal Pension Plan. In this case, the
National Insurance Fund transfers his/her social contributions to the selected Plan.
83A (ii) the transfer of funds relating to an insured person moving from one scheme to another (this is
recorded as Social contributions re-routed from other schemes, see paragraph 82); This transaction is not
recorded in the ESSPROS core system (see §82B);
(iii) social contributions that social protection schemes pay on their own behalf for the benefit of their
beneficiaries to other social protection schemes. These payments are treated analogous to case (ii) as
Social contributions re-routed from other schemes; These are recorded as re-routed social contributions re-
routed from other schemes (see §82);
TREATMENT OF RE-ROUTED SOCIAL CONTRIBUTIONS ON THE EXPENDITURE SIDE

104 Re-routed social contributions are payments that a social protection scheme makes on its own
protection from the recipient scheme. For a more detailed explanation, see paragraph 82.
104bis Re-routed social contributions to other schemes are broken down by function of social protection
which should be completed on the basis of the function of the qualifying benefit and not the final
purpose of the contribution. For example, contributions for health care paid by an unemployment
scheme for the benefit of persons receiving an unemployment benefit are reported in the
unemployment function and not sickness/health care.

regulation(s)
Modifications to the ESSPROS regulation(s) are not required.

Social contributions reporting basis 9
9 Social contributions
reporting basis
9.1. Summary
National accounts require flows to be reported on accrual basis, that is, at the time the events which create
the related claims and liabilities occur. A methodological exception has been introduced by ESA 2010
§1.104 for social contributions and taxes payable to the general government, which can be recorded either
net or gross of the part unlikely to be collected. In the second case (gross recording), the part unlikely to be
collected should be cancelled out (i.e. effectively made net) in the same accounting period by a capital
transfer from the general government to the relevant sectors.
In ESSPROS all transactions should also be recorded on an accrual basis, with the same meaning. §132 of
the ESSPROS Manual specifies that, for example, “employer's contributions are recorded at the time the
work that gives rise to the liability to pay the contributions is done”. There is no further specification
concerning recording principles for social contributions. Alignment of the ESSPROS manual on national
accounts principles clearly seems desirable for this case, taking into account in particular the additional
specifications introduced by ESA 2010.
Therefore, in the first place, the recording of social contributions in the ESSPROS Core system should be
clarified in order to recommend that receipts of social contributions are recorded net of the part unlikely to
be collected. For countries using the gross approach in national accounts, this would require the value of
contributions unlikely to be collected to be recorded as a negative component under "social contributions"
(ESSPROS code 2100000). Furthermore, the ESSPROS methodology should give guidance on time
adjustment of social contributions compiled from cash receipts.
9.2. Problem Statement

In ESA 2010, a methodological exception to the accrual basis principle is made for social contributions
payable to the general government, allowing it to be recorded, on the revenue side of the accounts, either
net or gross of the part unlikely to be collected. The ESSPROS Manual and user guidelines – 2019 edition,
however, provides no guidance on this issue.
9.3. Analysis

9.3.1. Social contributions in national accounts
National accounts require flows to be reported on accrual basis (see §1.101 of ESA 2010). According to
this general principle, social contributions and taxes should be recorded at the time when the activities,
transactions or other events creating the claims, obligations or liabilities occur.
However, as recognised in §1.103 of ESA 2010, the data sources usually available for social contributions
(and taxes) often record transactions on a cash basis, which can result in difficulties for implementation of
the accrual principle in practice. As a result, approximate methods may be used to carry out a
transformation of these flows from cash basis to accrual basis (“time adjusted cash” method). §4.95 (b) of
ESA 2010 specifies that, for social contributions receipts, “this adjustment may be based on the average
time difference between the activity (or the creation of the liability) and cash receipt”.
If assessment or declaration sources are used (see below), social contributions include a part that may not
actually be collected. §1.104 of ESA 2010 allows recording social contributions payable to the general
government either net or gross of the part unlikely to be collected. In the second case (gross recording), the
part unlikely to be collected should be neutralised in the same accounting period by a capital transfer from
the general government to the relevant sectors (§1.104 of ESA 2010).
§4.95 of ESA 2010 provides more specific guidance on the sources and methods to be used to derive data
on actual51 social contributions: (1) use of amounts evidenced by assessments and declarations, and (2)
use of cash receipts. Each presents its own challenges for reporting:
Assessments and declarations: establish the amounts due but it is (almost) inevitable that some
contributions ultimately remain uncollected. Data derived from assessments and declarations thus
overstate the amounts actually received by the government so that an adjustment is necessary.
Cash receipts: are, by definition, already net of uncollected contributions but are recorded at the time the
payment is received and not at the time when the liability was incurred. An adjustment is thus needed to
attribute the cash received to the point in time when the liability was generated.
In case (1) of social contributions compiled on the basis of assessments and declarations, ESA 2010 (see
§1.104 and §4.95) offers two possible adjustment approaches for excluding the part unlikely to be
collected:
 Record contributions net of the part that is unlikely to be collected: in this case the total
assessed/declared amount is adjusted using a correction coefficient based on past experience and
current expectations in respect of amounts never collected.
 Record contributions gross of the part that is unlikely to be collected: in this case the amount never
collected is cancelled out in the same accounting period using a capital transfer from the general
government to the relevant sector(s).52
As a result, the data recorded in national accounts under D.61 "Net social contributions" can be either
gross or net of the part of contributions unlikely to be collected53. Knowing which approach has been
51
The positioning and the wording of § 4.95 of ESA 2010 are inconsistent with each other: the text seems to refer in general to social
contributions, while it is positioned under the "employers' actual contributions" chapter. More specifically, the last part of the §4.95 can only
refer to households' social contributions ("… retained at source ... wages and salaries …"). This seems to be confirmed by the absence of any
valuation method under the chapter on "households' actual social contributions". On the other hand §4.97 includes valuation methods for
"employers' imputed social contributions". As a result, it seems that §4.95 limits its relevance to both employers and households' actual social
contributions. This hypothesis of interpretation seems to be confirmed by the history of this paragraph (see commission Regulation 995/2001,
annex, "item" 4.96) and the subsequent change in the classification structure of "social contributions" between ESA 95 and ESA 2010. In this
paper the assumption is made that §4.95 of ESA 2010 refers to both employers' and households actual social contributions, (i.e. aggregates
D.611 and D.613).
52 According to the last part of §4.95, this second approach (using a capital transfer for the adjustment) seems to be the only acceptable method
for adjusting the employees' social contributions withheld by the employers and, in addition, in this case a specific sub-items of capital transfer
(D.995) should be used. §4.165(j) of ESA 2010 seems to generalise the guidance to use D.995 for any adjustment concerning social
contributions.
53 N.B: The word "Net" in the denomination of the aggregate D.61 (Net social contributions) should not be interpreted with reference to the "part of
social contributions unlikely to be collected" but with reference to the "social insurance scheme service charges (D.61SC)", which represent a
negative addendum in the formula to be used to calculate D.61 according to §4.91 of ESA 2010.

followed by countries is clearly also important in interpreting the results of ESSPROS/national accounts
cross validation rules related to social contributions.
Excessive deficit procedure (EDP) inventories available on the Eurostat website54 provide information on
the approach used by each country for reporting social contributions receipts of general government in
national accounts, which is summarised in Table 1Table 10.
Table 10 – Methods used to provide social contributions in ESA 2010

Country Method
Assessment based data adjusted for contributions never collected are mostly used but
BE
unadjusted cash data is used in some cases.
1995-2006: Time adjusted cash data
BG
2007+: Cash data used but no time adjustment applied (laws mean little delay between
the accrual and payment of social contribution liabilities)
Time adjusted cash data except for contributions associated with specific ministries
CZ
(Defence, Justice and Internal Affairs) and public employees (custom officials) for which
unadjusted cash data are used.
Unemployment insurance contributions: Final accounts on accrual basis are used.
DK
Other minor contributions: cash data used but no time adjustment applied.
There are no write-offs for social contributions.
Contributions to majority of social security funds: Cash amounts = accruals so no time
DE
adjustment necessary.
Contributions for pension insurance: Based on declarations. The amount of contributions
never collected is insignificant, so no adjustment is made for this.
Time adjusted cash data
EE
IE
EL
Assessment/declaration based data adjusted using a capital transfer (in D.995) for
ES
contributions unlikely to be collected.
FR
Cash amounts used but no time adjustment applied (little delay between the accrual and
HR
payment of social contribution liabilities)
Time adjusted cash data are used for social contributions associated with INPS and
IT
INAIL (account for over 95% of actual social contributions). Assessment data unadjusted
for non-collection are used for other units (risk of non-collection is deemed to be limited).
Contributions paid by employers/employees: Cash = accruals so no time adjustment
CY
necessary.
Contributions paid by self-employed: Adjusted accrual data
LV
Assessments data adjusted using non-collection coefficient.
LT
54 http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-inventories

Accrual basis data adjusted using non-collection coefficient.
LU
HU
MT
AWBZ, AAW, AOW and ANW contributions: Time adjusted cash data
NL*
WAZ contributions: Cash data used but no time adjustment applied
WAO/WIA, AOK, WW contributions: Assessments/declarations data adjusted for non-
collection.
Assessments/declarations data adjusted for non-collection.
AT
Accrual basis data adjusted using non-collection coefficient.
PL
PT
RO
SI
However, until 2012 social security contributions unlikely to be collected are added in
and then recorded as a capital transfer. From 2013, social security contributions unlikely
to be collected are no longer added to time adjusted figure.
SK
Pension fund contributions: Accrual data excluding amounts not received.
FI
Other contributions: Time adjusted cash data
Compulsory employers’ actual social contributions: Time adjusted cash data
SE
Voluntary employers’ actual social contributions and compulsory/voluntary employees’
social contributions (as well as for self- and non-employed persons): Assessment data
adjusted for contributions never collected.
UK
Source: EDP Inventories (under ESA2010).
Note: If different methods are used for different notifications only the latest notification is described. For cases flagged with “*” EDP Inventories
under ESA 2010 are not available so ESA 95 versions are used.
The methods adopted vary not only between countries but also within countries, either between different
contribution types or over time. Hence, when grouping countries by approach there can be some overlaps
between groups.
Cash data appear to be most often used, with the majority of countries reporting use of cash data, either
currently or previously, for at least one form of contribution:
 18 countries report using time-adjusted cash data (BG, CZ, EE, IE, EL, FR, IT, LV, HU, MT, NL, PT,
RO, SI, SK, FI, SE, UK)
 8 report using cash data without any adjustment, typically because there is little or no delay between the
liability arising and the cash payment (BE, BG, CZ, DK, DE, HR, CY, NL).
Assessment/declaration data are less widely used but are nevertheless important and different approaches
are used:
 11 countries report using declarations/assessments with adjustment for uncollected contributions (BE,
ES, CY, LT, LU, NL, AT, PL, SI, FI, SE)
 3 report using declarations/assessments with no adjustment (DK, DE, IT).
In order to facilitate a comparison with ESSPROS data, it would be useful to clarify which of the 11

countries using the "assessment/declarations" data source record gross social contributions data and make
an adjustment using a capital transfer. From the information summarised in Table 1 this is clearly the case
for ES, but it could also be the case for other countries, although not mentioned explicitly.
9.3.2. Social contributions in ESSPROS and comparability

with national accounts
ESSPROS requires data to be reported on an accrual basis (see §132 of part 1 of the ESSPROS manual)
and specifically mentions employer's social contributions as an example, informing that these are “recorded
at the time the work that gives rise to the liability to pay the contributions is done”. However, there is no
reference to the use of different data sources and the issues associated with them. In particular, there is no
guidance on how to deal with contributions that are unlikely to be collected.
It is therefore unclear what approach countries are adopting when the ESSPROS data are sourced from
assessments/declarations. Specifically, it is not clear whether the amounts reported under social
contributions include or exclude contributions that are unlikely to be collected and, if they do, whether the
data also include a compensating transfer to cancel out these amounts.
Therefore, a consultation to assess the methods that countries currently apply for reporting social
contributions in ESSPROS was conducted in 2019, in order to clarify:
(1) the types of data sources used to compile data on actual social contributions (e.g. cash data,
assessment/declaration data, receivable, payable, write-offs, other, etc.);
(2) the nature of any adjustments applied to these data regarding in particular time adjustment of cash data
and the treatment of contributions that are unlikely to be collected when assessment/declarations are used.
Specifically, the following possibilities were identified at the 2018 Task Force meeting:
 Time adjusted cash amounts
 Cash amounts without any time adjustment
 Total assessed/declared amounts with a separate adjustment (capital transfer) for amounts unlikely to
be collected
 Total assessed/declared amounts with no adjustment
 Adjusted assessed/declared amounts (adjustment made prior to reporting in ESSPROS using a
correction coefficient or capital transfer type approach)
 Other methods
(3) the extent to which the treatment adopted aligns with the national accounts treatment.
Twenty-two countries replied to the consultation and the main results are summarised here below (see
Table 2Table 11).
Table 11 – Methods used to provide social contributions in ESSPROS

Country ESSPROS Method
Assessed/declared amounts with a separate adjustment (capital transfer) for amounts
BE
unlikely to be collected.
Cash amounts without any time adjustment
BG
Cash amounts without any time adjustment and total assessed/declared amounts with
DK
no adjustments (the same method as GFS/ESA 2010)
Cash amounts without any time adjustment are used in all but a few cases. In
DE

exceptional cases actual contributions are calculated based on a model.
ES
FR
HR
Schemes 24, 28: Cash data without any time adjustment
IE
Scheme 27: Time adjusted cash data
Scheme 7: Estimates (currently under review)
Assessment based data with no adjustment used except for contributions associated
IT
with INPS and INAIL (over 95% of actual social contributions) for which time adjusted
cash data are used.
Schemes 1,2 and 8 and part of scheme 6: Time adjusted cash amounts
CY
Schemes 5 and 9 and part of scheme 6: Obtained from survey/census questionnaires.
Data requested on an accrual basis from reference year 2018.
LV
LT
Adjusted assessed/declared amounts
LU
HU
Actual contributions data are not based on actual figures but are estimated.
MT
Contributions collected through the wage-tax system: Time adjusted cash data.
NL
Contributions collected through the income-tax system: Cash data used but no time
adjustment applied.
Method is dependent on source of data:
AT
- Main Association of Austrian Social Security Institutions: Total assessed/declared
amounts with no adjustment
- Federal Ministry of Finance: Cash amounts without any time adjustment
- Income and loss statements: Adjusted assessed/declared amounts (adjustment made
prior to reporting in ESSPROS using a correction coefficient or capital transfer type
approach)
PT
Cash amounts without any time adjustment in all but a few cases. In the exceptional
RO
cases of schemes 21 and 33, time adjusted cash data is used.
SI
Compulsory employers’ actual social contributions: Time adjusted cash data
SE
Voluntary employers’ actual social contributions and compulsory/voluntary employees’
social contributions (as well as for self- and non-employed persons): Assessment data
adjusted for contributions never collected.
Method has recently decided to change approach and the approach that will be applied
NO
in future varies between schemes and type of contribution:
- Scheme 1: Contributions by protected persons are based on Assessed/declared
amounts with no adjustment and employers’ contributions estimates providing similar
results to time adjusted cash data.

- Scheme 3: Cash amounts without any time adjustment in combination with other
estimates.
- Scheme 4: Time adjusted cash data
- Scheme 8: Cash amounts without any time adjustment
The results show that – similarly to the case of EDP inventories reported in table 1 – the methods adopted
vary not only between countries but also within countries, either between different contribution types or
over time. Hence, when grouping countries by approach (see below) there can be some overlaps between
groups.
Cash data appear to be most often used, with the majority of countries reporting use of cash data, either
currently or previously, for at least one form of contribution:
 11 countries report using time-adjusted cash data (ES, FR, IE, IT, CY, LV, LT, NL, RO, SE, NO)
 12 report using cash data without any adjustment, typically because there is little or no delay between
the liability arising and the cash payment (BG, DK, DE, HR, IE, HU, NL, AT, PT, RO, SI, NO).
Assessment/declaration data are less widely used but are nevertheless important and different approaches
are used:
 4 countries report using declarations/assessments with adjustment for uncollected contributions (BE,
LU, AT, SE). LU, AT and SE used data that had been adjusted prior to reporting in ESSPROS
while BE made use of data with a separate adjustment (capital transfer) for amounts unlikely to be
collected.
 4 countries report using declarations/assessments with no adjustment (DK, IT, AT, NO)
Among other methods, the use of estimated data and survey data was mentioned in several cases (DE, IE,
CY, MT, NO). For example, in the case of Germany some of the data on actual contributions are derived
from a model.
Comparing the information collected via the consultation with the information available from the EDP
inventories provided in Table 10, it should be kept in mind that the ‘scope’ of the ESSPROS review of
country practices is wider than general government contributions receipts and covers receipts of schemes
in all sectors. On the other hand, general government contributions receipts represent generally a high
proportion of total economy contributions for most of countries.
The comparison suggests that similar approaches are applied in both ESSPROS and national accounts in
just over half of countries (BE, BG, DE, FR, HR, IE, IT, LV, NL SE). In the remaining 9 countries differences
in approach imply that there can be differences in actual social contributions compiled in the two systems.
For example, in four countries (HU, RO, PT and SI) time-adjusted cash data are used in national account
but cash data without any adjustment are used in ESSPROS.
Differences in approach which clearly demonstrate differences in the treatment of contributions unlikely to
be collected between systems arise in two countries:
ES: In national accounts assessment/declaration based data are used and are adjusted for contributions
unlikely to be collected using a capital transfer in D.995 while in ESSPROS time adjusted cash data are
used.
AT: For the data associated with the Main Association of Austrian Social Security Institutions
(Hauptverband der österreichischen Sozialversicherungsträger), both national accounts and ESSPROS
data are based on assessments/declarations data but only the national accounts data is reported net of
contributions unlikely to be collected (without using a capital transfer in D.995). The resulting difference is,
however, small (around 0.4%).
Note that the consultation also identified other factors which could potentially lead to differences in the
actual contributions reported in the two systems. These include the treatment of contributions that can be

associated with actions outside the scope of ESSPROS (HU) and the treatment of specific deductions from
employers’ actual contributions (PT and IT). For example, in the case of the latter, Italy noted that
differences arise in association with reductions in contributions granted to employers of specific
disadvantaged groups. Such issues are best addressed by a separate dedicated analysis55.
9.4. Conclusions
9.4.1. Main conclusions
Following §1.103, §1.104 and §4.95 of ESA 2010, the application of the accrual principle to receipts of
social contributions should take into account the source used to compile data and should exclude the part
of social contributions that is unlikely to be collected. In particular:
 If cash data are used as a source, they should be transformed from cash basis to accrual basis, using
an approximate method if needed. Following §4.95 (b) of ESA 2010, the adjustment may be based
on the average time difference between the activity (or the creation of the liability) and cash
receipt.
 If social contributions are derived from assessments/declarations, ESA 2010 prescribes that social
contributions are recorded net of part unlikely to be collected, or that this part is neutralised with a
capital transfer.
ESSPROS methodological sources provide no guidance on this issue and it is still unclear what approach
countries that have not replied to the consultation are using. Information on country practices should be
completed.
The ESSPROS manual should be adjusted to require that data on social contributions are reported net of
contributions unlikely to be collected. Secondly, if cash data sources are used for social contributions, there
is not an issue of actual collection but amounts should be reported in ESSPROS with time adjustment if
there is a difference between the time the work is done and the cash receipt.
When national accounts apply a gross recording of social contributions and a capital transfer is recorded
for the part unlikely to be collected, there is a conceptual difference that can be identified in the social
contributions data. Similarly, time adjustment of cash data is provided for by ESA 2010 but not by the
ESSPROS Manual56. In general, the various elements considered in this document which may lead to
differences in data for social contributions should be identified and measured as much as possible in the
context of the high-level validation rules for social contributions receipts.
9.4.2. Recommended modifications in the ESSPROS Manual/

legislation
It is proposed to add two paragraphs in §132 of Part I of the ESSPROS Manual, as follows:
§132 In principle, all transactions are recorded on an accrual basis, that is, at the time the events which
create the related claims and liabilities occur.
For instance, employers’ contributions are recorded at the time the work that gives rise to the liability to pay
the contributions is done. Social benefits in cash are recorded at the time the beneficiaries obtain the right
to receive them. Reimbursements are recorded at the time the household makes the relevant purchase.
55
See DOC_SP-TF-2018-06.3.2 and DOC_SP-2019-08.3 (Annex 1).
56 This second difference would be suppressed with the changes to the manual proposed in this document.

Other types of benefits in kind should normally be recorded at the times the goods are transferred or the
services provided.
Social contributions are recorded in the Core system net of the part unlikely to be collected (when
assessment/declaration data are used).
If social contributions data are collected from cash receipts, it is recommended to time adjust them by
estimating the average difference between the time the work that gives rise to the liability to pay the
contributions is done and the cash receipt, if such difference exists.
No changes to the ESSPROS legislation are required.

Distinction between disability pension and early retirement in case of reduced ability to work 10
Distinction between
10 disability pension and

early retirement in case of
reduced ability to work
10.1. Summary
Since 2016, considerable work has been undertaken by the Task Force to find a solution to clarify the
distinction between a disability pension and early retirement in case of reduced ability to work. In trying to
identify a practical solution a range of issues have arisen and have been addressed by the Task Force.
This work has culminated in this methodological clarification.

The definitions of disability pension and early retirement in case of reduced ability to work set out in Part 2
of the ESSPROS manual and user guidelines are as follows:
§24 Disability Pension: periodic payments intended to maintain or support the income of someone
below the reference retirement age as established in the reference scheme who suffers from a disability
which impairs his or her ability to work or earn beyond a minimum level laid down by legislation.
§25 Early retirement in case of reduced ability to work: periodic payments to older workers who retire
before reaching the reference retirement age as established in the reference scheme as a result of reduced
ability to work. These payments normally cease when the beneficiary becomes entitled to an old age
pension.
§32A Disability pensions, in contrast to early retirement benefits due to reduced capacity to work, are not
necessarily linked to a full retirement of the disabled person. The expression "beyond a minimum level laid
down by legislation" used in this chapter implies significant differences among disability arrangements in
the Member States. For example, disability is often measured in terms of inability to earn, assessed by
comparison with standards, normally an average worker with the same employment status, age, skill, or
training as the disabled person. In some countries there are additional criteria such the possibility or not to
get a paid job (The Netherlands) or social conditions and the likelihood of deterioration or improvement
(Denmark).
Both benefits are periodic cash payments paid to persons with a reduced ability to work who are below the
reference retirement age. The key difference according to §32A is that early retirement benefits due to
reduced capacity to work are conditional on full retirement from the labour market while this does “not
necessarily” apply to disability pensions. It is immediately clear why there could be some ambiguity
between the two classifications – §32A does not fully rule out the possibility that disability benefits can be
conditional on full retirement and therefore does not provide a clear criterion upon which to distinguish the
two benefits. Further, it is unclear how being “linked to a full retirement” should be interpreted.

10.3. Analysis
In November 2019 the Task Force discussed a range of open issues and a revised proposal to amend the
ESSPROS manual, inspired by the results of an analysis of the legal requirements associated with
remaining in the labour market and consultation of the Task Force conducted in 2018. These discussions
considered:
 The terminology to be used to ensure a clear distinction between disability pension and early retirement
in case of reduced ability to work, notably the terms for identifying those previously active in the
labour market (including both employed and unemployed);
 The nature of retirement from a legal perspective and the removal of obligations to remain available for
work and to seek work;
 Adjustments needed to the definition of early retirement for labour market reasons to ensure
consistency with adjustments to the definition of early retirement in case of reduced ability to work.
During the meeting, discussions led to a range of interesting suggestions on how to further improve the
proposal to revise the ESSPROS manual. Ultimately, the Task Force agreed to:
 including the phrasing "persons active in the labour market (employed or not)" in the definition of early
retirement in case of reduced ability to work;
 moving the second sentence of the definition of early retirement in case of reduced ability to work into a
separate paragraph;
 adapting the definition of early retirement for labour market reasons in line with the changes to the
definition of early retirement in case of reduced ability to work.
10.4. Conclusions
10.4.1. Recommended modifications in the ESSPROS Manual/
legislation
Based on the latest work of the Task Force, and on the feedback received by the Working Group in written
consultation, the following revisions to the ESSPROS manual are proposed to clarify the distinction
between disability pension and early retirement in case of reduced ability to work:
§25 Early retirement in case of reduced ability capacity to work: periodic payments to persons
formerly active in the labour market (employed or not) who are below the reference retirement age but
retired due to a reduction in their ability to work stemming from a disability and are not obliged to remain
available for and seek work. to older workers who retire before reaching the reference retirement age as
established in the reference scheme as a result of reduced ability to work.
These are paid in most cases to older persons and payments normally cease when the beneficiary
becomes entitled to an old age pension.
§32A Disability pensions, in contrast to early retirement benefits due to reduced capacity to work, are not
necessarily linked to a full retirement of the disabled person. They are granted based on the extent of a
person’s disability and/or inability to work. Indeed, the expression "beyond a minimum level laid down by
legislation" used in this chapter implies significant differences among disability arrangements in the
Member States. For example, disability is often measured in terms of inability to earn, assessed by
comparison with standards, normally an average worker with the same employment status, age, skill, or
training as the disabled person. In some countries there are additional criteria such as the possibility or not
to get a paid job (The Netherlands) or social conditions and the likelihood of deterioration or improvement
(Denmark).

§32B In some countries (Sweden for example) it is difficult to make a distinction between "disability
pensions" and "early retirement benefits due to reduced capacity to work". Generally, it could be better to
analyse these two categories together. Disability pensions and early retirement benefits due to reduced
capacity to work can both be paid to persons who have been deemed incapable of any work (i.e. 100%
disabled) and who are effectively out of the labour market. In the case of the former, provision is based
primarily on the extent of a person’s disability and/or inability to work. In the case of the latter, it derives
from a reduction in working capacity which results in being legally absolved of participating in the labour
market (e.g. removal of the need to remain either in work or available for and actively seeking work). For
this reason, both categories of benefits are best analysed together.
The following revisions to the ESSPROS manual are proposed in order to ensure consistency with those
regarding §25, §32A and §32B:
§24 Disability Pension: periodic payments intended to maintain or support the income of someone
below the reference retirement age as established in the reference scheme who suffers from a disability
which impairs his or her ability to work or earn beyond a minimum level laid down by legislation.
§67 Early retirement for labour market reasons: periodic payments to older workers who retire
before reaching the reference retirement age to persons formerly active in the labour market (employed or
not) who are below the reference retirement age but retired due to unemployment or to job reduction
caused by economic measures such as the restructuring of an industrial sector or of a business and are not
obliged to remain available for and seek work.
These are paid in most cases to older persons and payments normally cease when the beneficiary
becomes entitled to an old age pension.

Treatment of multifunction benefits 11
11 Treatment of multifunction
benefits
11.1. Summary
In ESSPROS, expenditure on social protection benefits is broken down into eight functions, each
corresponding to a specific risk or need that may give rise to social protection. These are set out in part 1,
§16 of the ESSPROS manual in order to delimit the scope of social protection adopted in ESSPROS. In the
majority of cases, social benefits address just a single function and are therefore easily reported in the
ESSPROS classification system. However, there are also cases that address more than one function – i.e.
multifunction benefits57.
At the end of 2014, DG Employment requested clarification of the approach applied by ESSPROS in the
classification of multifunction benefits. This raised questions concerning the clarity of the procedures laid
out in the ESSPROS manual and whether these are open to different interpretations, thereby potentially
leading to different implementations of the classification system. This prompted Eurostat to review the
issue.
Following in-depth investigation into the issue and discussion at the Task Force meetings in 201558 and
201659, and the Working Group on Social Protection Statistics meeting in 201660, the ESSPROS Task
Force on Methodology agreed that improvements to the guidelines in the ESSPROS manual are needed
to:
Clarify that multifunction benefits should be split where possible.
Improve definitions of “bundled” and “overlapping” to ensure a clear distinction and clarify guidance on their
treatment.
Improve guidelines on the treatment of supplements.
Ensure consistency with other aspects of the ESSPROS guidelines, notably the classification of benefits
according to the age of recipients and education-related benefits.
Proposals for changes to the ESSPROS manual were discussed at the Working Group on Social
Protection Statistics in 201761, 201862 and 201963, and at the Task Force meetings in 2017,64 201865 and
57 Note that the term multifunction benefit does not appear in the current ESSPROS manual.
58 See DOC SP-TF-2015-03.2

59 See DOC SP-TF-2016-03.3
60 See DOC SP-2016-09.7
61 See DOC-SP-2017-08.3
62 See DOC SP-2018-08.1
63 See DOC_SP-2019-08.1

201966. Through this process the proposals were iteratively refined and then tested using national
examples. The latest proposals are presented in this document.
Note that none of the proposals implies changes are needed to the ESSPROS regulations.

The 2019 edition of the ESSPROS Manual and user guidelines provides guidance on multifunction benefits
that is not particularly clear. Some of the definitions and examples lack precision, or are even misleading,
and there is a lack of consistency with guidance in other parts of the manual, most notably the classification
of benefits according to the age of recipients and education-related benefits. This leaves the approach
open to interpretation and thus to potential issues of comparability. Indeed, discussions within the Task
Force revealed different interpretations of the existing guidance.
Clear and unambiguous guidance on the treatment of multifunction benefits, accompanied by instructions
for specific cases, is needed to ensure that the expenditure on multifunction benefits is recorded in a way
that best reflects the purpose for which it is granted and which ensures comparability between countries.
11.3. Analysis
11.3.1. Overview of current guidelines
To understand how benefits serving multiple functions should be classified in the ESSPROS framework it is
first necessary to understand the definition of a function and how benefits are allocated to these.
11.3.1.1 DEFINITION OF ESSPROS FUNCTIONS

The 2019 edition of the ESSPROS manual and user guidelines Error! Bookmark not defined. define social protection
as follows:
“Social protection encompasses all interventions from public or private bodies intended to relieve
households and individuals of the burden of a defined set of risks or needs, provided that there is neither a
simultaneous reciprocal nor an individual arrangement involved. The list of risks or needs that may give rise
to social protection is, by convention, as follows:
1. Sickness/Health care
2. Disability
3. Old age
4. Survivors
5. Family/children
6. Unemployment
7. Housing
64 See DOC SP-TF-2017-05.1

65 See DOC_SP-TF-2018-06.1
66 See DOC_SP-TF-2019-06.2

8. Social exclusion not elsewhere classified.” (Part 1, §16)
The definition is based on a specific list of risks or needs whose purposes are further clarified in Part 1 of
the ESSPROS manual under §20:
1. To delimit the scope of social protection such that it is restricted to “the areas which are felt to be
most relevant in the European context”.
2. To identify functions of social protection that can be used to produce comparable statistics. These
reflect “the primary purposes for which resources and benefits are provided, irrespective of
legislative or institutional structures behind them.”
The functions associated with the risks and needs of social protection are briefly described in §110 while
part 2 of the manual contains a detailed specification of the types of benefits covered by each function and
gives further guidance on their interpretation.
11.3.1.2 CLASSIFICATION OF BENEFITS

The methodology describes how benefits should be allocated to these functions in Chapter 7.1 in Part 1 of
the manual and user guidelines under §110A-110F.
Essentially, the value of each benefit is allocated to specific functions on the basis of the objectives,
purposes and reasons for which the benefit is granted (see Part 1, §110A-110B).
In the case that the objectives, purposes and reasons for which a benefit is granted correspond to a single
function, then this is simply a case of allocating the total value to a detailed classification under the
corresponding single function.
However, where the objectives, purpose and reasons for which a benefit is granted correspond to multiple
functions the recommended approach depends on the extent to which these can be disassociated from one
another to produce a split by function. The ESSPROS manual identifies two scenarios for which different
approaches are recommended (see Part 1, §110C-110D):
 Bundled objectives: This is where a “benefit serves various distinct social risks or needs” (Part 1,
§110C). While the manual provides no further characterisation, only an example, this can be
interpreted as cases where a benefit serves multiple functions but either the whole or a specific
component of the benefit provided to a given recipient serves a single function. For example, an
income replacement benefit for individuals without sufficient means may serve multiple objectives
when granted to recipients in different circumstances and under different conditions. Persons aged
over the retirement age may receive an amount unconditionally so that the benefit serves as an old
age pension, but those under the retirement age may receive it on the condition of seeking work so
that the benefit serves as form of unemployment assistance. For each recipient, the whole of the
benefit granted serves a distinct function.
In the cases of benefits with bundled objectives, it is necessary to determine whether the value of
the benefit should be split into several components and assigned to each of the relevant functions
(un-bundled) or reported as a whole under a single function. The manual is not clear on the
conditions under which a split should be made but it would seem that un-bundling should be
implemented when a benefit has two or more distinct purposes/objectives that correspond to
different functions and where a functional split is reasonable and practical to implement 67.
 Overlapping objectives: This is where a “benefit is granted for two or more coinciding social risks or
needs” (Part 1, §110D). While the manual provides no further characterisation, only an example,
this can be interpreted as cases where a benefit serves multiple functions simultaneously. For
example, a benefit which funds housing costs only for households with more than four children
serves both the housing and family/children functions.
In the case of benefits with overlapping objectives, it is first necessary to determine whether one of
67 See section 3.2.1 for further details.

the functions served is dominant to the other(s) and then to check for relevant guidance in Part 2
of the Manual. For example, Part 2 §43E gives specific guidance on disability and survivors’
pensions paid to old-aged individuals: “disability pensions paid to beneficiaries over the standard
retirement age as established in the reference scheme must be recorded under the item old age
pension. The reason for receiving a disability pension after the standard retirement age is
connected to old age rather than to the impairment of his or her ability to work. In contrast […],
survivors’ pensions remain under the survivors’ function.”
In the absence of either a dominant function or relevant guidance in Part 2 of the manual, “a more
specific function takes precedence over a more general one” (§110D). The list of social protection
functions in order of decreasing specialisation is as follows:
1. Sickness/Health care (health care),
2. Housing,
3. Old age,
4. Disability,
5. Survivors,
6. Unemployment,
7. Sickness/Health care (cash benefits),
8. Family/children
9. Social exclusion not elsewhere classified
On this basis, the example of a benefit which funds housing costs only for households with more than four
children should be classified in full under the housing function, which is more specialised than the
Family/children function.
The ESSPROS manual also refers to benefits where there is a blurring of objectives. This is when “a
benefit serves other purposes than the one for which it is formally intended” (110E, Part 1). For practical
reasons, ESSPROS does not try to correct for this form of substitution and only considers the intended
purposes, objectives and reasons for which a benefit is granted. Of course, if substitution is explicitly
identified in the eligibility criteria then the benefit is allocated to the function it actually serves rather than
that which corresponds to its official purpose.
Figure 1 presents a flow chart interpretation of the existing guidelines.

Figure 1 – Classification of benefits by function: current guidelines
Do the objectives, purposes or reasons

for which a benefit is granted correspond No Benefit is out of scope. Do not
to at least one of the ESSPROS functions report in ESSPROS
of social protection? (See §16)
Yes
Do the objectives, purposes or reasons

for which a benefit is granted correspond Single
Report total value under a single
to a single or multiple ESSPROS functions
ESSPROS function
of social protection?
Multiple
Are the corresponding functions of the

benefit bundled or overlapping? (See
§110A-110F)
Overlapping Bundled
Does the benefit have one clearly Report total value under a single Is a functional split of the benefit
Yes No
dominant function? ESSPROS function corresponding to the reasonable and practical to
dominant function of the benefit implement (i.e. according to the
risks for which it is granted)?
No Yes
Report value according to the Report value under multiple

Is there any specific guidance guidance in Part 2 of the ESSPROS functions by splitting it
related to the benefit in Part 2 of Yes ESSPROS manual across the different functions
the ESSPROS manual?
Report details of treatment in Report details of treatment in
qualitative information / qualitative information /
No metadata metadata
Report total value under the

Note 1: the ESSPROS manual also refers to a blurring of objectives when “a benefit serves other
most specialised function
purposes than the one for which it is formally intended” (§110E, Part 1). For practical reasons,
according to §110D (see note 2)
ESSPROS does not try to correct for this form of substitution and only considers the intended
Report details of treatment in purposes, objectives and reasons for which a benefit is granted. Exceptionally, if substitution is
qualitative information / explicitly identified in the eligibility criteria then the benefit is allocated to the function it serves
metadata rather than that corresponding to its official purpose.
Note 2: the order of specialisation of functions specified in §110D is: Sickness/Health care
(health care), Housing, Old age, Disability, Survivors, Unemployment, Sickness/Health care (cash
benefits), Family/children and Social exclusion not elsewhere classified.
11.3.2. Key issues

There are a number of issues in the current manual, which mean that aspects of the process prescribed for
classifying multifunction benefits may be open to interpretation.

11.3.2.1 MAIN GUIDANCE ON THE PROCEDURE TO BE APPLIED
The classification of social protection benefits by function outlined in section 7.1 of part I of the ESSPROS
Manual and User Guidelines identifies the eight functions covered in ESSPROS in §110. Following on from
this §110A makes clear that, for the purposes of comparability between countries, the value of benefits
granted for more than one purpose should be split by function whenever possible. §110B then reiterates
the basic principle that the classification of benefits in ESSPROS is by purpose (also specified in §20-21
and §109) and introduces the three cases described in 3.1.2 of this document where the classification may
not be straightforward: bundled objectives, overlapping objectives and blurred objectives. Paragraphs
110C-E then describe these cases and give some guidance on how they should be treated.
The problem is that the guidelines are not entirely clear and need to be improved. In particular, it can be
noted that:
 Distinction between bundled and overlapping objectives: This is not clear from the first sentence of each
paragraph that is intended as a definition (Part 1, §110C-110D). The user is effectively required to
understand the difference between a single benefit that “serves various distinct social risks or
needs” (bundled) and one that “is granted for two or more coinciding social risks or needs”
(overlapping). The difference lies in the use of the word “coinciding” for overlapping benefits.
However, this simply means “occur at the same time”, a situation that must be equally applicable in
the case of an individual receiving a benefit with bundled objectives who qualifies on the basis of
two or more of the “various distinct social risks or needs” referred to. These opening sentences are
therefore not helpful in distinguishing the two types of multifunction benefits. The definitions for
both therefore require improvement.
 Conditions for unbundling: The manual is not clear on the conditions under which benefits with bundled
objectives should be un-bundled. The guidelines (Part 1, §110C) say that “the benefit should be
examined to see if it should be un-bundled” meaning that there should be an “investigation into the
exact conditions that make the individuals or households eligible to the benefit” and to use
sometime use the “rule of thumb” but then fail to give clear guidance on when the benefit should or
should not be unbundled. Although it is not made clear, it seems that un-bundling should be
implemented where a benefit is composed of different amounts granted for distinct
purposes/objectives that correspond to different functions and where a functional split is
reasonable and practical to implement. Fundamentally, such a soft approach will not encourage
comparability, it would be better to have a strict approach and to clearly flag and document any
deviations from the guidelines.
 Classification by dominant function: The manual identifies two cases in which benefits should be
classified by dominant function: (1) benefits with overlapping objectives but with one clearly
dominant function and (2) benefits with bundled objectives but where unbundling is not reasonable
or practical to implement. However, the manual provides no further guidance on how to determine
if a multi-function benefit has a dominant function. Although it is not made clear, it seems that this
should be judged based primarily on the main objective of the benefit, its purpose and reason for
existing, and what key social issue it is attempting to address. This could potentially lead to
different interpretations across countries, particularly in cases where the dominant function is
unclear. For instance, consider two multifunction benefits with overlapping objectives and
essentially similar characteristics: one referred to as “Family benefits providing rent reduction for
indigent households”, the other as “Housing benefits for indigent families”. Without further
information or guidance, the dominant function is liable to be recorded as family/children and
housing respectively.
 Examples used: Some of the examples are not entirely helpful or could even be construed as
misleading. The case of special schools for blind or deaf children is given as an example of
bundled objectives but in fact this only applies if the government funding has discrete elements for
delivering education (which is outside the scope of ESSPROS) and for adapting the tuition for the
specific needs of the disabled children, which may not be the case. It is equally possible that the
government provides a single funding stream and that allocation of those resources is at the
discretion of the school’s governing body, in which case the government transfer surely has

overlapping objectives and not bundled objectives.
 Blurred objectives: The case of blurred objectives is not really related to multifunction benefits and
should be clearly separated in the guidance of the ESSPROS manual and user guidelines.
Moreover, it is not clear that creating an additional concept of this type adds any value to the
manual since the associated text does little more than repeat again the need to classify benefits on
the basis of their actual purpose. Possibly the point about blurred objectives could be integrated
into §110B and then §110E could be deleted.
11.3.2.2 SUPPLEMENTS
The approach to the classification of benefits by function set out in section 7.1 in Part I of the ESSPROS
manual fails to address the issue of "supplements", which also constitute a form of multifunction benefit by
providing additional amounts to address risks or needs additional to those covered by the main benefit.
Further, the term “supplements” is not defined despite being used in several sections of part 2 of the
ESSPROS manual.
Instead, supplements are mentioned only in guidance related to specific functions in Part 2 of the manual
and the approach adopted seems to throw up some inconsistencies:
 §43F, §74D, §85D (Part 2) cover family supplements in the old-age, unemployment and social
exclusion functions respectively. However, there is some inconsistency between the
manual/guidelines and section 3.2 of Appendix I, which presents the questionnaire for optional
data. Whilst the manual refers to family supplements in relation to old-age, unemployment and
social exclusion, the questionnaire includes entries for supplements for dependent children in case
of disability (not mentioned in the manual/guidelines), old-age and unemployment but not social
exclusion – i.e. the functions covered by the manual/guidelines and the questionnaire do not
correspond.
 In the disability function, §32D (Part 2) clarifies that higher rates of family allowance paid in case of
disability should be recorded in the family/children function (main purpose of the benefit).
Effectively these are disability supplements to family allowances. It is not clear, however, why the
word "supplement" is not used here when it is used systematically for family supplements (also
provided as higher rates) to other types of benefit. One could also wonder why there is not a
possibility to report optional data on disability supplements within the family/children function.
 In the survivors’ function, §45 (Part 2) clarifies that family allowances paid in respect of dependents of
survivors belong in the family/children. However, the Manual is not fully clear as to whether this is
referring to a supplement or a just a separate independent benefit ("family allowance").
 In the housing function, §76 (Part 2) covers the treatment of housing supplements to benefits recorded
in the old-age and social exclusion functions. Here the guidance appears in the function related to
the supplement whilst all guidance on family supplements appears in the function related to the
main benefit.
 None of the above-mentioned paragraphs have appropriate counterparts – it would be helpful if
guidance, or at least an appropriate cross-reference, appeared in relation to both the function of
the main benefit and of the supplement. Currently the manual offers only one or the other (and
some inconsistency in that approach), but not both.
11.3.2.3 CONSISTENCY WITH OTHER ASPECTS OF THE ESSPROS

METHODOLOGY
The approach to the classification of benefits by function set out in section 7.1 of Part 1 of the ESSPROS
manual does not include any guidance linking the general treatment of multifunction benefits to two related
aspects of the ESSPROS manual:
 The classification of benefits based on the age of recipients even though the importance of this is

highlighted throughout Part 268. §110C, which refers to benefits with bundled objectives does,
however, offer the following example: “If a single benefit is intended to protect both disabled and
old people, it may be very difficult to establish the precise reason why a disabled elderly person is
receiving the benefit. For practical purposes, it is decided, by convention, that all disabled people
above pensionable age are receiving the benefit under the Old age function.”
 The treatment of education related benefits: even though benefits with objectives that correspond to
both education and one of the functions in ESSPROS can be interpreted as a form of multifunction
benefit where the part addressing education is excluded from ESSPROS, there is no general
guidance to this effect in the manual. Indeed, §110C acknowledges the possibility in relation to
multifunction benefits with bundled objectives and illustrate this with an example: “Bundling can
also occur between social and other objectives. An example is a government transfer of resources
to special schools for blind or deaf children. In such cases the part of the transfer financing the
normal education function of the school (which is not reported as social protection under the
ESSPROS) should be separate from the part that finances the adaptation of the tuition to the
special circumstances of the disabled children (which is social protection expenditure).”
The specifications of section 7.1 should provide comprehensive instruction on the classification of benefits
by function and should therefore be adapted to include guidance on where the classification by primary
purpose is affected by the age of recipients and how it may be applied to benefits addressing risk/needs
outside the scope of ESSPROS, such as education.
While both these issues were given separate in-depth consideration by the ESSPROS Task Force and
Working Group, appropriate solutions for providing the guidance linking them to the general treatment of
multifunction benefits are proposed here.
11.3.3. A way forward

The manual would be more useful and coherent if all issues related to multifunction benefits, including
supplements, were grouped in one place. Logically this would be section 7.1 Classification by function in
Part 1 of the manual. Whether the term “multifunction benefits” should be used (and defined) is open to
question but the section title should be clear that it deals with the classification of benefits that relate to
more than one function. The section should define the different types of multifunction benefits and give
clear guidance on their preferred treatment and any exceptions. It should also include reference to benefits
that serve risks or needs both within and outside the scope of ESSPROS (e.g. education) and benefits paid
to those above and below the retirement age. In Part 2 of the manual, any relevant multifunction issues
should consistently refer to this dedicated section in Part 1.
11.3.3.1 DEFINITIONS OF MULTIFUNCTION BENEFITS

From extensive review of the current guidelines and discussion with the ESSPROS Task Force and
Working Group during 2015 to 2019, the current position is that multifunction benefits can be categorised in
two ways.
First, on the basis of the number of different objectives applicable at the level of the individual beneficiary:
 Simple benefit: a benefit that serves a single set of objectives at the level of the beneficiary. This is to
say that the benefit takes a single form for a beneficiary (i.e. cash or a single type of benefit in
kind) and can only be granted as whole (eligible or not eligible), even if the amounts received may
vary depending on circumstances of the beneficiary. At scheme level, a simple benefit can serve
multiple sets of objectives in the case that it is granted to different groups of beneficiaries for
different reasons. For example, an income replacement in the form of a periodic cash benefit
68 In fact, §100B states that “the function of a benefit should not be confused with the personal situation of its recipient” which, when considered
in isolation from the guidance in part 2, could be misleading.

provided both to old aged and survivors but on the basis of separate eligibility criteria.
 Composite benefit: a benefit that has multiple elements (components) designed to serve multiple
objectives at the level of the beneficiary. In other words, the benefit can include one or more
components that serve different sets of objectives. For example, a benefit which packages
together an income support, a housing allowance for large families and a disability allowance,
each of which are granted on the basis of different sets of criteria but transferred to the individual
as a single payment.
Second, on the nature of the relationship between the different objectives of the benefits at the scheme
level:
 Independent objectives occur when a benefit serves multiple objectives discretely such that the
benefit or the component(s) of the benefit linked to each objective can be separated or granted
independently – i.e. any individual recipient only has to fulfil the conditions related to one objective
in order to receive the benefit or a component of the benefit. Independent objectives can apply not
only to composite benefits but also to simple benefits when the scheme grants them to multiple
groups of beneficiaries for different purposes.
 Simultaneous objectives occur when a benefit serves multiple objectives simultaneously such that the
components linked to each purpose cannot be separated and granted independently of each other
– i.e. an individual recipient must fulfil the conditions related to all objectives to receive any benefit.
For example, a housing benefit provided only to households with large families serves
simultaneously both the housing and family/children functions and a beneficiary must have both a
housing need and a large family to qualify for any benefit. Simultaneous objectives can apply to
simple benefits or to components of composite benefit. This includes supplements, which are
components that are received in addition to another component, the main benefit.
Note that the terms “bundled” and “overlapping” which are currently used are not ideal to portray the
intended meaning in relation to multifunction benefits, particularly when translated into other languages. For
this reason, “bundled” has been replaced with “independent” and “overlapping” with “simultaneous” to add
clarity to the distinction between the two types.
11.3.3.2 TREATMENT OF MULTIFUNCTION BENEFITS

The treatment of multifunction benefits should start from the basic premise that ESSPROS aims to break
down expenditure by purpose and that, above all, benefits should be broken down into components that can
be correctly allocated to functions whenever it is possible to do so (as is currently set out in §110A). This is to
say that benefits should be broken down when it is both conceptually possible and practical to do so.
From the definitions above, it is possible to provide guidance on when it is conceptually possible to split a
benefit. Indeed, it should be theoretically straightforward for benefits with independent objectives but not for
benefits with simultaneous objectives and the recommended treatment is set out accordingly. However, the
current manual applies a soft approach to the requirement to split expenditure (e.g. with caveats along the
lines of “where it is practical to do so”) that potentially offers a least effort option to the compilation of data,
even in the case of important benefits, and thereby risks compromising the comparability of data. It would
seem appropriate to offer more specific guidance on when the preferred approach can be ignored to limit
the cases where a required split is not made.
Accordingly, the following treatment is proposed as general guidance, to which exceptions may apply. In
the case of:
 Simple benefit with independent objectives: A simple benefit that can be granted to different groups
with different risks or needs. Here, the benefit granted to each individual beneficiary always serves
only one risk or need but the risk or need served can vary between beneficiaries. For example, a
pension that can be granted both to survivors on the basis of a derived right (survivors function)
and to persons above the retirement age (old-age function). In this case, it is of course possible for
an individual to be both old-aged and a survivor but her/his access to the benefit is not conditional

on the combination of the two situations.
 Expenditure should be split by the amounts granted to the different groups of individuals receiving it for
different purposes and allocated to each of the relevant objectives/functions.
 Simple benefit with simultaneous objectives: A simple benefit that serves multiple risks or needs
simultaneously for all beneficiaries such that the component(s) linked to each purpose cannot be
separated and granted independently of each other – i.e. an individual recipient must fulfil the
conditions related to all objectives to receive any benefit. For example, a housing benefit provided
only to households with large families serves simultaneously both the housing and family/children
functions and a beneficiary must have both a housing need and a large family to qualify for any
benefit.
 All expenditure should be recorded in a single function to be determined as follows. Firstly, assess if the
benefit has a “dominant” function – i.e. if one of the objectives has a higher priority than the other(s). This
assessment should take into account not only the objectives of the benefit and what key social issue(s) it is
attempting to address but also the eligibility criteria and the explicit/implicit69 targeting of the benefit. If a
dominant function can be identified, then all expenditure should be reported in that function. If there is no
dominant function, then, unless there is specific guidance in part 2 on how to proceed, the expenditure
should be reported to the most specialised function of those covered. The order of specialisation (high to
low) is as follows: Sickness/Health care (health care), Housing, Old age, Disability, Survivors,
Unemployment, Sickness/Health care (cash benefits), Family/children, and Social exclusion not elsewhere
classified.70
 Composite benefit with only independent objectives: Here, an individual recipient may be granted
one or more components of the benefit depending on the eligibility criteria of each component
without any one being conditional on another. This includes cases where components share a
common set of eligibility criteria. For example, a single benefit might combine a family allowance
(family/children function) with a housing benefit (housing function) and a beneficiary may receive
either or both components depending on their circumstances.
 Expenditure should be split by component and allocated to each of the relevant objectives/functions.
 Composite benefit with only simultaneous objectives: Here, an individual recipient is always
granted one component (the main benefit) and may be granted more components (supplements) if
they meet additional eligibility criteria. Supplements cannot be granted independently of the main
benefit. For example, an individual receiving an unemployment benefit may receive an additional
family/child supplement depending on their circumstances of their household but they cannot
receive the family/child element without receiving the basic unemployment benefit.
 Expenditure should be split by component and allocated to each of the relevant objectives/functions with
the supplements classified according to their specific additional objectives.
More complex cases of composite benefits, including some components with independent objectives and
some components with simultaneous objectives, must first be split in a way that results in the above-
mentioned cases.
This approach should be applied at all times. An actual split should be produced where the required
information and data are available. In absence of such data, a breakdown of the benefits should be
produced by estimation (using for example modelling or adopting assumptions).
However, recognising that there may be difficulties in practice, an exception is made in the case of a
69 The use of the implicit targeting of a benefit to determine the dominant function may appear at odds with the fact that ESSPROS does not
normally correct for implicit substitution. However, this does not result in implicit substitution as the objectives of the benefit, and associated
functions, will have already been identified on the basis of explicit characteristics of the benefit prior to the assessment of the dominant
function.
70 In any case documenting the classification treatment applied and the related reasoning in the qualitative information and/or metadata is
important for users.

benefit for which the total value represents an insignificant proportion of any of the functions that it covers
(e.g. <5%), and where the cost of developing a split outweighs the added value of the information. In such
cases, the benefit can be allocated to a single function following the guidance for simple benefits with
simultaneous objectives.
11.3.3.3 SUPPLEMENTS
The term “supplements” is not defined in the ESSPROS manual despite being used several times in Part 2.
Although the broad dictionary definition of the word – “something that is added to something else in order to
complete or enhance it”71 – perhaps makes the meaning obvious, it would be helpful to add a definition that
is explicit to the ESSPROS context:
Supplements refer to additional amounts that are added to a benefit (the main benefit) to address a social
risk or need that is different from that addressed by the main benefit and which is subject to eligibility
criteria that are additional to those governing access to the main benefit. Supplements may be discretely
defined and added to the value of the main benefit (e.g. irrespective of the value of the main benefit, a
supplement of x is paid in case of situation 1, y in case of situation 2, etc.) or expressed as a higher rate
(e.g. irrespective of the value of the main benefit the supplement increases the base amount by x% in case
of situation 1, y% in case situation 2, etc.). In the former case, the value of the supplement is fixed for each
situation whilst in the latter case it may vary according to the value of the main benefit.
By definition, supplements are paid in addition to the main benefit so that in order to receive the
supplement, an individual has to meet both the conditions for the main benefit and the conditions for the
supplement. Therefore, supplements in their own right (in isolation from the main benefits) have, by
definition, simultaneous objectives and should be, in principle, treated accordingly.
To obtain a true functional split of expenditure, the additional objective of the supplement, provided that it
intends to serve a function other than the one served by the main benefit, should be considered dominant
over the objective of the main benefit. In this case, the supplement is reported separately in another
function according to its additional objective. This would imply, for example, that supplements for
dependent children should be separated from the main benefit and classified in the Family/children
function. This approach is consistent with the current treatment of supplements in the manual with the
exception of family/children supplements and disability supplements to family allowances.
However, the current manual acknowledges that, in theory, this approach should be applied to
family/children supplements but that it is often impractical, so they are reported along with the main benefit.
Often it is not straightforward to calculate the additional amount related to the supplement and, in practice,
the information and data needed to calculate the split between main benefit and supplements for all the
possible cases will not be readily available in many cases. For this reason, the general exception also
applies here – i.e. if the value of the whole benefit represents an insignificant proportion of any of the
functions that it covers (e.g. <5%), and where the cost of developing a split of the supplement from the
main benefit outweighs the added value of the information, the supplement can be reported alongside the
main benefit (in accordance with the “dominant” function of the whole benefit). In practice, this should
ensure that any particularly significant supplements are split off to avoid distorting the functional breakdown
of expenditure on social benefits while insignificant supplements, where it is impractical to do so, remain
with the main benefit.
11.3.3.4 CONSISTENCY WITH OTHER ASPECTS OF THE ESSPROS

METHODOLOGY
While the issues of the classification of benefits (most notably pensions) according to the age of recipients
and the treatment of education related benefits have been given separate consideration, they are
discussed here to take on board the inter-relations with the proposed treatment of multifunction benefits.
71 http://dictionary.cambridge.org/dictionary/english/supplement

11.3.3.4.1 Classification of benefits according to age
During 2014 and 2015, Eurostat received several queries concerning the reporting of benefits granted to
persons above or below the standard/legal retirement age. These raised questions concerning the clarity of
the procedures laid out in the ESSPROS manual and whether these are potentially open to different
interpretations, thereby leading to different implementations of the classification system.
Following in-depth investigation into the issue and discussion at Task Force and Working Group meetings
between 2015 and 2017, Eurostat developed a new approach for defining a "reference retirement age", a
concept fundamental to providing a clear basis to a refined approach. The 2017 Working Group agreed to
this and the corresponding changes to the ESSPROS manual (subject to some minor changes in
terminology)72. This work was published as a chapter in the 2017 edition of the Compendium of
methodological clarifications. However, further questions remain open, most notably, clarifying the benefits
for which data on expenditure and recipients associated with persons over the reference retirement age
need to be split off and reported in the old-age function. In this regard, the 2018 Working Group concluded
that applying the split to all disability benefits (rather than just pensions) is preferred but that an appropriate
solution still needs to be developed and tested73.
Counteracting the risk or needs associated with old-age may not be a specific objective of certain benefits,
the fact that people of retirement age receive them can create a situation where the benefits implicitly
address the risk or needs of old age. This is particularly the case for pensions. For example, disability
pensions paid to older people implicitly address the risk of old age and can in a sense be interpreted as old
age pensions for disabled as they provide income replacement when permanently retired from the labour
market. This can, however, be equally applicable for other benefits such as disability benefits in kind. In
ESSPROS an exception to the rule that ESSPROS does not normally correct for implicit substitution is
made for benefits provided to persons over the retirement age to improve comparability between countries.
In such cases, the pensions paid to old-aged individuals can be interpreted as having simultaneous
objectives and should be treated accordingly. Ignoring the guidance currently in part 2 of the manual, this
could still imply three different approaches:
1. The main objective of the benefit is considered dominant over the old-age objective. In this case,
all expenditure (for older and younger recipients) is reported in the function of the main benefit.
This approach is consistent with the current treatment of all pensions with three exceptions –
disability pensions and early retirement due to reduced ability to work in the disability function and
early retirement benefits for labour market reasons in the unemployment function.
2. Neither the old age objective nor the main objective of the benefit is considered dominant. In the
absence of a dominant function, the specialisation order applies (as currently specified in §110D
in part 1). Old-age is more specialised than all functions except health care (sickness/health care
function) and housing. Expenditure for older recipients is therefore separated out except in case
of healthcare and housing. This approach is consistent with the current treatment of all pensions
(including early retirement benefits) except survivors’ pensions (see §43E in part 2).
3. The old-age objective is considered dominant over the main objective. In this case, because the
old-age objective applies only to expenditure for older recipients, this part of the total value of the
benefit is separated out and reported in the old-age function while expenditure for younger
recipients remains in the function of the main benefit. This approach is consistent with the current
treatment of all pensions (including early retirement benefits) except survivors’ pensions (see
§43E in part 2).
Note, however, that survivors’ pensions are exceptional in the fact that eligibility derives from the recipients’
relationship with a deceased person protected by the scheme rather than the beneficiary being protected
by the scheme in their own right. Combining either of the last two approaches identified and justifying the
72 See DOC SP-2017-08.2

73 see DOC SP-2019-02.1

exception made for survivors’ pensions on this basis would be fully compliant with the current treatment of
all pensions. Further, for the sake of simplicity, the third option may be preferred.
Which of the above approaches should apply and the continued existence of corresponding exceptions is
being given separate consideration. Regardless of the eventual outcome there would appear to be several
ways in which consistency with the treatment of multifunction benefits and the classification of benefits can
be achieved.
11.3.3.4.2 Multifunction benefits covering functions outside the scope of

ESSPROS
In some cases, multifunction benefits may cover risks or needs that are both within and outside the scope
of the functions laid out in the definition of social protection in ESSPROS. The primary example being
education related benefits but the issue could equally apply to benefits related to recreation, sport, culture,
religion, and so on.
In the case of such multifunction benefits, it would seem reasonable to treat the risk or need that is outside
the ESSPROS definition of social protection as a function that is outside of the scope of ESSPROS and
then apply the multifunction benefits treatment proposed above. This would mean the following:
 Generally, the benefit should be broken down into components so that components addressing
functions within scope of ESSPROS can be correctly allocated to the appropriate functions and
others excluded.
 In the case of a benefit with independent objectives, expenditure should be split by function and any
amounts pertaining to functions outside the scope of ESSPROS should be excluded.
 In the case of a benefit with simultaneous objectives:
o In case of a dominant function then all expenditure is either in or out of ESSPROS
depending on whether the dominant function is an ESSPROS function or not. An example
could be the case of a scheme funding the costs of running a dedicated school for
disabled – the dominant objective is clearly education so the expenditure is out of scope
of ESSPROS. On the other hand, in the case of a scheme funding the provision of school
meals for children of indigent families the dominant function is clearly family/children and
all expenditure should be reported accordingly. Without the indigence condition, the
provision of school meals becomes purely a subsidiary service of education (as per
COFOG) and remains outside the scope of ESSPROS. Similarly, student grants would be
outside the scope of ESSPROS unless granted only in case of indigence.
o In case of no dominant function then all expenditure should be allocated to the most
specialised function. Functions outside the scope of ESSPROS could be considered
either as having zero specialisation within the context of ESSPROS so that all expenditure
would be reported to the most specialised ESSPROS function or it could be considered as
having the highest level of specialisation, in which case all expenditure would be outside
the scope of ESSPROS. The former option (zero or lowest specialisation) might risk
broadening the scope of ESSPROS to embrace some expenditure that is currently not
reported. Equally, the latter option (highest specialisation) could potentially lead to some
expenditure currently reported in ESSPROS being excluded. The choice of approach is
therefore not straightforward. For this reason, a case by case assessment is needed to
identify an appropriate approach and document it within the compendium of
methodological specifications.
For example, separate analysis of benefits which address both ESSPROS functions and the risk/needs of
education has been performed to evaluate common cases and identify how best to treat them in
ESSPROS. Regardless of the outcome of this work consistency with the treatment of multifunction benefits
should be achieved.
11.3.3.5 ADDITIONAL USEFUL CLARIFICATION

As briefly mentioned above, there can be complicated cases where both independent and simultaneous

objectives apply to a benefit. This might occur, for instance, in systems where governments consolidate
several benefits into a single payment – Universal credit in the UK would appear to be a potential example.
At this stage, there is no reason for this situation to require any changes to the approach outlined, but the
practicalities of its application would need to be considered by the relevant data providers.
Further, it may also be helpful to clarify the difference between supplements, which have been defined and
discussed above, and benefits provided by supplementary schemes. Benefits provided by supplementary
schemes serve to top up, to extend the coverage of, or to replace, benefits provided by a basic scheme
(see chapter 4.2.6 of Part 1 of the ESSPROS manual). In the first two cases, they can be seen as similar in
purpose to supplements. However, they are completely separate benefits (provided by a separate scheme)
to those they intend to enhance. In contrast to supplements, they normally belong in the same function and
detailed classification as the benefits they intend to enhance.
11.3.3.6 OVERALL APPROACH AND DECISION-TREE FOR MULTIFUNCTION

BENEFITS
Figure 2 below illustrates the proposed approach for classification of multifunction benefits in the form of a
decision-tree. This provides a simplified approach to the treatment of multifunction benefits, founded on the
above, based on these key principles:
1. A split between different functions should be performed every time it is conceptually possible and
when it is reasonable and practical to do so.
2. Supplements are multifunction benefits when the additional objective of the supplement intends to
serve a function other than the one served by the main benefit. In such cases, the additional
objective of the supplement is considered dominant over the objective of the main benefit.
3. Benefits with components that address risks or needs that are outside the scope of ESSPROS
(e.g. education, recreation, sport, culture, religion…etc.) need careful consideration on a case by
case basis. If at least one component of the benefit is not reported in ESSPROS, the receipts of
the scheme should be reduced accordingly.
Note that the decision tree also includes the possibility, existing in the current version of the manual, to
include in part 2 of the manual specific clarifications to the "specialisation order" rule.

Figure 2 – Classification of multifunction benefits: proposed guidelines
1. Do the objectives, purposes or reasons for which

No
a benefit is granted correspond to at least one of A. Benefit is out of scope. Do not
the ESSPROS functions of social protection? (See report in ESSPROS.
§16)
Yes
2. Do the objectives, purposes or reasons for Yes

which a benefit is granted correspond to one B. Report total value under
ESSPROS function (and not to any risk/need corresponding ESSPROS function.
outside of ESSPROS)?
No
3. Is it conceptually possible to split the Yes

benefit into components having separate
objectives?
D. Report the value under a single
ESSPROS function corresponding
to the dominant function of the No No
4. Is a functional split of the benefit
benefit/component. into components reasonable and
Report details of treatment in practical to implement (see note 2)?
qualitative information / metadata
Yes
Yes
7. Does the dominant function Yes 5. Once the split has been made,
6. Does the benefit/component have one No
correspond to an ESSPROS each component should be
clearly dominant function (see note 3)?
function? considered separately.
No
No
Does the component correspond to
E. Benefit/component is out of one ESSPROS function (and not to
scope. Do not report in ESSPROS any risk/need outside of ESSPROS)?
(see note 5).
Yes
C. Report the value of the

F. Report the value of the component under the
benefit/component according to corresponding ESSPROS function.
the guidance in Part 2 of the Yes 8. Is there any specific guidance related
Report details of treatment in
ESSPROS manual to the benefit/component in Part 2 of
the ESSPROS manual?
Report details of treatment in
qualitative information / metadata No
G. Report total value under the

most specialised ESSPROS function 9. Does the benefit/component
Yes
(see note 1) correspond only to ESSPROS functions
(and not to any risk/need outside of
Report details of treatment in ESSPROS)?
No
H. Analyse benefit/component and refer to the “Compendium of

methodological clarifications” (see note 4) to determine if the total value
should be reported under an ESSPROS function or excluded (see note 5)
Report details of treatment in qualitative information / metadata

Note 1: The order of specialisation of functions specified in §110D is: Sickness/Health care (health care), Housing, Old age, Disability, Survivors,
Unemployment, Sickness/Health care (cash benefits), Family/children and Social exclusion not elsewhere classified.
Note 2: Where the total value represents an insignificant proportion of any of the functions that it covers (e.g. <5%), and where the cost of
developing a split outweighs the added value of the information, the functional split may be considered impractical to implement.
Note 3: In the case of supplements which are split from the main benefit, the additional objective of the supplement is considered dominant over
the objective of the main benefit.
Note 4: When a benefit/component corresponds to both an ESSPROS and a non-ESSPROS function (Education, culture, sport, etc.) but neither
is dominant, they have to be analysed case by case and documented in the “Compendium of methodological clarifications” for reference.
Note 5: If at least one component of the original (pre-split) benefit is not reported in ESSPROS, the relevant receipts of the scheme should be
reduced accordingly.
11.4. Conclusions
11.4.1. Main conclusions
The 2019 edition of the ESSPROS Manual and user guidelines includes guidance on multifunction benefits
that is not always entirely clear. The ESSPROS Task Force on methodology agreed that improvements to
the guidelines are needed to:
 Clarify that multifunction benefits should be split where possible.
 Improve definitions of bundled and overlapping to ensure a clear distinction and clarify guidance on their
treatment.
 Improve guidelines on treatment of supplements.
 Ensure consistency with other aspects of the ESSPROS guidelines, notably the classification of benefits
according to the age of recipients and education related benefits.
The manual should provide simple, unambiguous, comprehensive guidance, accompanied by instruction
for specific cases, thus ensuring that multifunction benefits are recorded in a way that best reflects the
purpose for which it is granted and safeguards comparability between countries. Section 7.1 of Part I of the
manual should be updated accordingly. Inconsistencies between the text of the manual and the
questionnaire for optional data should also be eliminated.
The proposed solution does not attempt to change the general approach currently intended by the
ESSPROS manual, it simply provides a basis for making the intention clear and avoiding misleading
guidance. It does, however, remove the exceptions made for certain types of supplements, requiring these
to be split off from the main benefits when their additional objective intends to serve a function other than the
one served by the main benefit. Moreover, the approach is coherent with other ongoing methodological
developments, most notably work to clarify the classification of benefits according to the age of recipients
and the treatment of education related benefits.
11.4.2. Recommended modifications in the ESSPROS manual

Amendments to the ESSPROS manual are recommended as listed below (changes are shown in red).
11.4.2.1 PART 1
Adjust §110A to improve clarity and reinforce the need to split data where possible
§110A Compilers of the statistics are encouraged to identify analyse the characteristics of the benefit, its
eligibility criteria, and the exact reasons for which the benefit it is granted. In some cases, the
benefit will have a purpose that corresponds to a single function of social protection. In this case,
data are directly allocated to that function. However, in others, the benefit will have a purpose that
corresponds to multiple functions– i.e. it is a multifunction benefit. The purpose of such benefits

may correspond either to multiple functions within the scope of social protection (see §110) or to a
combination of functions within and outside the scope of social protection.
In these cases, it is and, if necessary, where conceptually possible, to split the total value data for
of the benefit into a number of components having separate objectives74 that can each be treated
separately – i.e. either allocated to their correct a single relevant functions in a manner that
accurately reflects the extent to which the component addresses the associated risks and needs of
social protection or, if it addresses risks or needs outside the scope of social protection, excluded
completely. This split is of key importance as it is the only way of ensuring that the scope of the
data and its comparable statistics breakdown by function is comparable between countries,
bearing in mind that countries differ considerably in the institutional organisation of their social
protection systems. The exceptional circumstances under which a split may not be applied for
practical reasons despite being conceptually possible are outlined under §110G.
Adjust §110B to improve clarity and integrate guidance from the existing §110E
§110B The functional classification of a scheme's benefits is always determined by their its purpose. It
should not be determined by:
 and not by the main field in which the scheme operates.: for instance, an Old age pension scheme can
grant benefits that should be classified under the Survivors or Family/children functions.
 The function of a benefit should not be confused with the personal situation of its recipient: for example,
a widow may receive an unemployment benefit or a retired person may be given a housing benefit.
 purposes it serves other than the one for which it is formally intended: this is known as blurring of
objectives. For practical reasons, ESSPROS does not normally correct for implicit substitution.
Examples are disability benefits granted in times of high unemployment as an alternative to
unemployment benefits. However, if substitution is explicit in the eligibility criteria, the benefit is
allocated to the function it serves and not to its official function. For example, ESSPROS classifies
early retirement benefits explicitly granted for labour market reasons under the Unemployment
function.
 the type of goods or service provided: Likewise, some types of goods and services may be granted in
connection with several functions, depending on their purpose. One such example is hHome care
is an example.
Placing a given social benefit under its the correct function is not always easy. Problems arise in
particular for multifunction benefits.
Delete existing §110C, §110D, §110E (now integrated into §110B) and §110F and replace with the
following paragraphs:
§110C When it is conceptually possible to split a multifunction benefit into components having separate
objectives, expenditure should be split according to the amounts granted in relation to different
risk/needs. Each part should then either be allocated to the relevant function within ESSPROS or,
if it addresses a risk/need outside the scope of ESSPROS, excluded completely.
§110D When it is not possible to split a multifunction benefit into components, expenditure should be
allocated to a single function. In order to do so, apply the first appropriate approach from the
following list (in descending order):
 Dominant function: Assess if the benefit has a “dominant” function – i.e. if one of the objectives has a
higher priority than the other(s). This assessment should consider not only the objectives of the
benefit and what key social issue(s) it is attempting to address but also the eligibility criteria and
74 Further guidance on how to assess whether it is conceptually possible to split a benefit into components having separate objectives is provided
in the “Compendium of methodological clarifications”.

the explicit/implicit targeting of the benefit75. If a dominant function can be identified, then all
expenditure should be allocated to that function. If that function is outside the scope of ESSPROS
then it should be excluded completely.
 Guidance in the ESSPROS Manual: In absence of a dominant function, check if there is any specific
guidance in part 2 of the ESSPROS Manual on how to proceed. If such guidance exists, then
follow that guidance.
 Order of specialisation: In absence of a dominant function and specific guidance in the ESSPROS
Manual, and where a benefit corresponds only to ESSPROS functions, expenditure should be
allocated to the most specialised function of those covered. The order of specialisation (high to
low) is as follows: Sickness/Health care (health care), Housing, Old age, Disability, Survivors,
Unemployment, Sickness/Health care (cash benefits), Family/children, and Social exclusion not
elsewhere classified. For example, in the case of a housing benefit provided only to large families,
all expenditure should be reported to the housing function, which is more specialised.
Note that where the benefit corresponds to functions both within and outside the scope of
ESSPROS, the order of specialisation cannot be applied. Instead, the benefit should be analysed
in detail and any relevant guidance in the “Compendium of methodological clarifications” should be
used to identify the most appropriate function to which all the expenditure should be allocated. If
that function is outside the scope of ESSPROS then it should be excluded completely.
§110E In either case, both the treatment applied and the justification for it should be documented in
associated qualitative information/metadata.
§110F In the case that a benefit or component of a benefit of a scheme is excluded because it addresses
a function which is outside the scope of ESSPROS, the corresponding receipts of the scheme
should be reduced accordingly.
§110G This approach should be applied at all times, using actual data to produce a breakdown where
possible or, if necessary, using appropriate estimation methods.
Exceptionally, in the case of a benefit for which the total value represents an insignificant
proportion of any of the functions that it covers (i.e. <5%), and where the cost of developing a split
outweighs the added value of the information, then the benefit can be allocated to a single function
following guidance in §110D in relation benefits that cannot be split into components.
§110H In case of benefits which include supplements, the benefit always consists of two types of
component. A main benefit, provided to all beneficiaries, and supplements, which are provided
(in addition to the main benefit) only to beneficiaries meeting additional conditions.
Supplements may be discretely defined and added to the value of the main benefit (e.g.
irrespective of the value of the main benefit, a supplement of x is paid in case of situation 1, y in
case of situation 2, etc.) or expressed as a higher rate (e.g. irrespective of the value of the main
benefit the supplement increases the base amount by x% in case of situation 1, y% in case
situation 2, etc.). In the former case the value of the supplement is fixed for each situation whilst in
the latter case it may vary according to the value of the main benefit.
Supplements are components whose objectives differ from those of the main benefit in the sense
that they share the objectives of the main benefit but supplement these with additional objectives.
Only those whose additional objectives intend to serve a function other than that served by the
main benefit should be considered multifunction benefits and treated as such in accordance with
§110D, with the additional objectives of the supplement being treated as dominant over those of
the main benefit. Any supplements whose additional objectives intend to serve the same function
75 The use of the implicit targeting of a benefit to determine the dominant function may appear at odds with the fact that ESSPROS does not
normally correct for implicit substitution. However, this does not result in implicit substitution as the objectives of the benefit, and associated
functions, will have already been identified on the basis of explicit characteristics of the benefit prior to the assessment of the dominant
function.

of the main benefit are not considered, according to §110A, multifunction benefits and should be
reported together with the main benefit.
Note that supplements are not to be confused with benefits provided by supplementary schemes.
Benefits provided by supplementary schemes serve to top up, extend the coverage of or replace
benefits provided by a basic scheme (see chapter 4.2.6). In contrast to supplements, they are
distinct from the benefits they intend to enhance and are provided by a separate scheme. Further,
they normally belong in the same function and detailed classification as the benefits they intend to
enhance.
11.4.2.2 PART 2
The sections of part two of the manual dedicated to Old age, Unemployment and Social exclusion functions
each contain the same paragraph concerning family/children supplements (§43F, §74D and §85D). This
needs to be adjusted/simplified to remove exceptions to the general rule and added to the section for
disability (new §32G to ensure consistency with the optional data identified in appendix I section 3.2).
In some cases, higher rates of benefits are paid to the beneficiary if she/he has dependants (a
child or a non-working spouse for example). These family/children supplements thus are paid
either integrate in addition to or to replace the family allowance, and should therefore, in principle,
they should be separated from the main benefit and included in the Family/children function (along
with family allowances). This can prove difficult, also because in establishing the rate of benefit,
the policy maker will have taken account of economies of scale in consumption of the household.
For reasons of convenience, the supplements will be retained reported, by convention, in the
functions to which the main benefit belongs Further guidance on supplements is provided under
§110H of Part I of the manual.
§32D to be replaced with the following to ensure consistency with other paragraphs
§32D Where a disabled child is entitled to a cash disability benefit in his or her own right, irrespective of
dependency, the corresponding benefit is reported under the Disability function. Legislation may
provide that higher rates of family allowance are paid to the family beneficiary if a dependant is
disabled (a child or a spouse for example). These disability supplements may replace, in some
cases, benefits paid directly to the disabled, and should therefore be separated from the main
benefit and included in the Disability function. Further guidance on supplements is provided under
§110H of Part I of the manual.
§76 to be adjusted to ensure consistency with other similar paragraphs
§76 Even when In some cases, housing benefits are paid in cash as a supplement to other benefits
(e.g. old age pensions or minimum guaranteed income benefits). These supplements are paid to
help households meet the cost of housing. Indeed, housing is considered, by definition, a certified
expenditure (see paragraph 115 of Part 1 of the Manual). These should therefore be separated
from the main benefit and included in they are classified in the Housing function as benefits in kind.
Further guidance on supplements is provided under §110H of Part I of the manual. The object of
the benefits in this function is to help households meet the cost of housing: by definition, housing is
considered certified expenditure (see paragraph 115 of Part 1 of the Manual).
11.4.3. Recommended modifications to the ESSPROS

regulation(s)
No changes are needed to any of the ESSPROS regulations.

11.5. Examples
11.5.1. Benefits in cash: Up-to employment benefit in Croatia
Description of benefit:
Up-to employment benefit (Naknada do zaposlenja) is a periodic cash benefit amounting to 350 Croatian
Kuna which is granted to persons aged 15 and above with developmental difficulties or disabilities who,
after completing their education, are registered as unemployed with the Croatian Employment Service but
are not entitled to unemployment benefits. Entitlement to the benefit ceases soon as a beneficiary gains
employment but can be re-acquired if their employment is terminated for no fault of their own and they do
not gain rights to unemployment benefit. Persons who are either fully incapable of work or receiving an
assistance and care supplement are not eligible to receive this benefit.
Application of the decision tree:
Stage Analysis Outcome

1. Do the objectives, purposes or reasons for Objectives, purposes or reasons for which Yes
which a benefit is granted correspond to at the benefit is granted correspond to disability
least one of the ESSPROS functions of and unemployment.
social protection? (See §16)
2. Do the objectives, purposes or reasons for No
which a benefit is granted correspond to one
ESSPROS function (and not to any risk/need
3. Is it conceptually possible to split the The benefit is a simple benefit with No
benefit into components having separate simultaneous objectives and cannot be split
objectives? into components.
6. Does the benefit/component have one There is no single dominant function. No
8. Is there any specific guidance related to There is no relevant guidance in part 2 of the No
the benefit/component in Part 2 of the manual.
ESSPROS manual?
9. Does the benefit/component correspond Benefit corresponds only to disability and Yes
only to ESSPROS functions (and not to any unemployment.
risk/need outside of ESSPROS)?
Result is approach G  Report total value of benefit under the most specialised ESSPROS function (see
note 1)  Disability is more specialised than unemployment  Report in disability function.

This is consistent with current reporting where the benefits is reported in ESSPROS under item
1121115 (non means-tested other cash periodic benefit) of scheme 6.
11.5.2. Benefits in kind: Child day care in Sweden
In Sweden, municipalities are responsible for child day care according to the School Act. Child day care is
a group activity for children whose parents have gainful employment outside home or are students, and for
children who need group activities together with other children. It is open during the whole year and the
opening and closing hours are generally adapted to parents working hours. Child day care is provided for
children aged 0-6. It includes both pedagogic activities and child care, but these elements are not provided
simultaneously and only children aged 3-6 have a right to pedagogic activities (albeit exceptions for
younger children can be granted by the Ministry of Education).
Note that this benefit is given as an example in §61C of the part 2 of the ESSPROS Manual and user
guidelines.

which a benefit is granted correspond to at the benefit is granted correspond to
least one of the ESSPROS functions of education and family/children.
3. Is it conceptually possible to split the The benefit is a composite benefit with Yes
benefit into components having separate independent objectives. There are two
objectives? components (A) education services and (B)
child care services
Note: the benefit cannot be considered a

simple benefit on the basis that it includes
two forms of benefits in kind for the
beneficiary.
4. Is a functional split of the benefit into Split is already applied. While the total value Yes
components reasonable and practical to of the benefit is unknown, in 2015,
implement (see note 2)? component B accounted for 28.5% of
expenditure of the family/children function.
5. Once the split has been made, each Component A: Only education function. No
component should be considered separately.
Component B: Only family/children function. Yes

Does the component correspond to one
6. Does the benefit/component have one Component A: See above. Yes
Component B: N/A N/A

7. Does the dominant function correspond to Component A: See above. No
an ESSPROS function?
Component B: N/A N/A
Result for component A (education services) is approach E  Benefit/component is out of scope. Do not
report in ESSPROS.
Result for component B (child care services) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the family/children function.
This is consistent with current reporting where child day care is split into two components, one for
education services and one for child care services, only the latter is included in ESSPROS under item
1151201 (non-means tested child day care) of scheme 11.
11.5.3. Supplements: Survivors’ supplements to old-age

pensions in Switzerland
In Switzerland recipients of old age pensions from scheme 1 (“Old age and survivors insurance”) who
become widows/widowers after they have reached the retirement age may be granted an additional
survivors’ supplement (Verwitwetenzuschlag). This takes the form of a 20% increase in their pension as
compensation for the loss of the pension income of their partner.

which a benefit is granted correspond to at the benefit is granted correspond to old-age
least one of the ESSPROS functions of and survivors.

benefit into components having separate simultaneous objectives. There are two
objectives? components (A) an old age pension and (B)
an optional survivors’ supplement.
4. Is a functional split of the benefit into Split is already applied. In 2015, the total Yes
components reasonable and practical to value of the benefit was equivalent to 57.9%
implement (see note 2)? of the expenditure of the old-age function
and 491.7% of the expenditure of the
survivors’ function.
5. Once the split has been made, each Component A: Serves only the old-age Yes
component should be considered separately. function.
No
Does the component correspond to one Component B: As a supplement, it serves
ESSPROS function (and not to any risk/need both the old age and survivors’ function.
6. Does the benefit/component have one Component A: N/A N/A
Component B: As a supplement, the Yes

additional objective of the supplement – i.e.
survivors’ – is dominant.
7. Does the dominant function correspond to Component A: N/A N/A
Component B: See above Yes
Result for component A (Old age pension) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the old-age function.
Result for component B (Survivors’ supplement) is approach D  Report the value under a single
ESSPROS function corresponding to the dominant function of the benefit/component  Report in the
This is consistent with current reporting. While both components are reported under scheme 1, the main
old-age pension benefit is reported under 1131111 (non-means tested old-age pension) while the survivors’
supplement is split off and reported under 1141111 (non-means tested survivors’ pension).
11.5.4. Guaranteed minimum benefit and supplement for

children in Croatia
Guaranteed minimum benefit (Zajamčena minimalna naknada) is a means-tested periodic cash benefit
intended to secure basic needs of a single person or a family who cannot acquire the means to provide for
themselves through their work, property income or from persons obliged to support them. There is no limit
to the duration of receipt of the benefit, so a beneficiary can continue to receive it if they fulfil all conditions
set out in the Social Welfare Act. The benefits are typically only granted to persons registered as

unemployed but there are exceptions to this rule. Households with children in receipt of this benefit receive
an additional amount of benefit for each child (supplement for children).

which a benefit is granted correspond to at the benefit is granted correspond to social
least one of the ESSPROS functions of exclusion and family/children.
objectives? components (A) an income support and (B)
an optional supplement for children.
implement (see note 2)? of the expenditure of the social exclusion
function and 12.2% of the expenditure of the
family/children function.
5. Once the split has been made, each Component A: Serves only the social Yes
component should be considered separately. exclusion function.

No
ESSPROS function (and not to any risk/need both the social exclusion function and
outside of ESSPROS)? family/children function.

family/children – is dominant.
Result for component A (Income support) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the social exclusion function.
Result for component B (Supplement for children) is approach D  Report the value under a single

income support is reported under 1182111 (means tested income support) and the supplement for children
is split off and reported under 1152113 (means-tested family or child allowance).
11.5.5. House assistance in Croatia
House assistance (Pomoć u kući) is a means-tested benefit in kind in the form of a social service that is
provided to persons in need of assistance from another person due to either old age, disability or a
temporary health condition. House assistance includes the supply of meals to the beneficiary, undertaking
of household chores and taking care of other everyday needs. Beneficiaries receive the benefits for
different reasons and only need to satisfy eligibility criteria related to one objective to receive it (i.e. due to
old age, due to disability…etc.).

which a benefit is granted correspond to at the benefit is granted correspond to old-age,
least one of the ESSPROS functions of disability and sickness/health care76.
3. Is it conceptually possible to split the The benefit is a simple benefit with Yes
benefit into components having separate independent objectives. There are three
objectives? components (A) benefits granted due to old
age, (B) benefits granted due to disability
and (C) benefits granted due to
sickness/health care.
4. Is a functional split of the benefit into The ESSPROS qualitative information inform Yes
components reasonable and practical to that a split is already applied in relation to
implement (see note 2)? the components granted due to old-age and
disability, suggesting a split is possible.
5. Once the split has been made, each Component A: Only old-age function. Yes
Component B: Only disability function. Yes

outside of ESSPROS)? Component C: Only sickness/health care Yes
76 Note that previous analysis presented to the ESSPROS Working Group noted that the objectives, purposes or reasons for which the benefit is
granted correspond only to old-age and disability but further investigation of the nature of the benefits based on the national sources reference
in footnote Error! Bookmark not defined. suggests otherwise.

function.
Result for component A (House assistance granted due to old age) is approach C  Report the value of
the component under the corresponding ESSPROS function  Report in the old-age function.
Result for component B (House assistance granted due to disability) is approach C  Report the value of
the component under the corresponding ESSPROS function  Report in the disability function.
Result for component C (House assistance granted due to a temporary health condition) is approach C 
Report the value of the component under the corresponding ESSPROS function  Report in the
sickness/health care function.
This is not consistent with current reporting where the qualitative information inform that house assistance
is split into two components, one for benefits granted due to old age and one for benefits granted due to
disability, and included in ESSPROS under items 1132202 (non-means assistance in carrying out daily
tasks) and 1122202 (means-tested assistance in carrying out daily tasks) of scheme 6 respectively. Since
there is no information which could be used to make a proper breakdown between disability and health
care, the entire amount of expenditure for this category of beneficiaries was recorded in disability function,
which is considered dominant.
Note, also, that if the ESSPROS Working Group agrees that all disability benefits paid to persons over the
retirement age should be reported in the old age function then the division between components A and B
will change. Component A would include all benefits granted due to old-age plus those granted due to
disability and paid to persons over the reference retirement age while component B would only include
benefits granted due to disability and paid to persons below the reference retirement age.
11.5.6. Survivors’ supplements to disability pensions in

Switzerland
In Switzerland recipients of full disability pensions from scheme 2 (“Disability insurance”) who become
widows/widowers may be granted an additional survivors’ supplement (Verwitwetenzuschlag). This takes
the form of a 20% increase in their pension as compensation for the loss of the pension income of their
partner.

least one of the ESSPROS functions of and survivors.

objectives? components (A) a disability pension and (B)
an optional survivors’ supplement.
implement (see note 2)? of the expenditure of the disability function
5. Once the split has been made, each Component A: Serves only the disability Yes

No
ESSPROS function (and not to any risk/need both the disability and survivors’ function.

survivors’ – is dominant.
Result for component A (disability pension) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the disability function.
Result for component B (Survivors’ supplement) is approach D  Report the value under a single
old-age pension benefit is reported under 1121111 (non-means tested disability pension) while the
survivors’ supplement is split off and reported under 1141111 (non-means tested survivors’ pension).
11.5.7. Pensions for children in Switzerland
In Switzerland recipients of old-age pensions from scheme 1 (“Old age and survivors insurance”) and
disability pensions from scheme 2 (“Disability insurance”) with children under the age of 18 years (or 25

years if they are in higher education) may be granted an additional “child’s pension” (Kinderrente).
The application of the decision tree shown below illustrates the case associated with the old-age pensions
from scheme 1 (“Old age and survivors’ insurance”). A similar treatment applies to the case of disability
pensions from scheme 2 (“Disability insurance”).

which a benefit is granted correspond to at the benefit is granted correspond to old-age
least one of the ESSPROS functions of and family/children.
objectives? components (A) an old age pension and (B)
an optional child supplement (the “child’s
pension”).
implement (see note 2)? of the expenditure of the old-age function
5. Once the split has been made, each Component A: Serves only the old-age Yes
No
ESSPROS function (and not to any risk/need both the old age and family/children function.

Result for component A (Old age pension) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the old-age function.
Result for component B (Child supplement) is approach D  Report the value under a single ESSPROS

function corresponding to the dominant function of the benefit/component  Report in the family/children
function.
old-age pension benefit is reported under 1131111 (non-means tested old-age pension) while the child
supplement (the “child’s pension”) is split off and reported under 1151113 (non-means tested family or child
allowances).
11.5.8. Paid leave in Switzerland
In Switzerland paid leave (Lohnfortzahlungen) is provided to employees in case of paternity (lasting at least
one day), sickness (including accidents) or maternity (lasting at least 3 weeks). The terms are set out under
the Swiss Code of Obligation and jurisprudence, but employment contracts or collective agreements may
provide for longer paid leave. In general, the employer is required to continue to pay an employee their
salary during leave. However, they may be fully or partially exempt from this requirement if they meet
certain conditions in relation to the provision of insurance cover for this same purpose.

least one of the ESSPROS functions of sickness/health care and family/children.
benefit into components having separate independent objectives. There are two
objectives? components (A) benefits granted due to
sickness/health care and (B) benefits
granted due to family/children.
implement (see note 2)? of the expenditure of the sickness/health
care function and 40.6% of the expenditure
of the family/children function.
5. Once the split has been made, each Component A: Only sickness/health care Yes

Does the component correspond to one Component B: Only family/children function. Yes
Result for component A (Paid leave due to sickness) is approach C  Report the value of the component
under the corresponding ESSPROS function  Report in the sickness/health care function.
Result for component B (Paid leave due to maternity or paternity) is approach C  Report the value of the
component under the corresponding ESSPROS function  Report in the family/children function.
This is consistent with current reporting. Paid leave (Lohnfortzahlungen) is split between 1111111 (non
means-tested paid sick leave) and 1151111 (non means-tested income maintenance in the event of
childbirth) using estimates. These are reported under two separate schemes (schemes 8 and 35) as the
rules associated with paid leave due to sickness and that due to maternity/paternity differ.
11.5.9. Compensation for accommodation in a foster family in

Croatia
In Croatia, a foster family is entitled to receive monthly compensation for providing accommodation and
other services provided to those in their care. Compensation for accommodation in a foster family
(Naknada za smještaj u udomiteljsku obitelj) can be granted to foster families caring for various categories
of individual. This includes elderly persons, children and persons suffering from addiction, victims of
domestic violence and persons incapable of work living in especially difficult conditions.

which a benefit is granted correspond to at the benefit is granted correspond to old age
least one of the ESSPROS functions of family/children and social exclusion
objectives? components (A) benefits granted due to old
age (i.e. fostering elderly), (B) benefits
granted due to family/children (i.e. fostering
children) and (C) benefits granted due to
social exclusion (i.e. fostering other groups
at risk).

implement (see note 2)? of the expenditure of the old age function,
8.8% of the expenditure of the
family/children function and 64.8% of
expenditure of the social exclusion function.
5. Once the split has been made, each Component A: Only old age function. Yes

outside of ESSPROS)? Component C: Only social exclusion Yes
function.
Result for component A (Compensation for accommodation in a foster family related to fostering elderly
persons) is approach C  Report the value of the component under the corresponding ESSPROS function
 Report in the old age function.
Result for component B (Compensation for accommodation in a foster family related to fostering children)
is approach C  Report the value of the component under the corresponding ESSPROS function 
Report in the family/children function.
Result for component C (Compensation for accommodation in a foster family related to fostering persons
suffering from addiction, victims of domestic violence and persons incapable of work living in especially
difficult conditions) is approach C  Report the value of the component under the corresponding
ESSPROS function  Report in the social exclusions n.e.c function.
This is consistent with current reporting whereby compensation for accommodation in a foster family is split
between 1131201, 1151202 and 1181201 (non means-tested accommodation of the three above
mentioned functions) of scheme 6 (Social Welfare, Socijalna skrb).
11.5.10. Unemployment benefits and supplement for children

in Switzerland
In Switzerland entitlement to unemployment benefit (Arbeitslosenentschädigung) is granted when an

individual has made insurance contributions for at least 12 months during the previous two years prior to
becoming unemployed. The benefit typically covers 70% of a recipient’s average earnings during the
previous six months but this is set to 80% if the recipient is taking care of at least one child. This
corresponds to a 10% supplement for recipients with children.


least one of the ESSPROS functions of unemployment and family/children.
objectives? components (A) the main unemployment
benefit and (B) an optional supplement for
children.
4. Is a functional split of the benefit into A split is not currently applied and it is not Yes
components reasonable and practical to clear if it is possible in practice. However, in
implement (see note 2)? 2015 the total value of the benefit was
equivalent to 83.1% of the expenditure of the
unemployment function and 50.7% of the
expenditure of the family/children function.
5. Once the split has been made, each Component A: Serves only the Yes
component should be considered separately. unemployment function.

No
ESSPROS function (and not to any risk/need both the unemployment function and
outside of ESSPROS)? family/children function.

Result for component A (Main unemployment benefit) is approach C  Report the value of the component
under the corresponding ESSPROS function  Report in the unemployment function.
Result for component B (Supplement for children) is approach D  Report the value under a single
This is not consistent with current reporting as a split is not applied. Both components are reported under
1161111 (non means-tested full unemployment benefit) of scheme 6.

11.5.11. Guaranteed Minimum Income (GMI) benefit and
housing supplements in Cyprus
Guaranteed Minimum Income (Ελάχιστο εγγυημένο εισόδημα) in Cyprus is an allowance provided to

eligible beneficiaries and their families to ensure a minimum standard of living77. The allowance depends
on the composition and income of the family unit. Those who are eligible for GMI and are also living either
in rented accommodation or in a house for which they have mortgage, may also receive housing allowance
(Επιχορήγηση για το ενοίκιο και τους τόκους στεγαστικού δανείου) to help cover housing costs. This comes
either in the form of a rental allowance or an allowance to cover interest on housing loans.

which a benefit is granted correspond to at the benefit is granted correspond to social
least one of the ESSPROS functions of exclusion and housing.
objectives? components (A) an income support (GMI)
and (B) an optional supplement for housing
(housing allowance).
4. Is a functional split of the benefit into Split is currently applied. Yes
components reasonable and practical to
implement (see note 2)?
5. Once the split has been made, each Component A: Serves only the social Yes
component should be considered separately. exclusion function.

No
ESSPROS function (and not to any risk/need both the social exclusion function and
outside of ESSPROS)? housing function.

housing – is dominant.
77 See https://www.oecd.org/els/soc/Cyprus-2018.pdf

Result for component A (GMI) is approach C  Report the value of the component under the
corresponding ESSPROS function  Report in the social exclusion function.
Result for component B (Housing allowance) is approach D  Report the value under a single ESSPROS
function corresponding to the dominant function of the benefit/component  Report in the housing function.
This is consistent with current reporting. Such a split has indeed been implemented in the Core System
since the 2016 reference year (estimates based on EU-SILC data are used for 2016 and 2017 while actual
data is used for 2018 onwards). More specifically, the part of the GMI corresponding to housing (the
dominant function of the supplement) is reported under 1172212 (the amount of the GMI that is given for
rent allowance) and 1172220 (the amount given to cover interest on housing loans).
11.5.12. Targeted allowance for rent payment in Bulgaria

In Bulgaria, “targeted allowance for rent payment” (Целева помощ за заплащане на наем) is a means-
tested benefit provided specifically to three groups (1) orphans up to 25 years of age who have completed
a social vocational education, (2) lonely people over the age of 70 and (3) single parents with the purpose
of funding municipal housing rent.

which a benefit is granted correspond to at the benefit is granted correspond to old-age,
least one of the ESSPROS functions of family/children and housing.
3. Is it conceptually possible to split the The benefit can be interpreted as composite Yes
benefit into components having separate benefit with two components, each of which
objectives? can be interpreted as simple benefits with
simultaneous objectives: (A) a component
which corresponds to old-age and housing
(i.e. allowance provided to elderly) and (B)
component which corresponds to
family/children and housing (i.e. allowance
provided to orphans and single parents)

4. Is a functional split of the benefit into Split is not currently applied but it could be Yes
components reasonable and practical to reasonable and practical to implement
implement (see note 2)?
5. Once the split has been made, each Component A: Serves old-age function and No
component should be considered separately. housing function.
Does the component correspond to one Component B: Serves family/children

No
ESSPROS function (and not to any risk/need function and housing function.
6. Does the benefit/component have one Component A: No clear dominant function. No

Component B: No clear dominant function. No

8. Is there any specific guidance related to Component A: No relevant guidance in part No
the benefit/component in Part 2 of the 2.
ESSPROS manual?
No
Component B: No relevant guidance in part
2.
9. Does the benefit/component correspond Component A: See above. Yes
only to ESSPROS functions (and not to any
Component B: See above. Yes
Result for component A (allowance provided to elderly) and B (allowance provided to orphans and single
parents) is approach G  Report total value under the most specialised ESSPROS function  Report in
the Housing function.
This is consistent with current reporting whereby “targeted allowance for rent payment” is reported in full
under 1172211 (means-tested social housing) of scheme 13 (Social Aids, Социално подпомагане).
11.5.13. Rent assistance for persons with disabilities in

Bulgaria
In Bulgaria, “monthly supplement to satisfy basic living needs - rent for municipal dwelling” (Месечна добавка за
задоволяване на основни жизнени потребности - наем за общинско жилище) is a means-tested benefit
provided specifically to single persons with either permanent disabilities, permanently reduced working capacity or a
certain type and degree of disability with the purpose of funding municipal housing rent.

least one of the ESSPROS functions of and housing.
3. Is it conceptually possible to split the The benefit is a simple benefit with No
benefit into components having separate simultaneous objectives and cannot be split
objectives?
6. Does the benefit/component have one No clear dominant function. No
8. Is there any specific guidance related to No relevant guidance in part 2. No

the benefit/component in Part 2 of the
ESSPROS manual?
9. Does the benefit/component correspond See above Yes
only to ESSPROS functions (and not to any
Result for benefit  Report total value under the most specialised ESSPROS function  Report in the
Housing function.
This is consistent with current reporting whereby “monthly supplement to satisfy basic living needs - rent for
municipal dwelling” is reported in full under 1172212 (means-tested other rent benefits) of scheme 13
(Social Aids, Социално подпомагане).
11.5.14. Preferential rates of reimbursement for healthcare

expenditure in Belgium
In Belgium, a compulsory health insurance system covers healthcare costs such as consultations,
medications, hospital costs, …etc. The rates of reimbursement vary between different healthcare goods
and services but are applied uniformly across the majority of beneficiaries. Certain categories of individuals
are, however, eligible for higher reimbursement rates – referred to as preferential rates78. Preferential rates
are attributed automatically in the following cases:
78 See https://www.riziv.fgov.be/fr/themes/cout-remboursement/facilite-financiere/Pages/intervention-majoree-meilleur-
remboursement-frais-medicaux.aspx

 Beneficiaries of social allowances providing means-tested minimum income to people who are disabled
(recipients of “l’allocation de personne handicapée”), elderly (recipients of “la garantie de revenus
aux personnes âgées”) or poor (recipients of “le revenu d’intégration du CPAS”).
 Children identified as having a disability of at least 66%, as foreign unaccompanied minors or as
orphans.
Other groups can also apply for preferential rates subject to a means test:
 Disabled persons, widow(er)s, pensioners, long-term unemployed and single parents.

least one of the ESSPROS functions of sickness/health care only
2. Do the objectives, purposes or reasons for Yes
Result for benefit  Report total value under corresponding ESSPROS function  Report in the
Sickness/health care function.
Preferential rates are supplements whose objective is to ensure all categories of the population have
access to health care irrespective of resources. On this basis, their additional objectives intend to serve the
same function as the standard rates of reimbursement.
This is consistent with current reporting whereby expenditure related to “preferential rates” of health care
reimbursement is reported in full under 1111212 (non means-tested reimbursement) and 1111214 (non
means-tested other reimbursement) of scheme 2 (Health care for the salaried workers and self-employed)
as part of expenditure on health care reimbursements.
11.5.15. Family allowance in Hungary
In Hungary, a family allowance (családi pótlék) is granted by the government to promote the upbringing and
schooling of the child. An increased amount of family allowance is paid for children who are chronically ill or
severely disabled.

least one of the ESSPROS functions of family/children, sickness/healthcare and
social protection? (See §16) disability.
benefit into components having separate simultaneous objectives. There are three
objectives? components: (A) a family allowance, (B) a
supplement for chronically ill children and (C)
a supplement for disabled children.
4. Is a functional split of the benefit into Split is not currently applied. However, in Yes
components reasonable and practical to 2018 the total expenditure of the benefit was
implement (see note 2)? equivalent to 35.1% of that of the
family/children function, to 14.8% of that of
the sickness/healthcare function and 74.8%
of that of the disability function.
5. Once the split has been made, each Component A: Serves only the Yes
component should be considered separately. family/children function.

No
ESSPROS function (and not to any risk/need both the family/children function and
outside of ESSPROS)? sickness/healthcare function.
Component C: As a supplement, it serves

both the family/children function and
No
disability function.


sickness/healthcare – is dominant.
Component C: As a supplement, the

additional objective of the supplement – i.e. Yes
disability – is dominant.
Component C: See above Yes

Result for component A (main family allowance) is approach C  Report the value of the component under
the corresponding ESSPROS function  Report in the family/children function.
Result for component B (supplement for chronically ill children) is approach D  Report the value under a
single ESSPROS function corresponding to the dominant function of the benefit/component  Report in
the sickness/healthcare function.
Result for component C (supplement for disabled children) is approach D  Report the value under a
single ESSPROS function corresponding to the dominant function of the benefit/component  Report in
the disability function.
This is not consistent with current reporting as a split is not applied. All components are reported under
1151113 (non means-tested family or child allowance) of scheme 1. However, Hungary is planning to
distribute the family allowance by function as much as possible.
11.5.16. Public transport price reductions in Hungary
In Hungary there are different travel cost reductions for different groups of citizens: disabled, people over
65 years, large families, students, soldiers, etc.

which a benefit is granted correspond to at the benefit is granted correspond to old age,
least one of the ESSPROS functions of family/children and disability
objectives? components: (A) benefits granted due to old
age, (B) benefits granted due to
family/children and (C) benefits granted due
to disability.
implement (see note 2)? of the expenditure of the old age function,
10.3% of the expenditure of the
family/children function and 21.9% of
expenditure of the disability function.

5. Once the split has been made, each Component A: Only old age function. Yes

outside of ESSPROS)? Component C: Only disability function. Yes
Result for component A (benefits granted due to old age) is approach C  Report the value of the
component under the corresponding ESSPROS function  Report in the old age function.
Result for component B (benefits granted due to family/children) is approach C  Report the value of the
component under the corresponding ESSPROS function  Report in the family/children function.
Result for component C (benefits granted due to disability) is approach C  Report the value of the
component under the corresponding ESSPROS function  Report in the disability function.
This is consistent with current reporting whereby this benefit is split between 1121204, 1131203 and
1151204 (non means-tested other benefits in kind of the three above mentioned functions) of scheme 17
(Consumer Price Subsidies – Fogyasztói Ártámogatások).

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KS-GQ-21-003-EN-N
Compendium of methodological
clarifications — ESSPROS:
EUROPEAN SYSTEM OF
INTEGRATED SOCIAL PROTECTION STATISTICS
The European System of Integrated Social Protection Statistics (ESSPROS)

aims to collect comparable statistical data by enforcing a common
methodology. Given the different national social protection systems
and their continuous adaptation to emerging needs, inevitably there are
cases of interventions for which the methodology does not provide clear
guidance on whether or not they should be included in ESSPROS and
how they should be reported.
This document provides a compendium of the analysis performed

in order to give methodological clarifications, including cases where
changes to the ESSPROS methodology were proposed and adopted by
the Working Group on Social Protection Statistics.
For more information

https://ec.europa.eu/eurostat/
ISBN 978-92-76-29427-6

Compendium of Methodological Clarifications - Esspros:: 2021 Edition

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© European Union, 2021

Copyright for the photographs: Cover © Mauro Pezzotta/Shutterstock

Theme: Population and social conditions

PDF: ISBN 978-92-76-29427-6 ISSN 2315-0815 doi: 10.2785/96986 KS-GQ-21-003-EN-N

ESSPROS: Compendium of methodological clarifications 3

1 Payable Tax Credits ....................................................................................................... 10

1.1. Summary .............................................................................................................. 10

1.2. Problem statement .............................................................................................. 10

1.3. Analysis ............................................................................................................... 11

1.5. Examples ............................................................................................................. 20

2 Collective services ......................................................................................................... 22

2.1. Summary .............................................................................................................. 22

2.2. Problem statement .............................................................................................. 22

2.3. Analysis ............................................................................................................... 22

ESSPROS: Compendium of methodological clarifications 4

2.4.2 Recommended modifications in the ESSPROS Manual/legislation ................................25

2.5. Examples ............................................................................................................. 26

3 Definition of means-tested benefits .............................................................................. 27

3.1. Summary .............................................................................................................. 27

3.2. Problem statement .............................................................................................. 27

3.3. Analysis ............................................................................................................... 28

3.5. Examples ............................................................................................................. 31

4 Withheld taxes and withheld social contributions ....................................................... 32

4.1. Summary .............................................................................................................. 32

4.2. Problem statement .............................................................................................. 32

4.3. Analysis ............................................................................................................... 33

4.5. Examples ............................................................................................................. 37

5.1. Summary .............................................................................................................. 39

5.2. Problem statement .............................................................................................. 39

5.3. Analysis ............................................................................................................... 39

ESSPROS: Compendium of methodological clarifications 5

5.3.2 Average itemised social contribution rates (AISCR) .........................................................40

5.5. Examples ............................................................................................................. 44

6 Capital transfers ............................................................................................................. 47

6.1. Summary .............................................................................................................. 47

6.2. Problem statement .............................................................................................. 47

6.3. Analysis ............................................................................................................... 48

6.5. Examples ............................................................................................................. 60

7 Benefits and recipients above/below the standard retirement age ............................ 62

7.1. Summary .............................................................................................................. 62

7.2. Problem statement .............................................................................................. 62

7.3. Analysis ............................................................................................................... 63

ESSPROS: Compendium of methodological clarifications 6

7.3.3 Possible improvements to the guidance ............................................................................65

8 Re-routed social contributions ..................................................................................... 70

8.1. Summary .............................................................................................................. 70

8.2. Problem statement .............................................................................................. 70

8.3. Analysis ............................................................................................................... 71

9 Social contributions reporting basis ............................................................................ 75

9.1. Summary .............................................................................................................. 75

9.2. Problem Statement .............................................................................................. 75

9.3. Analysis ............................................................................................................... 75

10 Distinction between disability pension and early retirement in case of reduced

10.1. Summary .............................................................................................................. 84

ESSPROS: Compendium of methodological clarifications 7

10.2. Problem Statement .............................................................................................. 84

10.3. Analysis ............................................................................................................... 85

11 Treatment of multifunction benefits ........................................................................... 87

11.1. Summary .............................................................................................................. 87

11.2. Problem Statement .............................................................................................. 88

11.3. Analysis ............................................................................................................... 88