Imputed pension contributions are the estimated extra amount employers would have to pay to cover defined benefit pensions.
In a defined benefit pension scheme, a worker is guaranteed a certain level of pension when they retire, usually based on their salary when they are working. Their pension does not depend on how much money is in the pension fund. The employee and employer usually pay into these defined benefit pension funds, but if there is not enough being paid in to cover the pensions that have been guaranteed to the workers, the worker will still receive the amount they’ve been promised, and the employer will make up the difference.
Every year an employee works, their pension entitlement increases. The imputed employer contributions are the estimated gap between the amount that has been added to the fund and the amount the entitlement has increased by. Since we do not know how many years the person will live once they have retired or how the fund will fare in the meantime, the entitlement is uncertain. Professional actuaries estimate the entitlement and hence how much the imputed contributions are.
In National Accounts, Imputed Pension Contributions are added to the Compensation of Employees, and then paid by employees into a pension fund as part of their Social Transfers.
Read next: Adjustment for the Change in Pension Entitlements
