Do sovereign ratings capture public pension liabilities in the assessment of public debt? A France–UK comparison

IMPACTThis article is intended primarily for investors, rating agencies and credit analysts assessing sovereign solvency. Its analysis may also be relevant to finance ministries, audit institutions, parliamentarians, fiscal authorities and public sector accountants. The article’s message is practical: pension liabilities are an important factor affecting sovereign solvency and should be given more weight by credit rating agencies (CRAs). The main difficulty lies in differences in pension systems and accounting methods across countries. The authors propose focusing on states’ income statements presented in financial reports under accrual accounting standards. Official debt must remain the central indicator, but it should not be read alone.