Measuring PAYG Pension Liabilities of Listed Chinese SOEs to Incorporate Future Cash Flows

Posted: 2 Sep 2008 Last revised: 25 Jan 2019

See all articles by Liyan Tang

Liyan Tang

affiliation not provided to SSRN

Paul J. M. Klumpes

Nottingham Trent University

Date Written: June 18, 2014


Using simulated data and the expected cash flow (ECF) technique, Level 3 fair value estimates can be applied to estimate the Generational Imbalance (GI) measure arising from the unreported underfunded position of pay-as-you-go (PAYG) pensions incurred by a sample of Hong Kong listed Chinese SOEs. The GI measure helps examine the financial implications of including future cash flow estimates in current financial position for PAYG pensions as well as their enterprise and government sponsors. Positive GI figures imply net cash outflows over the period of funding current pension plan members and project net pension liabilities as an alternative measure of funded status at the end of the period. Pension underfunding imposes a funding burden on future pension plan members, a contingent claim against income of the SOEs or requires supplementary subsidies of the governments. The magnitude of GI is sensitive to the ECF estimates, the discount rate adopted in present value calculations, and the retirement age of pension plan members.

Keywords: Pension accounting, Expected cash flow, Level 3 fair value, Chinese SOEs

JEL Classification: H55, E17, M41, M43

Suggested Citation

Tang, Liyan and Klumpes, Paul J.M., Measuring PAYG Pension Liabilities of Listed Chinese SOEs to Incorporate Future Cash Flows (June 18, 2014). Available at SSRN: or

Liyan Tang (Contact Author)

affiliation not provided to SSRN

Paul J.M. Klumpes

Nottingham Trent University ( email )

Burton Street
Nottingham NG1 4BU, NG1 4LN
United Kingdom

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