Pension Issues in Japan: How Can We Cope with the Declining Population?

Noriyuki Takayama

in The Economic Consequences of Demographic Change in East Asia

Published by University of Chicago Press

Published in print October 2010 | ISBN: 9780226386850
Published online February 2013 | e-ISBN: 9780226386881 | DOI:
Pension Issues in Japan: How Can We Cope with the Declining Population?

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This chapter examines the Japanese social security system, which is mostly a Pay-As-You-Go (PAYGO) system. The rapid aging in Japan is expected to cause great stress on the PAYGO pension system. Never-ending reforms of social security are inevitable in Japan, where only fine-tuning of programs even in the face of changing circumstances is acceptable in the political arena. It is observed that the basic design of the pension program has to be incentive-compatible. Contributions must be much more directly linked with old-age pension benefits, while an element of social adequacy should be incorporated in a separate tier of pension benefits financed by sources other than contributions. Financial sustainability of social security pensions is unattained even if its income statement enjoys a surplus. The balance sheet approach is an indispensable tool to help us to understand the long-run financial sustainability of social security pensions and to evaluate varying financial impacts of different reform alternatives.

Keywords: social security; Pay-As-You-Go; PAYGO; pension system; Japanese social security system; incentive-compatible; financial sustainability

Chapter.  10567 words.  Illustrated.

Subjects: Business and Management

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