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Japan’s Public Pension Reforms

Japan’s Public Pension Reforms. Tetsuo Kabe Counselor Embassy of Japan. International Conference on Social Security Reform Urban Institute February 24, 2006. Table of Contents. Figure 1-1 Population Trends by Age Group (Medium Variant in January 2002)

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Japan’s Public Pension Reforms

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  1. Japan’s Public Pension Reforms Tetsuo Kabe Counselor Embassy of Japan International Conference on Social Security Reform Urban Institute February 24, 2006

  2. Table of Contents • Figure 1-1 Population Trends by Age Group (Medium Variant in January 2002) • Figure 1-2 Projected Fertility Rate and Life Expectancy at Birth (Projection as of January 2002) • Figure 1-3 Aging of the Population in G5 • Figure 1-4 Overview of the Pension System in Japan • Figure 1-5 Categories and Premiums of Subscribers • Figure 2-1 History of the Public Pension System • Figure 2-2 History of the Public Pension System and its Major Revisions • Figure 2-3 Real GDP Growth • Figure 2-4 Japan’s Fiscal Balance • Figure 2-5 Trends in General Account: Tax Revenues, Total Expenditures and Government Bond Issues • Figure 2-6 Outline of 2004 Pension Plan Revision • Figure 2-7 Outline of the Review of Benefits and Burdens • Figure 2-8 Revision of Benefits and Premiums in the 2004 Pension Reform • Figure 2-9 Premium Rate for the Employee’s Pension Insurance and Premium Amount for National Pension • Figure 2-10 Trends and Projections in Social Security Benefits • Figure 2-11 Trends in Recent Social Security Reform • Figure 2-12 State of Non-Registration for the National Pension System and Nonpayment • Figure 2-13 Reinforcing Levy Measures for National Pension Premiums • Figure 3-1 Principal Assumptions for 2004 Actuarial Valuation • Figure 3-2 Mechanism for Automatic Adjustment of Benefit Levels • Figure 3-3 Basic Principle of Adjustment Indexation • Figure 3-4 Adjustment Indexation and Development of Benefit Level • Figure 4-1 Working on Promoting the Understanding of the Pension System • Figure 4-2 FY2006 General Account Budget • Table 4-1 Financial Projections for Employees’ Pension (2004 Actuarial Valuation) • Table 4-2 Financial Projections for National Pension (2004 Actuarial Valuation)

  3. Figure 1-1 Population Trends by Age Group (Medium Variant in January 2002)

  4. Figure 1-2 Projected Fertility Rate and Life Expectancy at Birth (Projection as of January 2002)

  5. Ratio of People Older than 65 within the Total Population （％） （Note)1. Figures for Japan from “National Census” and “Japanese Future Demographic Projections” (National Institute of Population and Social Security Research, January 2002) 2. Figures for other nations from UN projections Figure 1-3 Aging of the Population in G5

  6. Figure 1-4 Overview of the Pension System in Japan (1 ) (2 ) (3 )

  7. Figure 1-5 Categories and Premiums of Subscribers

  8. Figure 2-1 History of the Public Pension System • Japan’s social security style public pension system was launched as the Employee’s Pension Scheme (Employees’ Pension Insurance, etc.) for employees. • When it was launched, the structure was a single layer of remuneration-based proportional pension. In the revision of 1954, the Employees’ Pension Insurance was restructured to a two-layer system, of a fixed rate part (the first tier) and a remuneration-based proportional part (the second tier). • In 1961, the National Pension Scheme for self-employed workers and agriculture, forestry, and fishery-related workers was established. Due to the differences of work style and income between the insured people of these two systems, and also for other reasons, the insurance premium payment, benefit payment, and others are handled by each different method from that time onward. • In the revision of 1985, Basic Pension was established as a common system for all citizens.

  9. Figure 2-2 History of the Public Pension System and Its Major Revisions <Creation of Schemes> 1942: The Workers Pension Insurance Law was enacted (Renamed in 1944 as the Employees’ Pension Insurance Law.) 1954: The Employees’ Pension Insurance Law was entirely revised (Actual start of benefit payment for the elderly) • Introduction of a benefit payment system of “fixed rate part + remuneration-based proportional part • Introduction of modified funding method 1961: Implementation of the National Pension Scheme (Launch of “universal pension system”) <Improvement of Schemes> 1965: Improvement of benefit payment level, achievement of “10,000 yen pension,” establishment of the Employees’ Pension Fund (1966: Achievement of “10,000 yen pension” for married couples in the National Pension System) 1969: Achievement of “20,000 yen pension” (Standard premium of Employees’ Pension: 20,000 yen, the National Pension System: 20,000 yen for married couples) 1973: Introduction of Price Indexation System and reevaluation of salary (Achievement of “50,000 yen pension”) <Measures for the Arrival of the Full-scale Aging Society> [The revision of 1985] Establishment of nationally common Basic Pension system supported by citizens. Adjustment of benefit payment to be made more appropriate (Payment unit and payment rate were decreased gradually, assuming the participation period would be extended to 40 years at the mature phase) Enforced participation of dependant spouses (housewives) of businessmen to the National Pension Scheme (Establishment of No. 3 insured persons system), and by this, establishment of pension right for women Improvement of disability pension (Insurance of Disability Basic Pension for persons who became disabled before 20 years old) Expansion of the Employees’ Pension coverage for companies with less than five workers Raising of pensionable age of women for the Old-Age Employees’ Pension (From 55 years

  10. Figure 2-2 History of the Public Pension System and Its Major Revisions (cont.) [The revision of 1989] Introduction of full automatic Price Indexation System Enforced participation of students to the National Pension Scheme Establishment of the National Pension Fund (Establishment of the regional-type National Pension Fund, relaxation of the conditions for establishment of business area-type National Pension Fund) Establishment of the Financial Interchange Program among the Employee’s Pension Scheme (Abolished in FY1997) [The revision of 1994] Revision of the Old-Age Employees’ Pension for people in their early 60s (Raising of pensionable age for the fixed rate part gradually from 60 years old to 65 years old by 2013) Improvement of Old-Age Pension for Active Workers (Change to a system in which total amount of wage and pension premium will increase as wage increases), Balance adjustment with unemployment insurance payment Change of the reevaluation system of salary (Reevaluation corresponding to raising rate of disposable income after increases in tax and social insurance fee) Improvement of the Survivors’ Pension (Corresponding to an increase of double-income households, it allowed the double-payment of 1/2 of each Old-Age Employees’ Pension to reflect wives’ premium on the pension benefits.) Exemption from the Employees’ Pension Insurance premium (for the person in question) while on child-care leave Creation of the special premium (1%) based on bonus, etc. for the Employees’ Pension Insurance [The revision of 2000] Raising of pensionable age for the remuneration-based proportional part of the Old-Age Employees’ Pension (Gradually from 60 years old to 65 years old by 2025) Change of the premium revision system (Listed subscribers’ premium (65 years old and over) was revised as only by Price Indexation System) Adjustment of benefit payment of the Employees’ Pension Insurance to be made more appropriate (Adjustment of 5% of the remuneration-based proportional part. Previous payment amount was guaranteed.) Expansion of the Employees’ Pension Insurance coverage for the people in their late 60s (To expand to people under 70 years old. Establishment of the Old-Age Pension for Active Workers for workers of 65 to 69 years old.) Introduction of full remuneration-based system (Same rate premium on bonus, etc. was imposed and reflected on the benefit payment. Special premium was abolished.) Exemption from the Employees’ Pension Insurance premium (for the payment by business owner) while on child-care leave. Enhancing the National Pension System by expansion of premium exemption, etc. (Establishment of the half premium exemption system, establishment of the exceptional payment system for students) [The revision of 2001] Consolidation of the Mutual Aid Associations of Agriculture, Forestry and Fishery Cooperative Employees into the Employees’ Pension Scheme

  11. Figure 2-3 Source: http://www.esri.cao.go.jp/en/sna/qe044-2/gdemenuea.html (May 5, 2005) and http://www.esri.cao.go.jp/en/sna/qe032-2/gdemenuea.html (September 10, 2004). (Compiled by Dr. Edward J. Lincoln)

  12. Figure 2-4 Source: http://www.oecd.org/document/61/0,2340,en_2649_201185_2483901_1_1_1_1,00.html (May 2, 2005) (Compiled by Dr. Edward J. Lincoln)

  13. （Trillion Yen） 100 89.3 89.0 90 86.7 84.9 84.8 84.4 83.7 Total Expenditures 82.4 78.8 78.5 80 79.7 75.9 75.1 73.6 70.5 70.5 69.3 70 65.9 61.5 60.1 59.8 60 57.7 53.9 54.9 54.4 54.1 53.6 52.1 53.0 51.9 51.0 51.5 49.4 50.8 50.7 50.6 47.2 50 47.9 47.0 46.8 45.9 45.6 Tax Revenues 43.8 43.3 41.9 40 38.2 37.5 34.9 35.5 35.3 35.0 34.0 33.5 33.0 32.4 30.0 30.0 30 Government Bond Issues 21.7 21.2 18.5 20 16.5 16.2 13.5 12.8 12.3 11.3 9.5 9.4 10 7.3 6.7 6.6 7.2 0 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 (FY) Figure 2-5 Trends in General Account: Tax Revenues, Total Expenditures and Government Bond Issues

  14. Figure 2-6

  15. Figure 2-7

  16. Figure 2-8

  17. Figure 2-9

  18. （％） (Note) Figures for FY 2000 or before are actual. Figures for FY 2004 or later are estimated by Ministry of Health, Labour and Welfare in May 2004 Figure 2-10 Trends and Projections in Social Security Benefits

  19. Figure 2-11 Trends in Recent Social Security Reform

  20. Figure 2-12

  21. Figure 2-13

  22. Figure 3-1 Principal Assumptions for 2004 Actuarial Valuation ◆ Total Fertility Rate and Life Expectancy at Birth for the Medium Variant ◆ Assumptions Regarding Labor Force Participation Rate ◆ Economic Assumptions

  23. Figure 3-2 Mechanism for Automatic Adjustment of BenefitLevels

  24. Figure 3-3

  25. Figure 3-4

  26. Figure 4-1

  27. ○ Expenditures ○ Revenues (Unit: billion yen,%) Figure 4-2 FY2006 General Account Budget

  28. Table 4-1 Financial Projections for Employees’ Pension (2004 Actuarial Valuation) 1. The “reserve ratio” is the ratio of assets at the end of the previous fiscal year to total expenditure in the current year. 2. “In FY2004 value” indicates the value converted to FY2004 value by adjusting for the wage growth rate.

  29. Table 4-2 Financial Projections for National Pension (2004 Actuarial Valuation) 1. The “reserve ratio” is the ratio of assets at the end of the previous fiscal year to total expenditure in the current year. 2. “In FY2004 value” indicates the value converted to FY2004 value by adjusting for the wage growth rate.

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