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Sustainability of the Pension Systems and the Role of Private Pensions

Author

Listed:
  • Akiko Nomura

    (Managing Director, Nomura Institute of Capital Markets Research)

Abstract

In Japan, where the population is aging and the birthrate is declining, the pension replacement rate of public pension system is scheduled to be reduced by “macroeconomic slide.” Thus the role of the private pension system increases, and the sustainability of the private pension system itself becomes more important. Although defined contribution(DC) plans, a kind of private pension, have been steadily spreading since their introduction in 2001, they still have issues that need to be addressed. The DC contribution limit should be fundamentally revised in a way that allows individuals to enjoy equal opportunities to contribute regardless of their work style or workplace pension system. From the perspective of tax theory and finance, the transition of the private pension tax system to the “EET type” is also an important issue. In addition, it is important that more individuals participate in the DC plan and make effective use of it. Drastic measures such as an automatic enrollment system may be worth considering for further expansion. Moreover, it should be kept in mind that the management and administration of the DC plan are carried out by private sector companies and thus they must be sustainable as a business.

Suggested Citation

  • Akiko Nomura, 2023. "Sustainability of the Pension Systems and the Role of Private Pensions," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 19(3), pages 1-36, September.
    • Handle: RePEc:mof:journl:ppr19_03_03
    DOI: 10.57520/prippr.19-3-3
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    References listed on IDEAS

    as
    1. Clark, Robert L. & Mitchell, Olivia S. (ed.), 2005. "Reinventing the Retirement Paradigm," OUP Catalogue, Oxford University Press, number 9780199284603.
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    More about this item

    Keywords

    defined contribution plan; private pension; pension tax system; sustainability of pension system; adequacy of pension system; DC plan administrator;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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