1 Pension Issues in Japan: with a Special Focus on Coordination with Employment by Noriyuki Takayama,, Prof. Dr. Hitotsubashi University and RIPPA takayama@ier.hit-u.ac.jp n-takayama@nensoken.or.jp PECC SR Project, 12 July 2011, Tokyo
Organization 2 JAPAN at a Glance Current Role of SS Pensions Demography and Financial Sustainability Coverage and Social Adequacy Issues Pensions and Employment: Young Generations Pensions and Employment: Elderly Workers Pensions and Employment: Female Workers
Japan at a Glance 3 Population (in 2010) 127.4 million Population 65 + 29.4 million (23.1%) TFR (in 2010) 1.39 GDP per capita (in 2010) USD 42,820 SS Pension Benefits (in 2009) 10.6% of GDP No. of SS Pension Enrollees 68.74 million (54%) No. of SS Pension Beneficiaries 37.03 million (29%) The Normal Pensionable Age 65
SS pension benefits are the major source of retirement income 4 Intere st and Dividends 5% Wages and Salaries 6% Others 11% SS Pension Benefits 78% Source: The 1989 NSFIE (elderly couples: median income group) median income: 3.38 million yen
5 Too Much Transfers from Younger Generations It is amazing that currently in Japan, the elderly are better off than those aged 30 to 44 in terms of per capita income after redistribution. Current pension benefits are still too generous and there is room for reduction in pension benefits.
6 Per-capita Income by Age in Japan (10,000 yen) 350 300 250 200 150 100 50 before Redistribution after Redistribution 0 0-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ Age Source: Ministry of Health and Welfare, The 1996 Income Redistribution Survey
Demography 7 TFR Total No. of Populations Proportion of 65+
Trends in the Total Fertility Rate of Japan 8 5.0 4.5 4.0 3.5 3.0 1.39 in 2010 2.5 2.0 1.5 high variant medium variant 1.26 1.0 low variant 1.06 0.5 0.0 YEAR 1945 Source: National 1955 Institute 1965 of Population 1975 1985 and Social 1995 Security 2005 Research 2015 (2006), Population 2025 2035 2045
Actual and Projected Population of Japan 9 (million) 140 120 100 80 60 low variant high variant medium variant 40 20 0 YEAR 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: National Institute of Population and Social Security Research (2006), Population Projections for Japan: 2006-2105
Proportion of the Elderly (+65) in Japan 10 50 45 40 35 30 25 20 (%) high variant medium variant low variant 15 10 Year 2010 23.1% (Japan) 5 0 YEAR 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: National Institute of Population and Social Security Research (2006), Population Projections for Japan: 2006-2105
Financial Sustainability 11 The 2004 Reform still questionable Indexation to longevity, i.e., increasing NPA is required in the future
12 Coverage Issues in SS Pensions: Drop-out out in 2009 (1) No registration as the insured: 180,000 persons (2) Contributions Totally Exempted: 5.35 million persons (3) Contributions Delinquent: 5.66 million persons (2) + (3) combined: 11.0 million persons (16.0%( of all the insured)
13 Social Adequacy Issues Non-eligible persons among the elderly (+65) 420,000 persons in January 2007 (1.4%( 1.4%) Monthly pension benefits: less than JPY30,000 1.64 million in March 2010 (5.6%( 5.6%) (80% of them were female) Recipients of Means-tested public assistance among the elderly 688,000 persons (2.4%( in 2009) Increasing demand for min. guaranteed pensions
Growing Number in Atypical Employees from 2002 to 2010 14 Males: 4.3 mil. (15%( 15%) 5.4 mil. (19%( 19%) Females: 10.2 mil. (49%( 49%) 12.2 mil. (54%( 54%) In Total, 14.5 mil. (29%( 29%) 17.6 mil. (34%( 34%)
15 Proportion of Atypical Employees in Their Early 20 s: Males Birth Year Proportion, % 1983 1987 1978 1982 1973 1977 1968 1972 1963 1967 1958 1962 40.5 36.8 22.8 17.6 14.8 11.2
16 KNH Coverage of Atypical Employees Part-time time Workers: 35% Temporal Workers: 23% Dispatched Workers: 67% Contract Workers: 72% In Total: 47% in 2003
17 Bad Start, Bad Finish problem Many younger people in Japan are currently atypical workers and their working status is quite unstable. The majority of them are not likely to step up to typical ones. They are not assured to enjoy adequate and stable income during their working age, and consequently their pension benefits will be less than the adequate level. Higher employability with stable income is badly missing for them.
18 Encouraging Later Retirement (1) LFPR of male workers in their 60s in 2010 60-64 64 70.6% 65-69 69 46.4% Relatively high in the world Q: Do the SS pension benefits discourage labor supply of the elderly in Japan?
19 Encouraging Later Retirement (2) The Earnings Test (ET) applies to typical employees. Marginal tax rate for personal income is 50% (and 100%). Theoretically, ET discourages their labor supply Remark: ET does not apply to employment with less than 30 hours per week. This gives a great incentive to limit their working hours less than 30, inducing a big change in working hours from age 60
20 Encouraging Later Retirement (3) On the other hand, pension benefits are virtually equivalent to wage subsidies for elderly employees, thereby encouraging labor demand for persons in their 60s. Two factors stated above operate in different directions. Further empirical work is required to verify the net effect.
Pensions and Female Employment in JPN (1) 21 Category 3 3 enrollees in SS Pension Program Typical examples: Full-time homemakers Dependent spouses, working part-time time with working hours of less than 30 per week and with annual pay of less than JPY1.3 million entitled to receive basic flat-rate pension benefits without personally paying any pension contributions
Pensions and Female Employment in JPN (2) 22 This provision gives a strong incentive to employers to limit working hours of their female employees to less than 30 per week. The employers objective is to save the personnel cost which includes the employers portion of SS contributions Growing number of female part-time time workers
23 Pensions and Female Employment in JPN (3) Reducing the upper limit of JPY1.3 mil. or 30 hours for the new requirement of KNH coverage faces a strong resistance from employers group A possible outcome: lower wages for part-time time workers, due to increased non-wage costs
Thank you very much 24