Appendix I.1. Japan: Methodologies to Calculate Fiscal Savings from Reform Options
Abe, Aya, 2011, “Sotaiteki Hinkonritu no Suii: 2007–10,” National Institute of Population and Social Security Research, December.
Arnold, Jens, 2008, “Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries,” OECD Economics Department Working Papers, No. 643.
Cournède, B., and F. Gonand, 2010, “Restoring Sustainability in the Euro Area: Raise Taxes or Curb Spending,” OECD Working Paper No. 520 (Paris: Organization for Economic Cooperation and Development).
Gruber, Jonathan, and Wise, David, 2002, “Social Security Programs and Retirement Around the World: Micro Estimation,” NBER Working Paper No.9407.
Gruber, Jonathan, and Wise, David, 1999, “Social Security Programs and Retirement Around the World,” Research in Labor Economics, Vol. 18, pp. 1–40.
Gruber, Jonathan, and Wise, David, 1998, “Social Security and Retirement: An International Comparison,” American Economic Review, Vol. 88, No. 2, pp.158–63.
IMF, 2011, “The Challenge of Public Pension Reform in Advanced and Emerging Economies,” IMF Policy Paper. Available via the internet at: www.imf.org/external/np/pp/eng/2011/122811.pdf.
IMF, 2012, “The Economics of Public Health Care Reform in Advanced and Emerging Economies” ed. by Ben Clements, David Coady, and Sanjeev Gupta (Washington: International Monetary Fund).
Kashiwase, Kenichiro and Pietro Rizza, 2012, “Who Will Pay? Dynamics of Pension Reforms and Inter-generational Inequity” (forthcoming IMF Working Paper).
Munnell, Alicia, Mauricio Soto, and Alexander Golub-Sass, 2008, “Would People Be Healthy Enough to Work Longer,” Working Paper 2008–11, Center for Retirement Research at Boston College.
OECD, 2011, “Pensions at a Glance 2011: Retirement-Income Systems in OECD and G20 Countries,” (www.oecd.org/els/social/pensions/PAG) OECD Publishing
Tokuoka, Kiichi, 2012, “Intergenerational Implications of Fiscal Consolidation in Japan: An Approach Using a Lifecycle Overlapping Generations Model” (forthcoming IMF Working Paper).
Yamada, Atsuhiro, 2010, “Kokusaiteki Perspective kara mita Saiteichingin Shakaifujono Mokuhyosei,” Syakaiseisaku, Vol. 2, No. 2.
Prepared by Kenichiro Kashiwase, Masahiro Nozaki (both FAD), and Kiichi Tokuoka (APD).
South Korea is the only country where population aging advances more rapidly than Japan.
See forthcoming IMF Working Paper: K. Tokuoka “Intergenerational Implications of Fiscal Consolidation in Japan: An Approach Using A Lifecycle Overlapping Generations Model.”
In 2007, it became clear that the government had lost track of some of the pension contribution records, which led to a loss of public confidence in the public pension system. Partly reflecting this, participation to the NP has been on a trend decline and fell from 64 percent in FY2007 to 60 percent in FY2010.
There is also a MAA for teachers in private schools.
Those who have paid contributions for 25 years or more and have reached age 65 are eligible for basic old-age pension benefits. The benefit depends on the number of years for which contributions are paid.
The earnings-linked benefit is calculated from an individual’s lifetime average earnings and an accrual rate. The accrual rate for those who were born after April 1946 is 0.5481 percent per month.
See the Appendix for data and methodologies.
During 2010–30, Australia will raise the pension eligibility age from 63.5 to 66, Denmark from 65 to 67, U.K. from 62.5 to 66, and U.S. from 66 to 67. Austria, Czech Republic, France, Greece, Hungary, Italy, South Korea, Slovak Republic, and Switzerland will also increase their retirement age. Iceland and Norway expect to keep the retirement age at 67.
The government plans to reform the pension system into a simpler two-tier system: a noncontributory flat-rate pension and an earnings-linked pension with a payroll tax rate of 15 percent. The latter has features of a notional defined contribution system (such as one adopted in Sweden). That is, contributions are accumulated in an individual account with a notional rate of return and the pension benefit is calculated by dividing the pension wealth by remaining life expectancy at retirement. This would make the choice of retirement age actuarially fair as it does not penalize late retirement. This would also transfer the risk of higher longevity from younger generations to retirees, and help alleviate intergenerational imbalances.
The social assistance system pays the difference between the guaranteed minimum income and own-source incomes of the poor. The minimum income level for individuals is determined by area and age, and ranges from JPY63,000 per month to JPY 81,000 per month for an individual of age 65.
In Canada, a claw-back of 15 percent is applied to retirees with an annual income equivalent of US$70,000 or higher.
At the individual level, the claw-back amount under this scheme will be less than the government subsidy (except for 0.2 percent of the richest retirees).
Some Euro area countries are considering a revenue-neutral shift from social contributions toward a VAT to improve export competitiveness. Such a reform has been known as “fiscal devaluation.”
In Japan, pension contributions (and investment returns of the reserve fund) are tax exempt, and pension benefit incomes are added to taxable incomes after the deductions.