Pension System in JapanVasilyeva Marina

Population of Japan

Old-age dependency ratio for Japan 2002 ~ 2014

• THE OLD-AGE DEPENDENCY RATIO WAS 40.53 IN 2013 AND WILL WORSEN TO 74 IN 2050

• JAPAN'S POPULATION WILL DECREASE FROM 128 MILLION TO 102 MILLION

Structure of the Public Pension System

• EMPLOYEES’ PENSION INSURANCE AND MUTUAL AID PENSION WILL BE UNITED IN OCT. 2015.

National Pension (国民年金 )

Basic pension types:

• basic pension for the disabled

• basic pension for the bereaved

• basic pension for the elderly.

• All residents of Japan who are between 20 and 60 years of age, including foreign residents, are required to enroll in the national pension plan.

National Pension (国民年金 )

Basic pension for the elderly:

• enrollment in the national pension plan

• payment of premiums for 25 years or more.

• the pension payment is sent to your place of residence whether or not you live in Japan at the age of 65.

• claim is needed to start receiving pension payments after you turn 65 years of age.

• the average monthly pension benefit by the National Pension amounts to ¥54,612 in 2011, which is around 83% of the full amount.

Contribution Payment Exemption System(保険料の免除制度 )

Employees’ Pension Insurance (厚生年金保険 )

• All workplaces with more than five employees and their employers are required to participate in this scheme.

• Both employers and employees contribute 7.5% of employee’s monthly salary as premiums (including a premium for the National Pension).

• The average monthly pension benefit is about 149,334, which amounts to 49.0% of the average monthly salary of subscribers (2011).

• Employers of those who are on maternity leave (up to 1 year) are exempted from paying premiums.

Additional Benefits

• A non-Japanese national who lived in Japan and paid the national pension premiums for at least six month may be eligible to receive a lump-sum withdrawal payment within two years of his permanent departure from Japan.

• Like the national pension, non-Japanese nationals who are enrolled in the employees' pension for a certain period of time are eligible for the lump-sum withdrawal payment when they permanently leave Japan.

Pension System Financing Resources

• Premium

Employee’s Pension Insurance = premium is paid by both employees and employers, and is a fixed rate of the salary

National Pension = premium is paid by the insured only, and is a flat rate for all

• Government subsidy

National Pension = 50% of the benefits and all administrative costs are paid by the government

Employees’ Pension Insurance and Mutual Aid Pensions = administrative costs are paid by the government

No subsidy from the government for other schemes

• Reserve

World Pension System Comparison

Current Issues of Japan’s Pension System

• Non-compliance and difficulties of the National Pension

11.9% of persons required to pay a premium are exempted, which is placing a heavy burden on National Pension finances

• Financial pressure on corporations

problems with paying premiums due to continuing recession of the Japanese economy and a very low interest rate

• Accommodating various employment arrangements and life-styles

hard to keep the required payment period for pension premiums due to switching jobs

Current Issues of Japan’s Pension System

• Pension system adaptation to the globalized world

minimum requirement period for the premium payment was shortened from 25 years to 10 years in August 2012

Japan made social security agreements with other countries with an aim to resolve issues related to dual-enrollment in social security systems

Future Outlook

• Adaptation to shrinking public pension income in the future

Why?

Pension benefits will most likely be lower than they are today

• Introduction of Individual Savings Accounts as a tax-advantageous savings vehicle

Why?

Pension system may experience a funding deficit

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Japan’s labor force will either have to save more or work longer in future.