Pension Plan Revision and Fiscal Consolidation of Japan

Matsuo examines the structure and prospects of the Japanese pension system in the context of the challenges posed by population aging and the high current public debt. Social security expenditure accounts for almost half of the general expenditure in the Japanese budget and is growing rapidly. In the coming years the first baby-boomers will retire. Therefore, pension reform is deemed indispensable for the sustainability of social security and the overall Japanese fiscal position. Matsuo describes the main features and implications of the reform introduced in 2004, which aimed at making the pension system sustainable for the next 100 years and at limiting the burden for the working-age population. The reform set a ceiling on the pension system contribution rate and introduced a new mechanism for the indexation of pension benefits. Pensions will not be fully adjusted to changes in prices, either upward or downward. The reform has also set a minimum level of 50 percent for the ratio of first and second pillar pensions to the average income of employees