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The Japanese Retirement Income System: a special case?

Bernard H Casey


Japan is the only non-western country to have a fully developed pension
system. However, the nature of that system is little understood. This Briefing
seeks to explain its basic principles to outsiders.

In some ways, the Japanese system is not unlike that of other industrialised
countries. This is not surprising in so far as Japan, once it opened to the west
in the nineteenth century, made a point of learning from the western countries.
Moreover, although a full public pension system was not properly established
until after the second war - no later than in many western European countries
- it was established under the American occupation. The relevant authorities,
like their counterparts in Germany, were not adverse to borrowing ideas from
abroad when it came to establishing a new social and economic infrastructure.

In Japan, the state has an important role in providing pensions, and the public
system is based upon a pay as you go principle with a degree of proportionality.
Company benefit systems supplement the public system and, in some cases
predate it. Prima facie, Japan does not appear to be "a special case". On the other
hand, little is known about company benefit systems, a deficit that this Briefing
seeks to remedy.

Retirement income systems in Japan do, however, have a number of special
characteristics. First, unlike in many other countries, people in Japan keep
working well after "normal" retirement age. Thus, income in old age is made
up, to a considerable extent more than elsewhere, of income from paid
employment or from self-employment. Second, older people in Japan are much
more likely to be living with their adult children than are older people
elsewhere. Thus, incomes in old age comprise a considerable element of
intra-familial transfers. In these respects, Japan is "a special case".

As do almost all industrialised countries, the population of Japan is confronted
with ageing. Indeed, Japan is ageing faster than almost any other in the
industrialised world. In this respect, Japan is not "a special case". However, it
is not only the fiscal consequences of ageing that places the sustainability of
its retirement income system in question. The employment and social structure
of Japan is also changing. Working in older age might no longer be possible.
Families are becoming less and less willing and less and less able to provide
homes and care services for their parents. Accordingly, the way that Japan
has been "a special case" constitutes a special weakness in its system of
supporting older people. The Briefing concludes that the challenges that
Japan faces are yet more profound than those faced by many societies to
which the epithet "a special case" is less readily applied.