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The optimal size of Japan's public pensions: An analysis considering the risks of longevity and volatility of return on assets

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  • Miyazato, Naomi
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    Abstract

    There are two main pension systems: the Defined Benefit (DB) pension system and the Defined Contribution (DC) pension system. Each system has advantages and disadvantages. This paper investigates to what degree Japan should maintain a DB public pension system which offers the benefit of sharing risk and to what degree Japan must adopt a DC pension system to eliminate intergenerational imbalance. The risks of longevity and volatility of return on assets are incorporated into the simulation model. As a result of the simulation analysis, a replacement rate of 20-30% would be adequate for future generations if the expected return on assets and the wage growth rate are at the same level. Meanwhile, if the former is 2% points larger than the latter, a replacement rate of 0% or full-scale privatization would be desirable.

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    Bibliographic Info

    Article provided by Elsevier in its journal Japan and the World Economy.

    Volume (Year): 22 (2010)
    Issue (Month): 1 (January)
    Pages: 31-39

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    Handle: RePEc:eee:japwor:v:22:y:2010:i:1:p:31-39

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    Web page: http://www.elsevier.com/locate/inca/505557

    Related research

    Keywords: Risks of longevity and volatility of return on assets Optimal replacement rate Simulation analysis;

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    13. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer, vol. 6(1), pages 83-114, June.
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