The optimal size of Japan's public pensions: An analysis considering the risks of longevity and volatility of return on assets
AbstractThere 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 InfoArticle provided by Elsevier in its journal Japan and the World Economy.
Volume (Year): 22 (2010)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505557
Risks of longevity and volatility of return on assets Optimal replacement rate Simulation analysis;
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