Sustainability of the Pension Systems and the Role of Private Pensions

In Japan, where the population is aging and the birthrate is declining, the pension replacement rate of public pension system is scheduled to be reduced by “macroeconomic slide.” Thus the role of the private pension system increases, and the sustainability of the private pension system itself becomes more important. Although defined contribution(DC) plans, a kind of private pension, have been steadily spreading since their introduction in 2001, they still have issues that need to be addressed. The DC contribution limit should be fundamentally revised in a way that allows individuals to enjoy equal opportunities to contribute regardless of their work style or workplace pension system. From the perspective of tax theory and finance, the transition of the private pension tax system to the “EET type” is also an important issue. In addition, it is important that more individuals participate in the DC plan and make effective use of it. Drastic measures such as an automatic enrollment system may be worth considering for further expansion. Moreover, it should be kept in mind that the management and administration of the DC plan are carried out by private sector companies and thus they must be sustainable as a business.