Financial Situation and Reform of Japanese Public Pension System

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Japanese population has been aging very rapidly. In fact, the speed of this process is so phenomenal that the present social security system cannot be sustained as it is now. One such, probably most noteworthy, problem is that public pension scheme which has been designed for the old in the 1970s and the early 1980s will go bankcrapt in a very near future.The purpose of this research has been to examine the financial status and reform of Japanese public pension plans. Our research has been constructed from two pillars: the first is an empirical estimation of financial balance of pubil pension plans; and the second is a theoretical investigation of the prospect of substituting pubic pension plans with private ones.The results of the empirical part are really gloomy. Japanese public pension plan for the self-employed has already been not self-supporting. The largest plan covering most employees will soon face a serious financial problems in even a few years if left intact. We have projec … More ted the future financial aspects of the employees' pension plan; if the system were to be sustained for itself, the rate of insurance will have to be raised up to 40% or higher.As for the theoretical side of research, our major effort has been devoted to showing the possibility of downsizing the public pension plans. In such a situation private insurance will have to assume more important role as a social device for supporting the income of the elderly. However, a question which makes this transition difficult is private pension market may fail due to imperfectness of the market.Private pension market will comprise of those who will live long and those who will not. If the insurance company cannot discriminate the two types of its clients, it cannot offer a better policy to those who may not live long( if it does, it may absorb those who will live long too, and it will incur losses). In such a case private pension market will fail. We have studied the possibility of this failure and have shown when it occurs. Less