## 1. Japan: Options to Reduce Government for Basic Pension

## Source details

**Canonical URL:** [1. Japan: Options to Reduce Government for Basic Pension](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12285.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12285.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12285.pdf.json)

---

### Demographic and fiscal context
- Life expectancy increased to 83 years.
- Old-age dependency ratio: 38 percent in 2010; 57 percent in 2030.
- Government fiscal deficit: 10 percent of GDP in 2012.
- Social security spending comprises nearly 55 percent of total non-interest general government non-interest spending.
- Pension benefit spending totaled 10.6 percent of GDP in FY2010:
  - Old-age pension: 8.9 percent of GDP
  - Disability pension: 0.4 percent of GDP
  - Survivor pension: 1.3 percent of GDP
- Total pension contributions from households and employers: 6.5 percent of GDP in FY2010.
- Central government subsidy to finance half of the basic pension benefit payments: about 2 percent of GDP (increased from 1½ percent of GDP in 2008 to 2 percent of GDP in 2009 and expected to remain around 2–2½ percent of GDP in the medium and long run).
- Health spending projected to rise faster than pension spending and increase by 1 percentage point of GDP during 2010–2030.

### Structure and recent reforms of the pension system
- Universal, defined-benefit, pay-as-you-go public pension system.
- Participant categories:
  - Category 1: self-employed and their spouses — National Pension (NP).
  - Category 2: private sector employees — Employees’ Pension Insurance (EPI); government employees — Mutual Aid Associations (MAA).
  - Category 3: dependent spouses of Category 2 participants.
- Contribution rules and paths:
  - Category 1 flat-rate contributions being raised through 2017 to ¥16,900 per month in 2004 prices (from ¥15,020 per month in 2011).
  - Category 2 payroll tax contributions being raised through 2017 to 18.3 percent of gross earnings (from 16.4 percent in 2011); payment equally shared between employee and employer.
  - Category 3 participants are not obliged to contribute.
- Basic pension:
  - Flat-rate basic pension available to all participants who have paid contributions for 25 years or more and reached age 65.
  - Central government finances half of the basic pension benefit.
- Earnings-linked pension:
  - Available only to Category 2 participants (EPI and MAAs).
  - Calculated from lifetime average earnings and an accrual rate (0.5481 percent per month for those born after April 1946).
- 2004 reform introduced “macro indexing”:
  - Macro indexing will cut benefit levels in line with changes in the number of working-age participants and life expectancy until period t* such that pension finances achieve sustainability over a 100-year horizon.
  - An estimated rate of increase in life expectancy, μ, is fixed at 0.3 percent in the macro-indexing rule.
  - The 2009 actuarial review projects macro-indexing adjustments to continue until 2038.
  - Replacement ratio for a representative single-earner couple projected to decline from 62 percent in 2009 to 50 percent in 2038, and remain constant thereafter.
  - Adjustments are restricted so that replacement rate should not fall below 50 percent; macro indexing is suspended during deflation; benefits will never decline in nominal terms under the specified rule.
- The 2004 reform also increased the government subsidy ratio to the basic pension from 1/3 to 1/2.

### Reform options assessed and indicative fiscal savings
- Broad reform levers: increase pension eligibility age; reduce pension replacement ratio (benefits); increase contributions. Trade-offs exist among fiscal savings, economic growth, and intergenerational equity.
- Recent legislative measures (Feb–Nov 2012) included: reducing minimum years of contributions to receive basic pension benefits from 25 years to 10 years; extending EPI coverage to part-time workers; consolidating EPI and MAAs; eliminating past ad hoc nominal freeze of pension benefits by 2015 (precondition for macro indexing). On net, these measures are not expected to reduce the fiscal burden.
- Specific reform options and indicative annual savings in 2020 (IMF staff estimates):
  - Raise basic pension eligibility age to 67¼
  - Reduce benefits for wealthy retirees: ¼ (percent of GDP)
  - Eliminate preferential tax treatment for pension benefit income
  - Collect contributions from dependent spouses: ¼–½ (percent of GDP)
  - Reduce replacement ratio across-the-board by 3 percentage points: ¼–⅓ (percent of GDP)
  - Raise contribution (payroll tax) rate by 1 percentage point: ½ (percent of GDP)
  - Reduce contribution (payroll tax) rate by 1 percentage point: –½ (percent of GDP)
- Combined impact:
  - Implementing several attractive options concurrently (increase eligibility age; claw back a small portion of benefits from wealthy retirees; eliminate preferential tax treatment of pension benefit income; collect contributions from dependent spouses of EPI-eligible employees) could reduce the government annual subsidy by up to 1¼ percent of GDP by 2020.

### Distributional, growth, and equity considerations
- Raising the pension eligibility age:
  - Considered the most attractive option because of high and rising life expectancy.
  - Expected to raise labor force participation of older workers, boost lifetime income and consumption, and have a positive effect on long-run economic growth.
  - Seen as relatively fair in sharing fiscal adjustment burden between younger and older generations.
- Reducing replacement ratios (across-the-board cuts):
  - Would weaken the pension’s role in alleviating old-age poverty; less desirable.
- Increasing contribution rates:
  - Would discourage labor market participation, harm growth, and aggravate intergenerational imbalances; less desirable.
- Other attractive, targeted options:
  - Better targeting of benefits (clawbacks for wealthy retirees).
  - Eliminating preferential tax treatment for pension benefit income.
  - Collecting contributions from dependent spouses of EPI-eligible employees.
  - Raising returns from public pension funds through further diversification of investments to enhance sustainability and strengthen the safety-net role.
- Non-pension social spending:
  - Health spending projected to rise faster than pension spending; containment options include targeting benefits to lower-income households, increasing efficiency (e.g., relaxation of entry restrictions for private old-age care providers, encouraging wider use of generic treatments), and raising contributions for higher income and old-aged households.

### Modeling and empirical evidence on growth impacts
- IMF GIMF and OLG model analyses indicate:
  - Raising pension eligibility age can boost long-run GDP (examples cited in literature: up to 3 percent in a U.S. simulation).
  - Reducing the pension replacement rate can also raise output but typically less than raising the eligibility age because the labor supply incentive may be weaker.
  - Raising pension contribution rates is likely to reduce labor supply and output (substitution effect dominates).
- Empirical evidence shows labor force participation is positively correlated with pension eligibility age and negatively correlated with pension generosity.

### Fiscal assumption and measurement
- For all options, fiscal savings that improve the structural primary balance by 0.5 percent of GDP are assumed.
- Investment rate is obtained by calculating GDP minus consumption, all the tax payments, and social security contributions divided by GDP.
- Note: 0.5 percent of GDP are assumed.

### Detailed quantitative assessments and methodologies
- Calculations based on projected numbers of pension benefit recipients and levels of basic pension benefits in 2020, using official population projections by gender and macro indexing as envisaged in the official 2009 actuarial report.
- Age composition used: ratio of age 65–66 population to age 65 or older in 2020 would be 9.5 percent for male and 7.7 percent for female.
- Calculations take account of early retirement where noted.
- Raise basic pension eligibility age to 67:
  - Increasing eligibility age to 67 for all recipients by 2020 would reduce the government subsidy to the basic pension by ¼ percent of GDP by then (compared with the base case projection in the 2009 actuarial review).
  - If raised further to 69 by 2030, fiscal savings could reach ¾ percent of GDP in 2030.
  - Raising the eligibility age for the earnings-linked pension would not reduce the government subsidy but would bolster long-run economic growth through higher labor participation.
  - Life expectancy estimates: women from 85.2 years to 89.4 years during 2000–2030; men from 78.3 years to 82.4 years during 2000–2030.
  - Life expectancy after pension eligibility age for NP participants expected to increase by 4 years during 2000–2030 if eligibility age remains constant at 65.
  - Recommendation: accompany eligibility age increases with an expansion of the safety net, especially disability pensions (total spending for disability pension benefits amounted to 0.4 percent of GDP in Japan).
- Reduce benefits for wealthy retirees (“claw-back”):
  - In 2010, 10 percent of the wealthiest retirees receive about 25 percent of aggregate old-age pension benefits (basic and earnings-linked combined).
  - If 10 percent of benefits are reduced for such retirees, aggregate old-age pension benefits would be reduced by 3.1 percent or by ¥1.1 trillion (¼ percent of GDP).
  - For 99.8 percent of retirees, monthly pension benefits were less than ¥300,000 in 2010; the benefit claw-back would be less than ¥30,000 on an individual basis.
  - Applying an aggregate “claw-back” rate of 3.1 percent to aggregate old-age pension benefits in 2020 would reduce pension benefit spending by ¼ percent of GDP.
- Eliminate preferential tax treatment for pension benefit income:
  - Eliminating preferential tax treatment of pension benefits would have increased tax collections by ¥1.4 trillion (0.3 percent of GDP) in 2010, assuming pension income is the only income for recipients and incorporating the basic deduction of ¥380,000.
- Collect contributions from dependent spouses (Category 3):
  - Official 2009 actuarial report projects the monthly contribution rate for the NP would be ¥19,728 in 2020 (in 2020 prices).
  - Number of Category 3 participants projected to be 8.9 million.
  - If all Category 3 participants contribute, contributions will increase by ¥2.1 trillion (0.4 percent of GDP).
- Reduce replacement ratio across-the-board by 3 percentage points:
  - 2009 actuarial report projects average monthly wage in 2020 to be ¥459,000.
  - To reduce the replacement ratio by 3 percentage points, monthly basic pension benefits for a retiree and a spouse need to be reduced by ¥13,770, or ¥6,885 individually.
  - If applied to all retirees (excluding those who receive basic pension benefits of less than ¥6,885), aggregate basic pension spending would be reduced by ¥2.7 trillion (½ percent of GDP).
- Raise contribution (payroll tax) rate by 1 percentage point:
  - EPI participants’ annual wage projected to add up to ¥201 trillion in 2020.
  - A 1 percentage point increase in the contribution rate would raise contributions by ¥2 trillion.
  - Monthly contribution increase per person implied: ¥4,322 (¥2 trillion divided by Category 2 participants in the EPI and Category 3 participants).
  - If the higher contribution rate of ¥4,322 is applied to Category 1 participants and Category 2 participants in the MAAs, contributions will increase by ¥0.8 trillion.
  - Total increase would reach ¥2.8 trillion (½ percent of GDP).

### Distributional and poverty considerations
- Old-age relative poverty rate (income below 50 percent of median household income): around 20 percent in recent years; without the old-age pension this rate would increase threefold.
- When poverty is measured by consumption expenditure, the old-age poverty rate falls to below 15 percent.
- Relative poverty among the old-aged is disproportionately high for women.
- Single-person households expected to reach 37.4 percent in 2030 from 29.5 percent in 2009.
- Policy implication: across-the-board cuts in replacement ratio would undermine the pension’s role in alleviating old-age poverty; targeted reductions (claw-back, means-testing using income and assets) are preferable.

### Aggregate potential fiscal savings from combined measures
- Implementing options concurrently—raising eligibility age, clawing back benefits from wealthy retirees, reducing preferential tax treatment of pension income, and collecting contributions from dependent spouses—could reduce the government annual subsidy by up to 1¼ percent of GDP by 2020.

*Source: _wp12285 - 1. Japan: Options to Reduce Government for Basic Pension (IMF staff).*

### 1. Japan: Options to Reduce Government for Basic Pension ....................................................8

### 1. Japan: Options to Reduce Government for Basic Pension

### Demographic and fiscal context
- Life expectancy increased to 83 years (highest in the world).
- Old-age dependency ratio (population aged 65+ divided by population aged 20–64) rose to 38 percent in 2010 and is expected to rise to 57 percent in 2030.
- Japan’s fiscal deficit was 10 percent of GDP in 2012.
- Social security spending comprises nearly 55 percent of total non-interest general government non-interest spending.
- Pension benefit spending totaled 10.6 percent of GDP in FY2010:
  - Old-age pension: 8.9 percent of GDP
  - Disability pension: 0.4 percent of GDP
  - Survivor pension: 1.3 percent of GDP
- Total pension contributions from households and employers: 6.5 percent of GDP in FY2010.
- Central government subsidy to finance half of the basic pension benefit payments: about 2 percent of GDP (increased from 1½ percent of GDP in 2008 to 2 percent of GDP in 2009 and expected to remain around 2–2½ percent of GDP in the medium and long run).
- Health spending is expected to rise faster than pension spending and increase by 1 percentage point of GDP during 2010–2030.

### Structure and recent reforms of the pension system
- Universal, defined-benefit, pay-as-you-go public pension system.
- Participant categories:
  - Category 1: self-employed and their spouses — National Pension (NP).
  - Category 2: private sector employees — Employees’ Pension Insurance (EPI); government employees — Mutual Aid Associations (MAA).
  - Category 3: dependent spouses of Category 2 participants.
- Contribution rules and paths:
  - Category 1 flat-rate contributions being raised through 2017 to ¥16,900 per month in 2004 prices (from ¥15,020 per month in 2011).
  - Category 2 payroll tax contributions being raised through 2017 to 18.3 percent of gross earnings (from 16.4 percent in 2011); payment equally shared between employee and employer.
  - Category 3 participants are not obliged to contribute.
- Basic pension:
  - Flat-rate basic pension available to all participants who have paid contributions for 25 years or more and reached age 65.
  - Central government finances half of the basic pension benefit.
- Earnings-linked pension:
  - Available only to Category 2 participants (EPI and MAAs).
  - Calculated from lifetime average earnings and an accrual rate (0.5481 percent per month for those born after April 1946).
- 2004 reform introduced “macro indexing” (automatic adjustment of benefit levels to demographic changes). Key points:
  - Macro indexing will cut benefit levels in line with changes in the number of working-age participants and life expectancy until period t* such that pension finances achieve sustainability over a 100-year horizon.
  - An estimated rate of increase in life expectancy, μ, is fixed at 0.3 percent in the macro-indexing rule.
  - The 2009 actuarial review projects macro-indexing adjustments to continue until 2038.
  - Replacement ratio for a representative single-earner couple projected to decline from 62 percent in 2009 to 50 percent in 2038, and remain constant thereafter.
  - Adjustments are restricted so that replacement rate should not fall below 50 percent; macro indexing is suspended during deflation; benefits will never decline in nominal terms under the specified rule.
- The 2004 reform also increased the government subsidy ratio to the basic pension from 1/3 to 1/2.

### Reform options assessed and estimated fiscal savings
- Broad reform levers: increase pension eligibility age; reduce pension replacement ratio (benefits); increase contributions. Trade-offs exist among fiscal savings, economic growth, and intergenerational equity.
- Recent legislative measures (Feb–Nov 2012) included: reducing minimum years of contributions to receive basic pension benefits from 25 years to 10 years; extending EPI coverage to part-time workers; consolidating EPI and MAAs; eliminating past ad hoc nominal freeze of pension benefits by 2015 (precondition for macro indexing). On net, these measures are not expected to reduce the fiscal burden.
- Specific reform options and indicative annual savings in 2020 (IMF staff estimates, as presented):
  - Raise basic pension eligibility age to 67¼
  - Reduce benefits for wealthy retirees: ¼ (percent of GDP)
  - Eliminate preferential tax treatment for pension benefit income
  - Collect contributions from dependent spouses: ¼–½ (percent of GDP)
  - Reduce replacement ratio across-the-board by 3 percentage points: ¼–⅓ (percent of GDP)
  - Raise contribution (payroll tax) rate by 1 percentage point: ½ (percent of GDP)
  - Reduce contribution (payroll tax) rate by 1 percentage point: –½ (percent of GDP)
- Combined impact:
  - Implementing several attractive options concurrently (increase eligibility age; better targeting by “clawing back” a small portion of benefits from wealthy retirees; eliminate preferential tax treatment of pension benefit income; collect contributions from dependent spouses of EPI-eligible employees) could reduce the government annual subsidy by up to 1¼ percent of GDP by 2020.

### Distributional, growth, and equity considerations
- Raising the pension eligibility age:
  - Considered the most attractive option because of high and rising life expectancy.
  - Expected to raise labor force participation of older workers, boost lifetime income and consumption, and have a positive effect on long-run economic growth.
  - Seen as relatively fair in sharing fiscal adjustment burden between younger and older generations.
- Reducing replacement ratios (across-the-board cuts):
  - Would weaken the pension’s role in alleviating old-age poverty; less desirable.
- Increasing contribution rates:
  - Would discourage labor market participation, harm growth, and aggravate intergenerational imbalances; less desirable.
- Other attractive, targeted options:
  - Better targeting of benefits (clawbacks for wealthy retirees).
  - Eliminating preferential tax treatment for pension benefit income.
  - Collecting contributions from dependent spouses of EPI-eligible employees.
  - Raising returns from public pension funds through further diversification of investments to enhance sustainability and strengthen the safety-net role.
- Non-pension social spending:
  - Health spending projected to rise faster than pension spending; containment options include targeting benefits to lower-income households, increasing efficiency (e.g., relaxation of entry restrictions for private old-age care providers, encouraging wider use of generic treatments), and raising contributions for higher income and old-aged households.

### Modeling and empirical evidence on growth impacts
- The IMF’s GIMF and OLG model analyses indicate:
  - Raising pension eligibility age can boost long-run GDP (examples cited in literature: up to 3 percent in a U.S. simulation).
  - Reducing the pension replacement rate can also raise output but typically less than raising the eligibility age because the labor supply incentive may be weaker.
  - Raising pension contribution rates is likely to reduce labor supply and output (substitution effect dominates).
- Empirical evidence shows labor force participation is positively correlated with pension eligibility age and negatively correlated with pension generosity.

### Key statistics and parameters preserved from the source
- Life expectancy: 83 years.
- Old-age dependency ratio: 38 percent in 2010; 57 percent in 2030.
- Pension spending FY2010: 10.6 percent of GDP (old-age 8.9; disability 0.4; survivor 1.3).
- Total pension contributions FY2010: 6.5 percent of GDP.
- Government fiscal deficit: 10 percent of GDP in 2012.
- Government subsidy to basic pension: about 2 percent of GDP (was 1½ percent in 2008; 2 percent in 2009; expected around 2–2½ percent).
- Category 1 contribution path: raised to ¥16,900 per month in 2004 prices (from ¥15,020 per month in 2011).
- Category 2 contribution path: raised to 18.3 percent of gross earnings (from 16.4 percent in 2011) through 2017.
- Replacement ratio projection: from 62 percent in 2009 to 50 percent in 2038 under macro indexing.
- Macro-indexing parameter for life expectancy increase: μ = 0.3 percent.
- Potential combined annual reduction in government subsidy by 2020 from concurrent measures: up to 1¼ percent of GDP.
- Health spending projected increase: 1 percentage point of GDP during 2010–2030.

*Source: _wp12285 - 1. Japan: Options to Reduce Government for Basic Pension (IMF staff).*

### 0.5 percent  of GDP are assumed.

### _wp12285 - 0.5 percent  of GDP are assumed.

### Fiscal assumption and measurement
- For all options, fiscal savings that improve the structural primary balance by 0.5 percent of GDP are assumed.
- Investment rate is obtained by calculating GDP minus consumption, all the tax payments, and social security contributions divided by GDP.

### Summary of major reform options and quantified fiscal impacts
- Raise pension eligibility age
  - Increasing the pension eligibility age for the basic pension to 67 for all categories of participants by 2020 would reduce the government subsidy to the basic pension by ¼ percent of GDP by then (compared with the base case projection included in the 2009 actuarial review).
  - If raised further to 69 by 2030, the fiscal savings could reach ¾ percent of GDP in 2030.
  - Raising the pension eligibility age for the earnings-linked pension would not reduce the government subsidy but would bolster long-run economic growth through higher labor participation and complement basic pension reform.
  - Life expectancy estimates: women from 85.2 years to 89.4 years during 2000–2030; men from 78.3 years to 82.4 years during 2000–2030.
  - Life expectancy after pension eligibility age for NP participants is expected to increase by 4 years during 2000–2030 if eligibility age remains constant at 65.
  - Recommendation: accompany eligibility age increases with an expansion of the safety net, especially disability pensions (total spending for disability pension benefits amounted to 0.4 percent of GDP in Japan).

- Lower replacement ratio
  - The 2009 actuarial survey projects the replacement ratio to decline to 57 percent by 2020 and to 50 percent by 2038 under macro indexing.
  - An across-the-board reduction in the replacement ratio by 3 percentage points would reduce the government subsidy by ½ percent of GDP by 2020.
  - Current basic pension benefit: ¥66,000 per month; minimum income levels for social assistance range from ¥63,000 per month to ¥81,000 per month for an individual age 65.
  - Targeted “claw-back” example: a 10 percent cut for 10 percent of the wealthiest retirees (annual pension benefit equivalent to ¥2.5 million or higher per person) would reduce the government subsidy by ¼ percent of GDP in 2020.
  - International context: replacement ratio for a representative couple in Japan is about 50 percent (below OECD median and mean).

- Higher contribution rates
  - Raising the contribution rate for the basic pension by 1 percentage point would increase contributions by ½ percent of GDP in 2020, which could be used to reduce the government subsidy to the basic pension.
  - Downsides: a higher contribution rate would have a negative effect on labor supply, harm growth, and aggravate intergenerational imbalances because contributions are paid by the working-age population.
  - Pension contribution context: Japan’s pension contribution rate for the EPI in 2017 will be close to the average of advanced countries.

- Reducing preferential treatments
  - Eliminating preferential tax treatment (pension benefit tax exemption up to ¥1.2 million per year for those aged 65 or older) is estimated to reduce the government subsidy by ¼–⅓ percent of GDP.
  - Collecting pension contributions from dependent spouses (Category 3 participants, who comprise 15 percent of total working-age participants) would reduce the government subsidy by ¼–½ percent of GDP in 2020 if all Category 3 participants contributed to the NP.
  - Currently about three-fourths of pension benefit income is exempt from taxable income; for the wealthiest 2 percent of retirees, 40 percent of the pension benefit is exempt from income tax.

### Distributional and poverty considerations
- Old-age poverty and role of pensions
  - Japan’s old-age relative poverty rate (income below 50 percent of median household income) is around 20 percent in recent years; without the old-age pension this rate would increase threefold.
  - When poverty is measured by consumption expenditure, the old-age poverty rate falls to below 15 percent.
  - The relative poverty rate among the old-aged is disproportionately high for women; single-person households (especially aged 65+) are expected to grow as a share of households (single-person households expected to reach 37.4 percent in 2030 from 29.5 percent in 2009).
  - Policy implication: across-the-board cuts in replacement ratio would undermine the pension’s role in alleviating old-age poverty; a more targeted reduction (claw-back, means-testing using income and assets) is preferable.

### Aggregate potential fiscal savings from combined measures
- The paper finds that implementing options concurrently—raising eligibility age, clawing back benefits from wealthy retirees, reducing preferential tax treatment of pension income, and collecting contributions from dependent spouses—could reduce the government annual subsidy by up to 1¼ percent of GDP by 2020.

### Macro and intergenerational implications
- Raising eligibility age
  - Promotes continued labor force participation of older workers, raises lifetime earnings and consumption, and is relatively fair in sharing fiscal adjustment burden between younger and older generations.
  - Allows potential reduction in contribution rates, lowering labor costs and increasing household disposable income.
- Higher contribution rates and across-the-board replacement ratio cuts
  - Tend to place a larger burden on younger generations and reduce labor supply, with negative growth implications.
- Targeted measures (claw-backs, tax base broadening, Category 3 contributions)
  - Offer sizable fiscal savings while better protecting low-income retirees and avoiding adverse labor market incentives.

*Source: IMF staff calculations and analysis as presented in the source document.*

### 2020. Across-the-board cuts in the replacement ratio and higher pension contributions are

### 2020. Across-the-board cuts in the replacement ratio and higher pension contributions are less desirable options. Cuts in the replacement ratio would undermine the pension’s role in alleviating old-age poverty, while higher contributions would discourage labor market participation and aggravate already large intergenerational imbalances.

### Overview
- Across-the-board cuts in the replacement ratio and higher pension contributions are characterized as less desirable policy options because:
  - Cuts in the replacement ratio would undermine the pension’s role in alleviating old-age poverty.
  - Higher contributions would discourage labor market participation and aggravate already large intergenerational imbalances.
- In Japan, pension contributions (and investment returns of the reserve fund) are tax exempt, and pension benefit incomes are added to taxable incomes after the deductions.

### Methodologies to Calculate Fiscal Savings from Reform Options (Appendix I)
- Calculations are based on projected numbers of pension benefit recipients and levels of basic pension benefits in 2020, using official population projections by gender and macro indexing as envisaged in the official 2009 actuarial report.
- Age composition used: ratio of age 65–66 population to age 65 or older in 2020 would be 9.5 percent for male and 7.7 percent for female.
- Calculations take account of early retirement where noted.
- Data sources for distribution of old-age pension benefits referenced for NP and EPI.

### Raise basic pension eligibility age to 67
- If eligibility age for the basic pension becomes 67 for all recipients by 2020 (Categories 1–3, both male and female), aggregate basic pension spending would be reduced by ¼ percent of GDP compared with the status quo of the current schedule of eligibility age increases.
- The calculation uses the 2020 projected number of recipients and benefit levels; it accounts for early retirement.

### Reduce benefits for wealthy retirees (“claw-back”)
- In 2010, 10 percent of the wealthiest retirees receive about 25 percent of aggregate old-age pension benefits (basic and earnings-linked combined).
- If 10 percent of benefits are reduced for such retirees, aggregate old-age pension benefits would be reduced by 3.1 percent or by ¥1.1 trillion (¼ percent of GDP).
- For 99.8 percent of retirees, monthly pension benefits were less than ¥300,000 in 2010; thus, the benefit claw-back would be less than ¥30,000 on an individual basis (i.e., less than 50 percent of the basic pension benefit).
- Applying an aggregate “claw-back” rate of 3.1 percent to aggregate old-age pension benefits in 2020 would reduce pension benefit spending by ¼ percent of GDP.

### Eliminate preferential tax treatment for pension benefit income
- Using NP and EPI distribution data and assuming pension income is the only income for recipients, eliminating preferential tax treatment of pension benefits would have increased tax collections by ¥1.4 trillion (0.3 percent of GDP) in 2010.
- Calculation incorporates the basic deduction of ¥380,000 from annual taxable incomes but does not account for spouse deductions due to lack of marital status data.

### Collect contributions from dependent spouses (Category 3)
- Official 2009 actuarial report projects the monthly contribution rate for the NP would be ¥19,728 in 2020 (in 2020 prices).
- Number of Category 3 participants projected to be 8.9 million.
- If all Category 3 participants contribute, contributions will increase by ¥2.1 trillion (0.4 percent of GDP).

### Reduce replacement ratio across-the-board by 3 percentage points
- Official 2009 actuarial report projects average monthly wage in 2020 to be ¥459,000.
- To reduce the replacement ratio by 3 percentage points, monthly basic pension benefits for a retiree and a spouse need to be reduced by ¥13,770, or ¥6,885 individually.
- If this reduction is applied for all retirees, excluding those who receive basic pension benefits of less than ¥6,885, aggregate basic pension spending would be reduced by ¥2.7 trillion (½ percent of GDP).

### Raise contribution (payroll tax) rate by 1 percentage point
- EPI participants’ annual wage projected to add up to ¥201 trillion in 2020.
- A 1 percentage point increase in the contribution rate would raise contributions by ¥2 trillion.
- This implies an increase of monthly contribution per person by ¥4,322 (¥2 trillion divided by Category 2 participants in the EPI and Category 3 participants).
- If the higher contribution rate of ¥4,322 is applied to Category 1 participants and Category 2 participants in the MAAs, contributions will increase by ¥0.8 trillion.
- Total increase would reach ¥2.8 trillion (½ percent of GDP).

*Source: _wp12285 - 2020. Across-the-board cuts in the replacement ratio and higher pension contributions are less desirable options.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12285.pdf_