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

Naomi Miyazato

Japan and the World Economy, 2010, vol. 22, issue 1, 31-39

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.

Keywords: Risks; of; longevity; and; volatility; of; return; on; assets; Optimal; replacement; rate; Simulation; analysis (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:22:y:2010:i:1:p:31-39

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