Diverging productivist pension regimes in Japan, Korea, and

Taiwan

How ‘productive’ are they?

Young-Jun Choi

Background • After low social spending- high

welfare outcomes with life-long

employment,

• Challenges to productivist welfare

regimes: Globalisation and Post-

industrialisation

• Increasing importance of old-age

security and financial sustainability:

Incompatible?

Objectives • Identify changing environments

affecting old-age security

• Review the pension mix and recent changes in three countries, and their characteristics

• Examine the effectiveness of each pension mix

• Draw implications for the desirable pension development

Economic security of old-age 1

Working Age

6. Late entry of labour market: Reducing contribution period

5. Due to sound pension budget => Rising contribution rate

4. Flexible labour market: Unstable contribution

3. Due to sound pension budget:Rising pensionable age

1. 2. Due to sound pension budget: Cut benefit; Strict entitlement

e. Service sectorIncreasing:

Reducing role of occupational

benefit

d. New skill required:Lowering retirement age

c. HouseholdTransformation: diminishing role of households in welfare

a. Ageing

a. 1

c 2

3

d

e. 4. 5

6

Post-Industrial Effects Globalisation Effects

b

b

b. Demographic Change:increasing dependency ratio

b

b

Economic Vacuum Period

1~5. Unstable financial market & volatile economic conditions;Unstable pension fund or budget

a.b. Maturing of social entitlement

Old Age

Economic security of old-age 2

• Increasing life-expectancy and decreasing fertility rate

• Shortening working years and lengthening inactive years?

• Between Pensionable age and Retirement age

• Reducing roles of family and enterprises

• Financial sustainability

• Heterogeneous labour force as well as the elderly

Public-Private Pension mix

•After intensive debates; Importance of

institutions and structures: no ‘one-size-fit-all’

model

•Old-age security: How to cover non-(regular)

employees: Outmoded Social insurance?

•Financial sustainability: Are they sustainable?

•Two ways of looking at ‘Commodification’ in

public pensions: 1) Adequacy of old-age

income, and 2) Tightness between

occupational status and benefits in old-age

Japan’s pension schemes 1Individual-

based DC

plan

RA/Corporate-based

DC plan/other

corporate pensions

Mutual

funds

National

Pension

funds

Employees’

Pension Insurance

Basic Pension (DB & contributory)Spouses

of

employe

es

Self-

employed

Employees Civil

servants

Military/

teachers

Japan’s pension schemes 2

• Comprehensive public pension and occupational pension coverage (86% of firms)

• High income replacement rate and generous occupational benefits, if…

• Contribution: 13,000 yen for the self-employed and 17.35% for employees

• No contribution for spouses of the EPI members and dependent supplement benefit

Korea’s pension schemes 1

Retirement

benefits

Special

occupatio

nal

pensionsNational Pension (DB)

Public assistance plus old-age allowance

Self-employed Employees Civil servants

Military

/teachers

Korea’s pension schemes 2

• Social insurance centered pension mix with the retirement benefit

• Employees and Self-employed under the earning-related National Pension Scheme

• Full-benefit from 20 years, starting from 2008

• Household-based means-tested allowance: different benefit by household-income/asset level

Taiwan’s pension schemes 1Voluntarily

join in the

LI/LP

Labour Insurance

(DB/lump-sum)/

Labour Pension (DC)

Special

pension

schemes

Welfare allowance schemes

(Flat-rate benefit)

Non-

employees

Employees Civil

servants

Military/

teachers

Taiwan’s pension schemes 2• Relatively lower benefits for employees: lump-

sum benefit + DC pension scheme

• No mandatory pension program for non-employees: National Pension plan

• Weak dependent-related benefits: no dependent supplement benefit + low survivor benefit (lump-sum)

• Comprehensive coverage of individual-based allowance schemes: covering over 70% (2003) of aged 65 + population

Recent pension development and reforms • Japan- Restructuring with retrenchment

- 1999 & 2004 reforms

• Korea- Expansion of coverage with

reducing the benefit level

- 1999 & 2005 (?) reforms

• Taiwan- Re-organising and expansion of

allowance schemes

- 2002 & 2004 reforms

Topic One: How to cover non-employees

• Japan- contributory Basic Pension &

Individual-based DC scheme

• Korea- contributory Earnings-related

NP, same as employees

• Taiwan- Voluntarily join & non-

contributory allowance schemes

Breakdown of Type I members in Japan (unit: 1000 persons, Non-con. for 2 years)

Year Tota

l

Contributor Non-

con.

Exe

mpt

Stud

entTota

l

Full Part

1995 15,659 11,734 10,378 1,356 1,722 2,203 -

1998 16,523 11,167 9,493 1,674 2,646 2,710 -

2001 17,923 10,974 8,851 2,123 3,267 2,471 1,211 Total payment rate for Type I in Japan has fallen down from 85.3% in 1994 to 62.8% in 2002Total payment rate = (Actual payment months of all members/Legal payment months

of all members)*100

• Korea – 4.8 million who are exempted from contribution and 1.8 million who has not contributed more than one year among the self-employed in 2004; Problem of the accuracy of income report

• Korea- largely uncovered homemakers

• Taiwan- Allowance schemes, mainly benefit to homemakers and irregular workers

• Taiwan- Voluntary join for the self-employed with state subsidy to their contribution (LI)

(Japan/Korea- 100% self-contribution)

Topic Two: Financial sustainability

• Huge question on the financial sustainability of public

pensions in J&K

- Japan: pension expenditure about 12% of GDP,

largely to the BP; About 26 trillion yen revenue and

96 trillion yen spending in 2004 (BP)

- Korea: No state subsidy except Admin fees; expected

the exhaustion of the NP fund 2040~50 years

• State subsidies on social insurance funds and tax

relief on occupational benefits: Regressive or

progressive

Allowance expensive?

- Taiwanese allowance schemes

expenditure in 2003: about 0.5% of GDP

(if beneficiaries and the level of benefit

doubled, then 2% without contribution)

- State subsidy to contribution and no

actual subsidy to benefit

- Less problematic financial sustainability

but problems of the low level of benefits

Topic Three: Decommodificaiton & Reform

effects • ‘Decommodification’: 1) Income replacement in

old-age 2) Degree of reflection of working status and income on old-age income

- in T of 1): Japan>Korea>Taiwan

- In T of 2): Taiwan>Korea>Japan

- Japan: Employees in stable firms can get 1) public pensions with dependent supplement benefit or spouse’ pension 2) the RA or/and corporate pension while non-employees can get only his/her flat-rate pension

• Common pension reform trends in J&K

- Prefer reducing the benefit level rather

than increasing contribution rate; raising

pensionable age; strengthening state role

to secure (contributors’) pension rights

- More focus on financial sustainability

• T: Extending the number of allowance

beneficiaries and introduce ‘annuity’

scheme for employees

- More focus on old-age security

Summary 1: J&K vs. T• Structural and fundamental transformations

going on: K&T much faster speed than J where institutions are well-rooted

• J&K

- DB Social insurance centered pension mix with private occupational benefit; Strong reflection of occupational status on pension benefits; Public assistance as a last resort

• T

- Rapidly growing allowance schemes with DC social insurance and public lump-sum benefit; Less tighter relationship between OS and PB

Summary 2: More than DB vs. DC…• J&K tend to keep their ‘productivist’ legacies with

increasing returns of institutions, while T seems to be in the phase of path-breaking

• Pension mix in J&K seems less productive than that in T in terms of 1) covering non-employees 2) financial sustainability

• J&K: Different needs caused by structural transformation and Identical reform effects; could be more regressive

• Question on contributory schemes and possibility of non-contributory scheme