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 Postindustrialisation
• 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
Post-Industrial Effects
Globalisation Effects
a. Ageing
1~5. Unstable financial market & volatile
economic conditions;
Unstable pension fund or budget
b. Demographic Change:
increasing dependency ratio
a. 1
1. 2. Due to sound pension budget:
Cut benefit; Strict entitlement
a.b. Maturing of
social entitlement
b
c. Household
Transformation: diminishing
role of households in welfare
b
3. Due to sound pension budget:
Rising pensionable age
Old Age
c
4. Flexible labour market:
Unstable contribution
3
d. New skill required:
Lowering retirement age
Economic Vacuum Period
2
d
e. Service sector
Increasing:
Reducing role of
occupational benefit
5. Due to sound pension budget
=> Rising contribution rate
Working Age
b
e. 4. 5
6
b
6. Late entry of labour
market: Reducing
contribution period
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 1
Individualbased DC
plan
RA/Corporate-based DC
plan/other corporate
pensions
National
Pension funds
Employees’ Pension
Insurance
Mutual
funds
Basic Pension (DB & contributory)
Spouses of
employees
Selfemployed
Employees
Civil servants
Military/teac
hers
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
Special
benefits
occupation
National Pension (DB)
al pensions
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 1
Voluntarily join Labour Insurance
in the LI/LP
(DB/lump-sum)/
Special
pension
schemes
Labour Pension (DC)
Welfare allowance schemes
(Flat-rate benefit)
Non-employees Employees
Civil
servants
Military/te
achers
Taiwan’s pension schemes 2
• Relatively lower benefits for employees: lumpsum benefit + DC pension scheme
• No mandatory pension program for nonemployees: 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 & noncontributory allowance schemes
Breakdown of Type I members in Japan
(unit: 1000 persons, Non-con. for 2 years)
Year
Total Contributor
Total Full
Non- Exem Stud
Part
con.
pt
ent
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 2002
Total 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 oldage 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