Diverging productivist pension regimes in Japan, Korea, and Taiwan

1. Diverging productivist pension regimes in Japan, Korea, and Taiwan How ‘productive’ are they? Young-Jun Choi

2. 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?

3. Objectives • Identify changing environments affecting old-age security • Review the pension mix and recent changes in three countries, and their characteristics • Examine the effectivenessof each pension mix • Draw implications for the desirable pension development

4. 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 Working Age 3. Due to sound pension budget: Rising pensionable age c. Household Transformation: diminishing role of households in welfare b b Old Age Economic Vacuum Period c 2 4. Flexible labour market: Unstable contribution d. New skill required: Lowering retirementage 3 d e. Service sector Increasing: Reducing role of occupationalbenefit 5. Due to sound pension budget => Rising contribution rate 6. Late entry of labour market: Reducing contribution period e. 4. 5 b b 6

5. 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

6. 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

7. Japan’s pension schemes 1

8. 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

9. Korea’s pension schemes 1

10. 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

11. Taiwan’s pension schemes 1

12. 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

13. 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

14. 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

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

16. Korea – 4.8 million who are exempted from contribution and 1.8 million who has not contributed more thanone 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)

17. Topic Two: Financial sustainability • Huge question onthe 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

18. 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

19. 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

20. 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

21. 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

22. 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