The public pension system in Japan : the consequences of rapid expansion

The paper focuses on the public pension system in Japan and traces its development against the overall background of the socioeconomic developments since 1950s. The country's establishment of a public pension system that covers the entire population took place fairly recently. It was only in 1961 that the compulsory pension plan for the self-employed was introduced. Together with the already existing income-compensation scheme for retired civil servants and various employees' pension plans, every Japanese gained access to a public pension plan in one form or another. Just because the public pension was installed late, however, does not mean that its financial status was sound. On the contrary, the social security reform in the early 1970s changed the landscape of Japanese public pension virtually overnight. Put simply, benefits overshot prospective contributions. The paper recommends that since the unfounded pension systems such as the one adopted by Japan are at the mercy of demographic changes, developing countries should adopt pension systems with sound actuarial basis.