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Establishing a social security system that provides peace of mind (outline)

20 November, 2015

 

Recognizing the importance of establishing a more sustainable social security system supported by the appropriate coordination of public and private schemes, the Life Insurance Association of Japan, LIAJ (Chairman: Yoshinobu Tsutsui, President of Nippon Life Insurance Co.) has outlined a recommendation that identifies the key issues to be considered and proposes a core policy to achieve this aim. We plan to carry out discussions along the lines of this recommendation and issue a final report by the end of March 2016.

Establishing a social security system that provides peace of mind (outline)

Issue 1 : As personal life planning and adequate preparation for retirement (self-help efforts) become increasingly critical, laying the foundation for financial security in retirement (pension scheme) is of the utmost priority and urgency.

While Japan’s social security system boasts a world-class universal healthcare and pension coverage, the system is experiencing considerable pressures from long-term trends such as population aging and the swelling public debt. To ensure sustainability, crucial reforms are needed which must inevitably increase the financial burden on the general public.

As a result, people will increasingly need to design a life plan and prepare for retirement on their own (self-help efforts). Key to life planning is the existence of a secure and stable source of retirement income (pension).

With public pension benefits in steady decline, a complementary private pension scheme that offsets this decline, and at the same time encourages people to design a life plan and prepare for retirement is of the utmost priority and urgency—especially given the long accumulation period of private pensions.

Issue 2 : The capacity of both public and private pensions to provide lifetime income is decreasing even as the risk of outliving retirement savings grows.

Lifetime income from public and private pensions plays a key role in personal life planning and preparation for retirement by protecting against the risk of outliving retirement savings. However, public pension benefit levels are predicted to steadily decrease as the environment surrounding the social security system deteriorates. Meanwhile, both corporate and individual private pension schemes are struggling to provide a whole life pension due to the unprecedented ultra-low interest rate environment.

These trends mean that society as a whole is becoming less prepared against the risk of outliving retirement savings, and will face a major challenge ahead as the population ages even further.

Recommendation : Establish a brand new whole life private pension scheme "Longevity Pension (tentative name)" that is easy to understand and provides a stable lifetime income.

Given the views and issues above, the LIAJ recommends establishing a "Longevity Pension (tentative name)"—a brand new whole life private pension scheme to complement the public pension scheme, featuring lifetime payout, lifetime stability, and universal accessibility.

The new "Longevity Pension (tentative name)" would offset shrinking public pension income by assuring a secure and stable lifetime pension income, thereby facilitating personal life planning and preparation for retirement.

The LIAJ believes that the appropriate coordination of public and private pension schemes will make the social security system more sustainable, provide peace of mind for society, and empower people to better enjoy life.

〈 Primary functions required of a private pension scheme designed to complement the public pension scheme 〉

(1) Lifetime payout

—Lifetime payout is essential because nobody knows how long they will live, and opportunities to earn income inevitably decrease as one gets older.

(2) Lifetime stability

—Lifetime stability will assure secure and stable income throughout retirement for people with limited investment experience.

(3) Universal accessibility

—The new private pension scheme must be universally accessible to complement the public pension scheme. This means the new private pension scheme must be accessible not only to employees at selected companies but to everyone, and also be simple and easy to understand.