NIRA Policy Review

Edited by Motoshige Itoh 2013.3

No.59

Public Pensions andIntergenerational Equity
As Japan’s birthrate declines and its population ages, the financial burden of the present public pension systemon younger generations is becoming increasingly disproportionate to the pension benefits that these generations will actually receive. How should we approach this problem of intergenerational inequity? The
arguments presented in this issue of the NIRA Policy Review propose that, considered by generations, thediscrepancy between benefits and burdens should be largely the same, and, considered at the level of theindividual, benefits and burdens should be in equilibrium; at the same time, it is indicated that fairness should
be ensured in the social security system as a whole.

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Considering Intergenerational Equityfrom Multiple Perspectives
Motoshige Itoh

President, National Institute for Research Advancement (NIRA)□ Expert Opinions □How Do We Deﬁne Intergenerational Equity
in the Public Pension System?
Promoting reform with “Generations”
and “Income” as twin focal points

Takashi Oshio

Professor, Institute of Economic Research,
Hitotsubashi University

Fairness should be consideredat the level of the individual

Makoto Usami

Professor, Department of Social Engineering,Tokyo Institute of Technology

Consideration that transcends generations

Izuru Makihara

Professor, School of Public Policy, Tohoku University

Realizing justicein the social security system as a whole

Taro Miyamoto

Professor, Graduate School of Law, Hokkaido University

Intragenerational redistribution
should also be on the agenda

Sawako Shirahase

Professor, Graduate School of Humanities and Sociology,
The University of Tokyo

NIRA Policy Review No.59

Motoshige Itoh President, National Institute for Research Advancement (NIRA)

The social security system may be considered the ultimate key
to Japan’s financial problems. The amount of the finances
deployed by the system is enormous, and the burden placed on
citizens by taxes and social insurance premiums is high. The
shape of the social security system will also have a significant
effect on the design of individual lives.
Based on this understanding, the Japanese government hasembarked upon comprehensive reforms of the taxation and social
security systems. The LDP, DPJ and New Komeito agreed on aComprehensive Reform of Social Security and Tax, and set inplace mechanisms to ensure that a change in administration
would not result in major changes to the initiative in June, 2012.
As the first step in the reforms, it was decided to increase theconsumption tax rate. The government established a National
Council on Social Security Reform, and pushed ahead withdiscussions concerning the social security system.
The experts interviewed for this issue of NIRA Policy Review,
while advancing a variety of arguments, all support thecomprehensive reform of the taxation and social security systems.
However, the National Council on Social Security Reform is aprovisional organization which will complete its term in August
this year. We must be aware that the actual reform of the social
security system will require an enormous amount of time. In thissense, we can say that discussion of integrated reform has only
just begun.
Against this background, this issue of the NIRA Policy Review
focuses on intergenerational equity in the social security system.
The social security system has numerous facets, including
pensions, medical care, nursing care, and support forchild-raising, and the question of inequity also presents a numberof greatly varying aspects. We therefore considered that
restricting our focus to pensions would serve to clarify the
discussion. In addition, with the period of the mass assumption ofpension benefits by the first baby boom generation upon us, it is
the pension system which demands the most urgent response.
Nevertheless, we recognize that it is only natural that the issues
involved in the pension system are also related to the rest of thesocial security system, and also that there is considerable merit intaking up the social security system as a whole for consideration,rather than separating off pensions. These are points that are also

raised by our interviewees.
The key phrase of these interviews is “intergenerational equity.”
Against the background of a declining birthrate and an aging
population, the burden of payments to the public pension systemagainst the benefits received from the system is becoming
increasingly heavy for younger generations. A system which the
majority of citizens feel is unfair is one with little sustainability.
Intergenerational equity is therefore an important key inconsidering the long-term sustainability of the system.
Unfortunately, however, insufficient attention is given tointergenerational equity in government discussions of reform of
the social security system. No doubt the government is expending
its greatest efforts on the resolution of immediately pressing
problems, and in addition presumably has the sense that bringing
the question of intergenerational inequity to the table would
confuse the issue.
Nevertheless, if our social security system is not one thatmakes “individuals of every generation feel that society isproviding support for their lives,” the necessity for which
Professor Sawako Shirahase points out in this issue, it will bedifficult to ensure the sustainability of the public pension system.
The problem of intergenerational equity is one that cannot be
avoided.

Ways of Thinking about a Sense of Fairness
The current elderly generation is receiving a high level ofpension benefits in return for a low burden of payment. However,as generations become younger, the ratio of burden against
benefits becomes higher. Generations yet to be born will face aneven heavier burden. The inadequacies of the present system pass
the buck to later generations, and the disadvantage becomes
greater the younger the generation. Preventing thisintergenerational inequity from remaining unaddressed is the
problem at issue.
However, understanding the issue in simple terms such asthese gives us an extremely restricted range of choices in seeking
its resolution. We could reduce the burden on younger
generations at least slightly by making further cuts in the benefits
enjoyed by the elderly. But given the fact that elderly citizens
represent the overwhelming majority of voters, it would be
extremely difficult to implement a reform of this type.
➡

Comprehensive Reform of Taxation andSocial Security

The most important message to be taken away from theinterviews presented here is that the problem of intergenerational
equity should not be oversimplified. We must discuss equity
using a more diverse range of points of focus, rather than simply
focusing on generations. What could these points of focus be? In
this issue, Professor Takashi Oshio emphasizes the importance ofincome. A significant amount of Japan’s elderly have highincomes and possess a considerable amount of assets. By thus
incorporating intragenerational transfers of wealth into ourthinking, we ease the difficult issue of intergenerational conflictat least a little. Indicating that because “The public pension
system is a reserve based on the social security framework,
prepared against a long-term future […] [a]n overemphasis on
intergenerational gain and loss in the system is undesirable,”
Professor Shirahase goes on to inform us of the importance of
intragenerational redistribution. Redistribution within the elderly
generation would make it possible to reduce the burden on
younger generations.
Professor Makoto Usami suggests that we should consider
equity in terms of individuals. This argument presents similarities
to those mentioned above, which urge us to train our focus on
income. If we are to be thorough in our consideration of equity, it
will be essential to expand our frame of reference on the issue by
utilizing the perspective of the individual. On the other hand,though, distribution within the family also has an importantmeaning in the social system. As we can see, when we dig deeper
into the question of equity, we discover a wide variety of points
that require discussion.

➡

Considering Intergenerational Equityfrom Multiple Perspectives

Public Pensions within the Social Security System
Focusing discussion exclusively on the monetary exchange
represented by public pensions restricts our range of choices. We
must give consideration to the appropriate direction for the public
pension system within the social security system as a whole.
Professor Shirahase and Professor Taro Miyamoto also make thispoint. Eschewing our exclusive focus on cash benefits andbroadening our perspective to encompass, in Professor
Shirahase’s words, “a social security system which transcends
generations and focuses on the whole of life, providing
benefits-in-kind such as education and child-minding services
and medical treatment based on a perspective of life security,” weare able to consider a direction for the realization of equity. And
while equity is an important factor in increasing the reliability ofthe system, what Professor Miyamoto identifies as an “exclusiveemphasis on intergenerational equity in the pension system andlack of attention to justice in society as a whole” is clearlyproblematic. As Professor Miyamoto further indicates, it will also
be important to deploy the nation’s finances “within a total social
security system that takes in employment, the family, and welfare,on the provision of support for employment and for the family
among the currently working generations.” Rather than

discussing equity exclusively within the framework of the public
pension system, we should give greater consideration to what thecurrently working generations actually want. It is essential for us
to discuss intergenerational equity from a comprehensive
perspective, one which incorporates the “concept of [the elderly]
forgoing some of their benefits to enable them to be invested inlater generations,” as Professor Izuru Makihara suggests.
Focusing discussion on public pensions highlights the serious
issue of intergenerational equity in a readily understandable
manner. By this means, a greater number of people are able tobecome aware of the existence of the problem. However, once we
begin to think more deeply about the problem of equity, we canno longer be content to limit our discussions to public pensions.
In addition, if we expand our range of choices from public
pensions to take in the social security system and theemployment and education systems, we will see our way towards
reforms which will be supported by a greater number of citizens.
A social security system must be one which all the nation’s
citizens believe in and support. It is precisely because of this that
equity is so important. However, we must not restrict ourselves toconsidering equity simply as a matter of the individual. As
Professor Usami points out, it is necessary that we should aim
towards a process in which the majority of the nation’s citizens
take part in discussions and reach a deliberative consensus. And
as Professor Miyamoto indicates, it will be essential for us tobroaden our perspective, as we discuss equity in the pension
system, to encompass social justice. For Professor Miyamoto,social justice means “the guarantee of the conditions for social
participation no matter what the generation.” The fact that thesystem imposes a burden on the working generations without
providing them with essential support against a social
background in which, as he points out, “the stability of
employment is declining, and the formation of family units is
also becoming unstable,” is a serious problem.
While indicating that equity is the essential point for a public
pension system, Professor Miyamoto also warns that, in the caseof Japan, “If we exclusively discuss the guarantee of equity in the
public pension system, it is possible that financial resources will
be directed towards this problem exclusively.” Professor
Miyamoto means that in order to increase the ratio of support
provided to younger generations within Japan’s total expenditureon social security, it will be essential for us to think in terms of
the social security system as a whole, or in terms of a broader
framework encompassing support for employment and othermeasures. This suggestion can serve as a significant reference
point for the orientation of future discussion of public pensions
and intergenerational equity.

Motoshige Itoh:
President, National Institute for Research Advancement (NIRA), 2006 – present.
Professor, Graduate School of Economics, The University of Tokyo.

59

How Do We Deﬁne Intergenerational
Equity in the Public Pension System?
Intergenerational inequity in Japanʼs public pension system is increasing with the decline in the nationʼsbirthrate and the aging of its population. The situation is the subject of discussion, but fundamental changes
remain to be made. What would intergenerational equity in the public pension system mean? And how can webreak through the present deadlock? We asked leading ﬁgures in the ﬁelds of economics, philosophy of law,political science and sociology for their opinions.

Interviewer: Manabu Shimasawa, NIRA Senior Researcher
Period of interviews: October-December, 2012

Promoting reform with “Generations”
and “Income” as twin focal points
Takashi Oshio
Professor, Institute of Economic Research,
Hitotsubashi University

Ideally, in a public pension system, the difference between the
total amount of the pension which one will receive and the total
burden represented by insurance contributions and taxation
payments over the course of one’s lifetime should be roughly thesame, no matter when one is born. In reality, however, there isinequity between generations, and there are significant
differences in the discrepancy between benefits and burdens
depending on one’s generation. In the early phase of developmentof a system, a certain degree of inequity is unavoidable, but asystem that one-sidedly places the yet-to-be-born members of
future generations into a position of disadvantage is unacceptable.
For a public pension system, intergenerational equity, unaffectedby when one was born or one’s degree of involvement in thepolitical decision-making process, should be a fundamental
principle of operation.
In order to correct intergenerational disparities, we need amechanism by means of which the amount of pension benefits as
a whole is automatically reduced in response to the level ofpension premiums being paid by younger generations. It will beobjected that this would increase the number of elderly
low-income households; how do we guarantee their livelihoods?
This will necessitate a mechanism which assists people who areexperiencing income difficulties, no matter what their age, andwhich positions people who are not experiencing such difficulties
on the side providing assistance, even if they are elderly. We must
consider systemic reform with “generations” and “income” astwin focal points. ■Fairness should be consideredat the level of the individual
Makoto Usami
Professor, Department of Social Engineering,Tokyo Institute of Technology

I understand the key concept of a social system as being toensure “fairness.” A specific social system is fair when thebenefits and the burdens of that system in relation to eachindividual citizen are in a state of balance. It is important that weshould consider this balance at the level of the individual.
Because generations are an agglomeration of individuals, if we
can ensure fairness at the level of the individual, we will also
guarantee fairness between generations. Some believe that
because the current elderly generation supported their parents andfamilies and contributed to the era of high economic growth, thecurrent state of intergenerational inequity does not represent anissue. However, given that not all individuals within the present
elderly generation supported their parents and families, and thatthey also differed in the degree of their contribution to theeconomy, an argument which claims that they should beconsidered as a homogeneous group is rather unconvincing.
Today, as Japan’s birthrate declines and its population ages,
under our present pay-as-you-go system the burden on future
generations is increasing, and intergenerational equity is
increasingly declining. In this situation, fundamental reforms thattake in the funded system or the tax-financed system are essential.
It is difficult for the Japanese public to actively discuss thissubject and promptly reach a rational consensus on the basis ofadequate data and information, but expanding intergenerational
inequity makes it a problem that cannot wait. Given this, thegovernment should proceed, on its own initiative, with systemic
reforms that it might assume would be supported by the type ofconsensus resulting from careful deliberation of the facts which
would have been reached by public debate based on adequate
information (“deliberative consensus”), and present the publicwith data enabling it to judge the necessity for those reforms. ■Consideration that transcends
generations
Izuru Makihara

Professor, School of Public Policy, Tohoku University

Political science understands the term “generation” in three
ways. The first is as a group that shares a specific period (i.e., acohort). Examples would be the interwar generation, or the baby
boom generation. The second is in terms of family lineages:
Grandparents, parents, children, grandchildren. The third is interms of age group: young or elderly.
Until around the 1980s, when Japan’s high economic growth
was to some extent entering its decline, the Japanese tended toshare a sense of compassion towards the generation which had
suffered during the war period. Thus, we understood “generations”
in terms of cohorts and family lineages, and the view that weshould distribute the benefits of growth between generations was
a compelling one. Today, however, as Japan’s population ages
and younger generations are exposed to changes in the economic
status of the nation such as low growth, deflation and economiccrisis, it is important for us to consider “generations” from theperspective of age. It is essential for the elderly to turn theirthinking towards the concept of forgoing some of their benefits toenable them to be invested in later generations. Even if one wasaffluent in one’s prime, it is necessary to have consideration forlater generations given the change in the social situation since
one’s retirement.
In relation to this consideration that transcends generations, itwill not be enough to simply increase the transparency of thesystem and appeal to reason. What we will need in order to takethe final step are stories with which people can empathize.
Communicating the empathetic message that the elderly arecalled upon to make a return to coming generations will be, ofcourse, the role of those in the political arena. ■Realizing justicein the social security system as a whole
Taro Miyamoto
Professor, Graduate School of Law, Hokkaido University

The essential point for a public pension system is that theamount that is contributed is returned to the contributor; thesystem is equitable when the mechanism that makes this happen
is operated with a high degree of transparency.
I am perplexed, however, by recent discussions concerning
pension reform, with their exclusive emphasis on
intergenerational equity in the pension system and lack ofattention to justice in society as a whole. I believe that not merely
the realization of a balance between burden and benefits, but also
the guarantee of the conditions for social participation no matter
what the generation, is important as the very substance of justice.
We should be focusing more carefully on the present situation, in
which the stability of employment is declining, and the formationof family units is also becoming unstable. What is most importantfor Japanese society at present is to achieve social justice byfocusing finances, within a total social security system that takesin employment, the family, and welfare, on the provision of
support for employment and for the family among the currently
working generations. This would mean that Japanese society was
preparing the conditions enabling the working generations towork, form families, and raise children.
If we exclusively discuss the guarantee of equity in the public
pension system, it is possible that financial resources will bedirected towards this problem exclusively, and will not be used toprovide support for the working generations. I hope, therefore,that in addition to equity in the pension system, we will giveconsideration to the achievement of justice in the social security
system as a whole. ■Intragenerational redistribution should
also be on the agenda
Sawako Shirahase

Professor, Graduate School of Humanities and Sociology,
The University of Tokyo

When we discuss subjects such as inequity and unfairness, it is
not only the situation in the present that is important, but also theoutlook for the future. For example, the sense of unfairness inrelation to public pensions is rooted in the individual’s feeling of
uncertainty in relation to their own benefit when they become
elderly.
The public pension system is a reserve based on the social
security framework, prepared against a long-term futurecontaining a significant degree of uncertainty. An overemphasis
on intergenerational gain and loss in the system is undesirable.
It is therefore essential to ensure that individuals of every
generation feel that society is providing support for their lives.
The path that we may consider in order to do so is to reconsider
the present system, which has been designed with a focus on age,and to appeal to the advantages of a social security system whichtranscends generations and focuses on the whole of life,
providing benefits-in-kind such as education and child-minding
services and medical treatment based on a perspective of life
security.
The social and historical background differs depending on when
one is born, and the nature and degree of risks also differs. We
may therefore say that a certain degree of intergenerational
inequity is built into the public pension system. Nevertheless, weshould also be aware of the merits of mutual support throughout
society as a whole. Why not, then, actively consider redistributive
measures which enable us to respond not merely tointergenerational inequity between the young and the old, butalso to inequity within the same generation? For example, we
could attempt to correct our trajectory towards the realization of
an intergenerational balance in which the burden is not placed
exclusively on the young productive generations by actively
incorporating wealthy elderly people in the system as providersof funding. ■This is a translation of a paper originally published in Japanese. NIRA bears
full responsibility for the translation presented here.

What’s NIRA?
The National Institute for Research Advancement (NIRA) is an independent, private-sector research
institute which defines urgent policy issues and formulates bold and timely policy proposals, seeking tocontribute to the revitalization and further development of Japanese society and the Japanese economy.
Utilizing a network of scholars, researchers, and specialists in a wide range of subjects, NIRA works forthe public benefit from a fair and neutral perspective, attempting to reinvigorate policy debate and contributeto the process of policy formation in Japan. The institute focuses on domestic social and economic policy,
international relations, and regional issues in Japan as its principal areas of research.
Established in 1974 as a government-authorized independent research institution, NIRA became anincorporated foundation in 2007, and since February 2011 has been recognized as a Public Interest
Incorporated Foundation.

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