Academic journal article NBER Reporter

Financing Retirement in Japan

Academic journal article NBER Reporter

Financing Retirement in Japan

Article excerpt

The Sixteenth Annual TRIO Conference, so-named because it is jointly sponsored by the NBER, the Centre for Economic Policy Research (CEPR), and the Tokyo Center for Economic Research (TCER), took place on December 8 and 9 in Tokyo. This year's conference focus was "Financing Retirement." Organizers were Takeo Hoshi, NBER and University of California, San Diego; Sadao Nagaoka, Hitotsubashi University and TCER; and Toshiaki Tachibanaki, Kyoto University and TCER. The program was:

Olivia S. Mitchell, NBER and University of Pennsylvania, and John Piggott, University of New South Wales, "Unlocking Housing Equity in Japan" Discussants: Pierre Pestieau, Universite de Liege and CEPR, and Miki Seko, Keio University and TCER

Frank de Jong, University of Amsterdam and CEPR, "Pension Fund Investments and the Valuation of Liabilities under Conditional Indexation" Discussants: Toni Braun, University of Tokyo, and Keisuke Ito, Mizuho-DL Financial Technology Co., Ltd.

Toshiaki Tachibanaki and Tomohiko Takeuchi, Kyoto University and TCER, "The Differences in the Economic Effects Between the DB Plan and the DC Plan" Discussants: Olivia S. Mitchell, and Masaharu Usuki, NLI Research Institute

Robert Dekle, University of Southern California, "Financing Consumption in an Aging Japan: The Role of Foreign Capital Inflows and Immigration" Discussants: Toshihiro Ihori, University of Tokyo and TCER, and Makoto Saito, Hitotsubashi University and TCER

Takashi Oshio, Tokyo Gakugei University and TCER, "Social Security and Trust Fund Management" Discussants: Frank De Jong, and Yasushi Iwamoto, Hitotsubashi University and TCER

Pierre Pestieau, "Social Security and the Well-Being of the Elderly" Discussants: Robert Dekle, and Tokuo Iwaisako, Hitotsubashi University

Kohei Komamura, Toyo University and TCER, and Atsuhiro Yamada, Keio University and TCER, "Who Bears the Burden of the Social Insurance?" Discussants: Takero Doi, Keio University and TCER, and John Piggott

Releasing equity in housing via reverse mortgages (RMs) may be a natural mechanism for boosting consumption, reducing public pension liability, and mitigating the demand for long term care facilities in Japan. In order to implement RMs, Mitchell and Piggott find, existing inhibitors would need to be removed. For example, RMs might be exempted from the capital gains tax and transactions taxes, in addition, more attention might be focused on the tax status of annuity income flows and on interest rate deductions for RMs. Clearly, housing market reforms to enhance information flows would be needed, particularly regarding new and existing housing trades. This would enable the securitization of housing loans and lines of credit. Finally, improvements in other aspects of capital markets, including the establishment of reinsurance mechanisms to help lenders offer these reverse mortgages while having some protection against crossover risk, would be important. The infrastructure required to build RM markets is not simple, and in the Japanese case, the demand will be dampened by the fact that residential housing values appear to be declining. This fact, plus low interest rates, imply that lenders will find reverse mortgages less appealing than otherwise. Nevertheless, RMs can be a good way to finance elderly consumption in Japan, particularly against the backdrop of governmental financial stringencies.

De Jong reviews the investment policy of collective pension plans. The defined benefit nature of these plans would call for an investment portfolio that consists entirely of long term index-linked bonds. In practice, pension plans have substantial investments in equities and real estate. De Jong suggests two reasons to invest in equities: the lack of a well-developed market in index-linked bonds, and deliberate deviations from the defined benefit nature of the plan. …

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