The Japanese Pension Fund System

The Japanese pension system is a multi-pillar system. Public and private pension schemes are the two important pillars. The first tier is the Basic Pension (Kiso Nenkin), which provides the flat rate basic pension of a universal coverage. As a non-income-related pension, it aims to provide a basic income guarantee for the old age, and the participation is mandatory for all residents. The second tier, the Employees' Pension Insurance (Kose Nenkin Hoken) covers most of the employees and provides an income-related payment. It is mandatory to all firms over a certain size, and employers and employees share the premium. The first and the second tier pensions are both operated by the government and thus are public. The third tier is an optional scheme. It is provided either by private firms (employers) for their employees, or by collective national pension funds for the self-employed with the government as the insurer. The Employees' Pension Fund is operated by employers, but has a large portion of the Employees' Pension Insurance and thus has a quasi-public character. On top of the three tiers, purely private, individual-based pensions, such as those offered by the life insurance companies, provide the additional coverage for those who wish to purchase the plans. The schemes in the first and the second tiers for employees are jointly operated and a single contribution rate covers contributions for both schemes. Thus, in many cases, the term "Employees' Pension Insurance" refers to both of them jointly. The Employees' Pension Insurance covers both employees and their spouses.