Appended Note 3-5 Estimation of Pension Liabilities

In this estimation, we have presumed four cases for how far the government should cover public pension liabilities and have estimated liabilities for each case and each public sector component. We have then analyzed how the estimated public pension liabilities would affect estimates of outstanding debts and net assets at the central government.

In Case 1, future pension payments corresponding to past premium payments are not realized as liabilities. Public pension deposits corresponding to assets are booked as liabilities only for public pension reserves the government actually owns. In Case 2, we decide whether each category of financial resources should be booked as liabilities. Since future premium income is to come from employers and insured people, only the reserves and the national treasury contributions are booked as the government' s liabilities. In Case 3, half of the future premiums for the mutual aid pension scheme for central and local government employees are added to Case 2' s government liabilities, since the government amounts to the employer for the employee pension scheme. In Case 4, the government is considered to be responsible for paying pensions to insured people even by raising premiums in future. Future pension payments in current prices, corresponding to premium payments in the past, are thus booked as liabilities.

The estimate adopted for our principal discussions meets Case 3. Proposals 1, 2 and 3 in the MOF (2000) are similar to Cases 1, 2 and 4, respectively.

Estimates are displayed on the table below. In Case 1, the social security fund alone contributes ¥232 trillion and the public sector has net assets worth ¥45 trillion. Even in this case, the central government' s net assets come to a negative ¥275 trillion.

In Case 2, additional liabilities total ¥143 trillion for the central government and ¥11 trillion for local governments. As a result, the public sector' s liabilities total ¥2,383 trillion and its net assets come to a negative ¥109 trillion. The central government' s net assets come to a negative ¥418 trillion.

Case 3 is discussed in Chapter 3 and omitted here. In Case 4, public pension liabilities total ¥973 trillion and the public sector' s liabilities come to ¥2,970 trillion. Its net assets come to a negative ¥696 trillion.

Estimated Public Pension Liabilities and Each Public Sector Component' s Net Assets