Note 3-74

(74) When there is a long time gap between benefit and contribution, like the pension system, there are various ideas as to how to evaluate the passage of time. In addition to the method of using investment return, there are also methods of using wage growth rate or inflation rate. In the current public pension system managed based on the basic idea of inter-generational support, a certain percentage of wages is to be contributed to insurance premiums and the benefits are to reflect a rise in wage level. According to the "Relation between Inter-generational Contributions and Benefits in the Pension System" (August 2003), an estimate made by the Ministry of Health, Labour and Welfare based on wage growth rate, pension benefits are larger than premium contributions for any generation, even if the contribution made by employers are included. However, in any method, the benefit ratio (pension benefits divided by premium contributions) is lower for younger generations.