The increase in the aging population is affecting the pay-as-you-go pension system in developed countries.
Over the last few years, often an honest cry for help, the concerns about how to look after the aging population have increased. With these growing needs in mind, some countries were founded with a “Pay-as-you-go pension system” to provide a safety net to their citizens. Some programs in Japan and Finland seek to fund these pensions by collecting money from working-age people while contributing more.
This difference in contribution rate is because of the time frame. The time frame that the money is collected is different. Japan and Finland both have the same idea of helping their older citizens, but how they care for them is slightly different.
The pay-as-you-go pension system in Japan to that of Finland
Japan has been running its pension system since 1941 under a pay-as-you-go system where all workers contribute 8% of their salary with an option to donate more, while Finland had a formalized pension system as early as 1922. In Finland, until the 1950s, there was a pension program that allowed individuals to contribute to the funds until retirement.
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The change in the structure of both countries’ programs is because of their economic situations at the time. Japan’s system was brought in during World War II to help provide security for its citizens, while Finland’s program was brought into action due to their losses in the war. The changes in population growth and birth rates also led to changes within each country’s pension system.
Japan’s program is based on the idea that each worker contributes a fixed percentage of their salary, and the rest of the money is taken care of by an employer. Since this system was started in 1941, there have been many changes; the public pension pool has been enlarged to include private-sector pensions. In addition, restrictions have also been placed on withdrawals from these funds. Another significant change occurred in 2000 when Japan extended the length of time that workers needed to contribute to their pensions.