JAPAN - Non-portable corporate pensions have prevented an improvement in the allocation of labour in Japan, according to a country report by the Organisation for Economic Co-operation and Development.
In addition, the OECD said continuing corporate restructuring and balance sheet adjustments are likely to constrain investment growth.
Profits have also had to cover the costs of corporate restructuring such as withdrawal from loss-making businesses and to adapt to new accounting rules, which require mark-to-market valuation and full provisioning of corporate pension liabilities.
Pension reform is under discussion with concrete plans to be worked out in 2004 as part of a periodic review of the system, which has typically resulted in higher contributions and lower benefits but not fundamental change in the system itself.
The OECD added: “Since contributions to pension funds paid by the younger generations are tax exempt, the allowance for benefits favours pension income twice.
“Moreover, with ageing population and fewer children, a smaller younger generation has to finance the pension system even though some of the elderly have a high level of income and assets.
“In these circumstances, taxing pension benefits should help improve equity, not only between generations but also within the retired generation.”
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