Philosophical Thought on Public Pension Fairness

May 10, 2021
by Noriyuki Morimoto

The public pension system is a mutual aid system based on the impossibility of knowing one’s remaining life. Therefore, if a person dies before the age of 65, he or she will not receive a penny back in premiums, but this cannot be regarded as a loss, nor can it be regarded as unfair if the amount of pension benefits differs greatly between those who die at age 66 and those who live until age 100.

Since public pensions are heavily funded, it is possible to have an idea of the portion each citizen is entitled to. Under such a notion, it would seem that the equity of those who die first would be given to those who live longer, and indeed many people may vaguely believe this to be the case, but this is an illusion.

If there were a voluntary withdrawal system for public pensions, the amount of money perceived as one’s equity would be returned after certain deductions, just as in the case of private pension insurance, but in reality there is no such return system, and therefore the individual’s equity is only a concept and does not exist in reality.

While private pension insurance is designed on an actuarial basis and fairness is guaranteed under economic rationality, public pension is designed on a social welfare policy basis and incorporates the element of income redistribution, so fairness is not guaranteed under economic rationality.

However, the lack of the requirement of fairness and equity under economic rationality does not mean that it runs against social fairness and equity; on the contrary, there are many cases where thorough implementation of economic rationality results in the violation of social fairness and equity.

Fairness in public pensions is a philosophical conundrum. Therein lies the source of the confusion in the debate over fairness.


[Category /Insurance]

Noriyuki Morimoto
Noriyuki Morimoto

Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.