This paper calculates the marginal contribution rates of public pension and analyzes the economic implications which the marginal rates influence to the oehavior of participants in a sense of efficiency and equity. The marginal contribution rate means...
This paper calculates the marginal contribution rates of public pension and analyzes the economic implications which the marginal rates influence to the oehavior of participants in a sense of efficiency and equity. The marginal contribution rate means the net marginal burden which the insured bears at a given time. That is calculated as subtracting the expected additional benefits the insured could receive in the future from the additional contribution he/she Jays when he/she earns a unit amount of income.
The result shows that the marginal contribution rate of the younger is estimated as higher than that of the elder: the rate of the male higher than that of the female, and the rate of the single higher than that of the married couple. These results imply that each group by sex, age, single or marriage bears inequitible net burdens among them, and would have different incentives to participate in the labor market. The benefits of public servants and private school teachers’ pension are now calculated based on he final salary, which increases the expected marginal benefit exponentially because the final salary is increasing as he/she become old. Thus under the seniority system, the incentive to maintain their job will be abnormally strong, and that will undermine the flexibility of public employment market.
To improve these distortions, this paper suggests that first, the formular of national pension should be revised so that the marginal contribution has a deep linkage to the future marginal benefit, and second, the benefits of public servants and private school teachers’ pension should be calculated on the basis of lifetime average salary rather than the final single year’s salary. With the revised scheme, the simulation results indicate that the changed marginal contribution rates will improve both efficiency and equity.