This book explores age-related pension expenditures and fiscal space in China, India, Indonesia, and Japan. It provides a critical review of modeling techniques for pension projections and examines the link between expenditures, fiscal space, and financing methods. Case studies of the four Asian countries' pension systems are instructive for designing sustainable policies. The book also analyzes the challenges policymakers face in reforming social security. Projections estimate pension spending could reach 2-4% of GDP in India and 1-4.5% in Indonesia by 2030. Options to increase fiscal space include parametric reforms, investment returns, and coordination between government levels.

1. AGE RELATED PENSION
EXPENDITURE AND FISCAL SPACE
SPEAKERS
Prof. Mukul Asher
Professorial Fellow, Lee Kuan Yew School of Public Policy
Dr. Fauziah Zen
Economist, Economic Research Institute for ASEAN and East Asia

2. Overview
• This book explores the linkages between age-related
pension expenditures and the fiscal space needed to
fund them, and possible options for fiscal space.
• The book also discusses the different financing mixes
used, and the risk-sharing arrangements in four Asian
countries: China, India, Indonesia, and Japan who have
large populations.
• This book has several additional distinguishing
characteristics.
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3. Distinguishing Characteristics
– First, it provides a critical review of the existing modeling
techniques to project age-related expenditure.
– Second, it explores the inter-linkages between age-related
expenditure, fiscal space, and financing methods.
– Third, the case studies of four large Asian economies are
instructive for other economies, as they need to design and
implement context specific policies to find requisite fiscal space
and corresponding financing methods.
– Fourth, the book also contains a chapter by the Finance Minister
of Indonesia that analyses challenges in implementing social
security reform.
– Fifth, the book explains funding vs financing distinctions,
limitations of demographic projections used in pension
modeling and population policies and the concept of fiscal
space.
– The book thus links modeling techniques, analysis of age-related
expenditures, and the challenges of policymakers in an
integrated manner. This is perhaps the first book to do so.
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4. Modelling Pension Expenditure:
Inadequacies of cross-country models
Table-2 Decomposition of pension spending growth, 2010-2030 (% of GDP)
Table-1 Public pension expenditure of three Asian countries (% of GDP)
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5. Modelling Pension Expenditure:
Inadequacies of cross-country models
Table-3 Total age-related spending (including public pension, health care, long-term care, and
unemployment benefits of three Asian economies (% of GDP)
Table-4 Total age-related spending (including public pension, health care, long-term care and
unemployment benefits) of three Asian economies (% of GDP)
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6. Methodology Used in The Book
• The methodology used in the book is country-context
specific, and uses disaggregated pension component
based estimates rather than an aggregate
macroeconomic model.
• This methodology also has its limitation as judgmental
factors play a role, and only a range of estimates rather
than point estimates are used.
• The methodology, however, does permit institutional
and other characteristics, including the administrative
and compliance sufficiencies to be taken into account
in the estimates.
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7. Selected Results: China
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• Table 3.5 (pg. 53) typifies the projections of public
pension expenditure for rapidly-aging China.

8. Selected Results: China
• China chapter identifies the parametric
reforms, drawing on national social security
fund, dividends from SOEs, investment returns
from foreign exchange reserves and improving
productivity, as among combination of options
to help generate the fiscal space.
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9. Selected Results: India
• Table 4.2 (pg. 82)
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10. Selected Results: India
• The India chapter examines the projection of pension expenditures
by various components, such as for civil service, military personnel,
by private sector employees and the national social assistance
programs.
• It also stresses the contingent liabilities inherent in many of the
programs.
• In contrast to stagnant pension spending on pensions, and total
age-related spending of around 1% of GDP projected by
international agencies, the India chapter estimates that by 2030
between 2-4 percent of GDP will be needed for pension
expenditure alone.
• It identifies greater professionalism among provident and pension
fund organizations, using state assets more productively, and
parametric reforms will be needed to generate the required fiscal
space and sustaining high broad-base growth.
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11. Selected Results: Indonesia
• The chapter provides the projection of the pension expenditures in
Indonesia amidst the undergoing reform on social security sector
triggered by new Law of SJSN where many of the arrangements are
yet to be clearly spelled.
• One of the mandated new program by the Law is universal
pension–the study assumes several scenarios, i.e. that the
government will either extend a public pension for poor, for all
informal sector, or for all members of population. The study finds
that the government will have to spend 1-4.5% of GDP annually for
basic public pension expenditures depending on scenarios
assumed.
• Fiscal space-relieving measures can be achieved by increasing tax
revenue, regularly increasing contribution, maximizing investment
return, and sharing civil servant pension burden between Central
and Local Government which could change the incentive structure
of Local Government in their employment policies.
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12. Selected Results: Indonesia
• Brodjonegoro et al. gives a rare view from the
government’s side, where the government has
anticipated the rising aspirations of Indonesian middle
class by implementing a comprehensive approach of
institutional transformations from existing fragmented
social security system. The establishment of two separate
and independent BPJS on Healthcare and Labor is the
example of such transformations.
• The government also emphasizes the importance of
accurate database for better social security spending,
where it aims to improve the Unified Database for the
poorest 40% of Indonesia population.
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13. Selected Results: Japan
• For Japan, the growth rates and the pension eligibility age were found to
be important factors in managing pension liabilities.
• Japan also aims to improve rate of return of assets in its government
pension fund as an option for increasing the fiscal space.
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14. Concluding Remarks
• This book analyzes age related pension expenditure and
finding fiscal space for four large highly-populated Asian
countries, but with uneven ageing trends.
• The lack of good quality relevant data and actuarial studies
and demographic projections, was particularly evident in the
studied countries other than Japan.
• A rich research agenda, specialized as well as interdisciplinary,
can be derived from the contents of this book.
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15. Way Forward
• It is hoped that the book will contribute to moving empirical
evidence-based and professionally-managed pension systems
to the forefront of public policy agenda in Asia.
• ERIA’s further work in social protection focuses on Social
Protection Floor (SPF) and finding fiscal pace for the
Sustainable Development Goals (SDGs) adopted in 2015. The
incoming book on SPF covering eight countries in East Asia,
along with a chapter on modelling SPF expenditure, will help
carry forward the research in this area. The Book is expected
to be published in the first half of 2017. It provides further
analyses on the Social Security System.
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