Japan’s pension problem

In its manifesto for the 2009 Lower House election, the Democratic Party of Japan proposed introducing a minimum monthly pension of ¥70,000 or more. In their recent outline for tax and social welfare reforms, the government and the party only stated that they will submit a proposal for a minimum pension of about ¥70,000 to the Diet in 2013. They should make serious efforts to flesh out their proposal, which lacks concrete details.

The 2009 manifesto called for unifying existing pension schemes and having all people participate in the same pension scheme. Everyone would be entitled to a minimum monthly pension of ¥70,000 or more, which would be funded by the consumption tax. People would pay premiums based on their income, and those who have paid greater amounts would receive proportionally more than the minimum pension. The institutionalization of this scheme would help stabilize the lives of those who receive no pension or less than ¥70,000 a month.

To bridge the gap until the proposed pension scheme comes into being, the government and the DPJ should devise a system under which tax money will be used to supplement the income of people who have no pension or whose pension is less than ¥70,000 a month so that they will receive ¥70,000 a month. But the government and DPJ have not yet decided what form a provisional system would take — including who should be covered by the system, how to fund the system and how to deal with the livelihood protection system, the last safety net for people without income.

The government and the DPJ must do their utmost efforts to introduce a simplified and transparent pension scheme whose workings are easy to understand. For laymen, the current pension schemes and the calculation of pension benefits are so complex that they constitute a puzzle.

The government and the DPJ must realize that this is one of the major factors that have contributed to the erosion of public trust in the pension system. They should not forget the long-term goal while they work to resolve short-term issues such as expanding pension coverage for irregular workers, shortening the minimum period of premium payments to be eligible for pensions and funding half of the basic pension benefits through tax money.