Pension reform proposals put forward by the Democratic Party of Japan set the stage for a political showdown with the ruling bloc over what figures to be a key issue in the House of Councilors election in July.
According to the health ministry, Japan today has more than 30 million pensioners.
“They’re highly interested in the pension reform issue” even though it is in fact the younger generations who will be most affected by the fate of the public pension program, a senior government official said.
The official pointed out that only 54 million voted in the last Upper House election in 2001, out of 101.3 million eligible voters. If the pension issue draws people into the voting booth, it could be a major factor in the survival of Prime Minister Junichiro Koizumi’s ruling alliance.
But voters may find it difficult to see which of the two plans — the DPJ’s and that already put forward by the government — would better serve the nation’s financially pinched pension system in the long run.
Experts say the government’s plan does not correct the structural imbalance between pension premiums and benefits among people on different occupations. The DPJ’s plan meanwhile has been hit for its lack of a clear strategy on how to defy voters and curb the snowballing cost of benefits to pensioners.
“The government’s scheme does not touch on the structural problems of the current system but is intended to downsize the pension system,” said Kazuhiko Nishizawa, a senior economist at Japan Research Institute Ltd.
Indeed, all the government’s reform plan would do is raise premiums while cutting benefits every year through 2017. For salaried workers, the premium would eventually be raised to 18.3 percent of annual income from the current 13.58 percent.
By setting the future levels of premiums and benefits in advance, the government plan would help dispel political pressure to curry favor with voters, Nishizawa said, adding that this is critical as the nation tries to cope with the rapid aging of the population.
But the government plan would not help stop the hollowing out of the public pension system, said Nishizawa, echoing opinions of many other experts.
Today, an increasing number of self-employed people are refusing to pay premiums, but salaried workers and public servants have no escape because their premiums are automatically deducted from their wages.
As many as 40 percent of self-employed workers and students who are obliged by law to pay the premiums have refused to do so, endangering the future of what is supposed to be a mandatory pension system covering all residents of Japan.
The DPJ plan would counter this problem by integrating the separate public pension systems for self-employed people, salaried workers and public servants. The new unified income-proportional pension would also help ease the imbalance among people in different occupations.
In addition, the base part of the income-linked pension is to be financed entirely by taxes to support people with lower incomes, while benefits from tax money for people with high incomes would be accordingly reduced to have them shoulder a proportionally higher burden.
The government’s plan meanwhile promises to raise its share of the burden for the current basic pension to half from one-third, but the money would be used equally for all pensioners regardless of income.
Nishizawa said the DPJ’s plan makes sense in terms of the way the tax money would be used.
As for the DPJ proposal to integrate the three pension systems, even some lawmakers in the ruling bloc acknowledge its necessity.
“As a concept, I think it’s worth considering in the future,” said Yoshinori Ono, who chairs a special ruling-alliance policy committee on the pension reform issue.
But Ono said that more specific data are needed before discussing integration of the three pension systems, because otherwise any reform plan would not ease the anxiety of pensioners and premium-payers.
Ono pointed out that there are a number of hurdles to overcome in integrating the three pension systems, including difficulty in figuring the real income of self-employed workers, which would become necessary to determine their premium and benefit levels.
“You would have to determine the incomes of self-employed people whose income is below the lowest taxable limit” and thus are not known by tax authorities, Ono said.
In addition, unlike salaried workers whose taxes are automatically deducted from their wages, self-employed people make their own income declarations, which leaves room for tax evasion.
Nishizawa also pointed out that the DPJ’s proposal still lacks specific details on implementation.
“The DPJ’s plan would handle and solve some structural problems, but it does not provide a clear road map for building a whole (new) system,” he said.