THE HAGUE, Netherlands — The high-profile battle over pension reform during the last Diet session was a rude awakening for the public, which had largely been oblivious to how precariously close the system was to collapse.
Yet many of the structural problems plaguing the pension system, including Japan’s rapidly aging society and falling birthrate, are not unique. Many developed countries face similar problems and are grappling for solutions.
The Netherlands, for example, is considering using more tax revenue to sustain its public pension program to match demographic trends. In doing so, it plans to abolish tax breaks for people who retire early.
“The general tax is also paid by people aged over (the pensionable age of) 65,” Dutch Finance Minister Gerrit Zalm said. “That makes distribution of the (pension) burden a bit more reasonable.”
The pension system in the Netherlands consists of three pillars — basic public pensions, occupational pensions and individual pensions. The first two form the core of pension support.
Under the state’s basic pension program, all residents aged between 15 and 65 are obliged to pay 17.9 percent of their annual income as premiums. The program provides all residents aged 65 and older with a flat-rate pension benefit.
In addition, many people are covered by nonmandatory occupational pensions formed through collective labor agreements between employees and employers. These pensions are based on a capital funding system, in which premiums are saved up and invested before being paid out.
“The capital funding system is a good defense against demographic changes, and the pay-as-you-go part (of the basic pension) is a good defense against changes in the capital market,” said Aart Jan De Geus, the Dutch social affairs and employment minister.
He added, however, that the rapid aging of the population is prompting the government to adopt new measures aimed at keeping the basic pension program afloat.
Still, it seems the message has yet to reach the masses.
Marie-Jose Raven, 35, who works at a museum in The Hague, believes many young people are not interested in pension issues. She is afraid the aging population will eventually lead to a hike in pension premiums.
“My mother said ‘When you are older, you may have to pay more (premiums),’ and I think this will be the case,” she said.
Peter Stein, an official at the pension policy department of the Ministry of Social Affairs and Employment, said that in 2000, the number of people aged 65 and older was 22 percent that of those aged between 20 and 64. He said the figure is expected to rise to 43 percent in 2040.
Meanwhile, benefits paid out under the basic pension program will surge to 9 percent of the country’s gross domestic product in 2040, nearly double the 4.7 percent of GDP in 2001, he said.
To relieve the strain posed by the graying population on state coffers and to ease the labor shortage, the Dutch government will encourage more senior citizens to continue working.
“At this moment, only one-third of people aged between 55 and 65 are active in the labor market,” De Geus said.
This is a result of policy measures. In the late 1970s, the Netherlands saw unemployment rise among its youth and introduced tax deductions for people who retired before age 65 to free up jobs for younger people.
With the unemployment problem having abated, it has now become necessary for more senior citizens to shoulder the costs of an aging society and remain employed. The government has thus proposed legislation that would scrap the tax breaks for early retirees, according to De Geus.
Under the proposed legislation, the government aims to have 50 percent of people between the ages 55 and 65 active in the labor market in 2010, he said.
The legislation was approved by the Cabinet on June 25 and will be discussed in the legislature this autumn, finance ministry officials said.
But Kazuhiko Nishizawa, a senior economist at Japan Research Institute Ltd., is skeptical, maintaining that tax revenue could be increased more effectively by boosting the productivity of younger workers rather than encouraging older people to continue working.
Yet Nishizawa recognizes that Japan could take a leaf out of the Dutch book in terms of ensuring that basic pension premiums are collected.
In Japan, the government has failed to collect premiums from 37 percent of the people who are obliged to join the National Pension System.
The Netherlands, however, has a system that virtually ensures that premiums are properly paid.
According to Wim Franssen, director of international affairs at the Social Insurance Bank (SVB), the public organization that handles Dutch state pensions, the premium for the basic pension is automatically deducted from a worker’s salary, together with taxes.
If a person’s wage is above a certain level, the employer is obliged to provide wage information to tax authorities, Franssen said, adding that self-employed people are obliged to pay their premiums when they pay income taxes.
Public organizations are allowed by law to exchange residents’ personal information, which helps authorities confirm whether people have paid taxes and pension premiums, he explained.
Nishizawa of Japan Research Institute said other countries, including Sweden, also deduct certain percentages of income from workers’ salaries as pension premiums.
But in Japan, the premium for the basic pension program is 13,300 yen per month regardless of income, and the payment is made on a voluntary basis.
Because of this, many low-income earners, including part-time workers and people whose employers refuse to join corporate pension programs and thus have to join the national pension program, do not pay premiums, Nishizawa explained.
“The Japanese government needs to take drastic measures to reform the (current) system of collecting a fixed premium rate, as well as the way it collects the money,” he said.
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