When a Lower House committee voted late in November in an attempt to enact a bill to reform the nation’s pension system, many Japanese must have been pained to see politicians play games with a national issue that will affect the livelihood of almost every one of us in our old age. The bill passed the Lower House on Tuesday, but there is no prospect that it will be acted upon by the Upper House during the current Diet session that ends Dec. 15. Fortunately, no change is preferable to hasty change for the worse.
As more people reach the age at which they will receive pensions in a low-growth economy, the state pension fund will go broke unless more money is collected from a dwindling working population or benefits are reduced. The latter can be achieved by pushing up the minimum pensionable age, slashing the pension amount, or a combination of the two. None of these choices is painless. A responsible government must, therefore, do everything possible to minimize pain. Failing that, it must, when necessary, share it equitably among all the population.
The government’s proposed legislation has three salient features. First, starting in fiscal 2000, it will reduce payments by 5 percent starting in the salary-linked portion of the “kosei nenkin” pension scheme, and freeze “salary-indexed” payments. Second, starting in 2013 and continuing over a 25-year period, it will gradually push the minimum pensionable age from 60 to 65, and institute an old-age pension scheme for working pensioners aged 65-69 that would involve a cut in pension payments if nonpension income exceeds a certain level. Third, it will raise the state contribution to the national “kokumin kiso nenkin” pension fund from one-third to one-half of the premium. The last offer comes with a big proviso: The government would only raise the share of the state contribution if “stable sources of revenues are secured by 2004.” As a palliative for this bitter medicine, the government has decided to suspend its plan to raise the premiums for the salaried pension scheme that had been scheduled to kick in this year.
The message from all this government scheming is clear: The state of pension finance is bad and the government will not raise pension premiums if the public will accept reduced benefits and a raise in the minimum pensionable age. According to the Health and Welfare Ministry, the pension reform legislation will supposedly hold down the premium of pension payments as a proportion of salary from an estimated 34.5 percent to 25.2 percent by 2025, the year when the number of pensioners in Japan as a share of overall population will be at its highest.
In a rapidly aging society, where longevity goes hand in hand with a small family, there is no way to avoid ever-increasing medical and pension premium bills. The public is well aware of this fact, and survey after survey has indicated that a majority of the public accepts the extra burden as inevitable. Therefore, nobody will quarrel with legislation to rein in future pension outlays. The details make everyone squirm.
Among the more pertinent questions are: Why impose a uniform 5 percent cut? Why push the minimum pensionable age to a uniform 65? Are these the only viable options? Isn’t there room for greater flexibility that takes into account the varied income levels and working age of our largely salaried society?
As matters stand, the government has not looked into the issue of social equity in pension income, nor has it addressed the larger issue of corporate retirement practices. Clearly, an enlightened pension-reform system should include a review of the corporate taxation system, and give tax incentives to businesses that extend the working life of their employees. Simply raising the minimum pensionable age without considering such options leaves a big hole in the government reform plan. It is obvious that we cannot change demographic facts — there will be proportionally fewer younger people in an aging society. But it is nonsense to accept the static view that the paying pool of the working population, i.e., pension contributors, will inevitably shrink
As medicine and a better living environment have extended human lives, enlightened government policy could turn that longevity into an extended productive life. Patchwork legislation will only lead to makeshift solutions. Without a comprehensive review of the retirement-pension system, we face the prospect of politicians and bureaucrats coming back to us, say, in five years and tell us that the pension fund is running short of money and we need to cut pension benefits once more.
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