The Japanese public has expressed anger over the fact that members of the Diet are entitled to such fat pensions. In response, a parliamentary panel has recommended that there be at least a 70-percent increase in premiums and a 30-percent cut in payouts. These proposals probably will take effect in fiscal 2006 if related legislation is approved during the current regular session.
These changes, however, are not likely to win popular support because Diet members’ pensions will still seem relatively large. After paying premiums for just 12 years, a legislator can get almost as much as a retired top bureaucrat. A better solution would be to scrap the current pension plan and introduce a new system of retirement allowances.
Under the current system, Diet members who have served for 10 years are guaranteed a retirement pension of at least 4.12 million yen a year. Payouts increase by 80,000 yen for each additional year of service. In fiscal 2003, retired members of the Lower House received about 5.02 million yen on average (from 4.2 million yen to 7.42 million yen). Those who subscribe to other public pension plans, such as the national pension fund, are entitled to additional payments.
By contrast, old-age pensions for corporate employees amount to approximately 1.2 million yen a year for the “standard couple” — consisting of a retiree who has paid premiums for 40 years and a full-time housewife. If “basic pensions” for the couple are added, the total comes to about 2.8 million yen. The average payout is a little more than 2 million yen.
There are two reasons why Diet members are eligible for such large pensions: High premiums are collected (103,000 yen a month from regular allowances and slightly less than 30,000 yen from yearend bonuses), and nearly 73 percent of these premiums are actually paid by the state.
With corporate employees, taxpayer money is not used for old-age pensions, and it funds only one-third of basic pensions. No wonder many people are angry. They know that legislators have increased state subsidies for their own benefit.
The panel — which reports to the speaker of the Lower House and the president of the Upper House — calls for (1) abolishing the present mutual-aid pension plan, (2) creating a new pension plan and (3) integrating the new plan with the public pension system.
The panel says the “legal grounds for the present plan are vague” and that “its costs and benefits are unbalanced.” The Diet Law provides for retirement allowances, but makes no reference to pensions, which are regarded as de facto retirement bonuses. A new pension plan is needed, the panel says, so that it can be eventually integrated with the public pension system. The proposed plan, though, is flawed as it looks more like a rehash of the existing plan.
The panel calculates that premiums should be raised by 74 percent and payouts reduced by 33 percent. The minimum length of service required for pension eligibility would be extended from 10 to 12 years, and the rate at which payouts increase with each additional year of service lowered. As a result, the share of state subsidization would drop to about 50 percent. Premiums would rise by 933,000 yen to 2,199,000 yen a year. Pensions for legislators with 12 years of service would fall to 2,884,000 yen.
In the public eye, even this reduced level of benefits may be too high, although the panel maintains that “Diet members deserve certain privileges and appropriate treatment in light of their high responsibilities as well as their uncertain status (possibility of losing the next election).”
Currently Diet members receive more than 20 million yen a year in regular allowances — a sum equivalent to about two times the annual salary of their counterparts in Britain, Germany or France. Considering the sorry state of public finances in Japan, there is no convincing reason why they should receive such large, state-subsidized pensions.
A pension system is a kind of insurance to the extent that its sustainability depends on a balance of costs and benefits. In this sense, it would be impracticable for the 722 legislators in both houses of the Diet to support 946 pensioners (retired legislators and bereaved spouses). Therefore, the proposed plan, like the one now in place, seems untenable as a pension scheme, and so does the idea of integrating it with the public pension system.
Any pension plan that imposes a heavier burden on taxpayers is doomed to failure. The sooner it is abolished, the better. Public support will be easier to gain if the panel presents a retirement bonus plan linked to legislators’ responsibilities and experience.
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