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There is widespread concern among Japanese that the nation’s pension system is in disarray. The biggest issue is the decline in the rate of premium payers. In fiscal 2003, as many as 36.6 percent of the people registered in the kokumin nenkin (people’s pension) system, a plan intended mainly for self-employed people but that also serves as the funding base for all types of pensions, were not paying their monthly dues.

Another issue is declining public trust in the system as a result of the Social Insurance Agency’s questionable appropriation of premiums paid in. A portion of such money has found its way into the construction of unnecessary, large-scale health and leisure facilities in various parts of the country, housing repairs for agency officials, compensation of officials’ health-check costs, and even the purchase of official-use cars and golf balls for higher-ranking officials of the agency.

An advisory committee to the chief Cabinet secretary recently proposed revamping the Social Insurance Agency, which has been the target of criticism for its misconduct. The proposal may be one step forward, but it does not necessarily get to the crux of the matter.

Under the proposal, operation of the agency would be divided in two. Public pension operations would be separated from the government-administered health insurance scheme for employees of small-scale business enterprises.

Although some members of the ruling Liberal Democratic Party have called for establishing an “incorporated administrative agency” — similar to a commercial firm — to manage pension operations, the expert committee decided that the government should have a direct hand in any new entity set up for pension operations. Its reasoning was that, to fulfill the responsibility of running a pension system that will be indispensable for many citizens’ postretirement life, direct involvement by the government is necessary.

As for the health insurance operation, an idea has been floated under which the operation would be reorganized prefecture by prefecture and public corporate bodies — similar to the health insurance associations for salaried workers of larger firms — would take charge.

There are several other points in the reform proposal: The head of the new pension entity as well as outside experts would form the highest decision-making body for working out each year’s pension operations, while representatives of pensioners and people and firms paying pension premiums would make up a council whose opinions would be reflected in the discussions of the highest decision-making body. An outside expert would be appointed as special inspector who would oversee the new entity’s accounting, operations, and handling of private information.

The government is expected to send bills related to the reform proposals to an ordinary session of the Diet next year. At this stage, the name and organizational structure of the new pension entities have not yet been decided. The new entities, including the one for health insurance, are expected to begin operating in the fall 2008.

Although the proposal has been laid down, real discussion on reforms has yet to start. Reorganizing the Social Insurance Agency will not be enough to dispel people’s distrust of the pension system. Because the premium-paying rate for the kokumin nenkin system is so low, it is impossible for the system to pay out pension benefits to recipients without financial assistance from kosei nenkin (pension fund for salaried workers of large firms) and other plans.

Since the weak finances of the kokumin nenkin scheme is causing the most anxiety among people, future discussion cannot avoid the issue of how to raise the low premium-paying rate. In that discussion, the nation’s larger economic picture must be reckoned with.

Self-employed people, who used to form the core membership of kokumin nenkin, now account for less than a quarter of all members. Even though business conditions in Japan appear to be picking up, low-income people such as part-time workers and the jobless are flowing into the kokumin nenkin system, leading to further deterioration of the financial base.

As for the questionable use of kokumin nenkin premiums, it must be pointed out that such monetary diversions were based on budget-related laws supported by the ruling parties and were not illegal. Simplifying and making transparent pension-related accounts are among the measures that must be taken. Officials of the Social Insurance Agency have been criticized for their low efficiency, and for a lack of awareness that they are supposed to serve the people. The reform proposal is vague and short on concrete measures needed to change a lackluster performance.

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