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In 1984, the government decided to rectify inequalities between the pension plan for company employees (kosei nenkin) and the one mainly for public servants (kyosai nenkin). Public servants are entitled to receive more benefits by paying smaller amounts of contributions than company employees.

As late as April, the government adopted a reform package. Proposals contained in the package represent just the first step toward integrating the two pension plans. But they still give advantageous treatment to public-sector workers and thus would have a hard time gaining support from the private sector.

Pension-reform bills will be submitted to the regular session of the Diet next year. Lawmakers need to delve into problems with the proposals so that inequalities are minimized.

As one of the reform pillars, the package calls for equalization of premium payments, which are now different between the two plans. Kyosai nenkin premium payments by public servants will be raised annually, starting in 2010, to a ceiling of 18.3 percent of salary in 2018. A 2004 law revision has provided an annual premium raise for kosei nenkin members to the same ceiling in 2017. Kyosai nenkin premium payments by private school teachers will also start rising in 2010, and reach a ceiling of 18.3 percent in 2027. At present, 4.68 million people are members of kyosai nenkin, while 32.12 million people belong to kosei nenkin.

The unification of premiums is a reasonable approach. But the government reform package is problematic. A proposal to continue to finance a portion of the benefits for retired public servants with tax money is likely to rouse much debate. This idea is a carry-over from the years when pensions for public servants were funded solely by tax funds, not by premium contributions.

Tax-funded pensions used to be called onkyu. There was a switch from the onkyu system to the current kyosai (mutual aid) pension plan in 1959 for central government employees and in 1962 for local government employees. Before the switch, public servants were paying 2 percent of their salaries to become eligible for onkyu benefits, which ended up larger than the accumulated payments for the entitlement.

For those who were public servants at the time of the switch, tax money was used to pay pension benefits that correspond to the years of service before the switch. The reform plan calls for a reduction in the tax-financed portion of benefits. But the amount of the reduction will not exceed 10 percent of the total pension benefits received by individual former public servants. The plan also says the reduction should not result in a total annual pension benefit amount below 2.5 million yen. It should be noted that annual benefits for kosei nenkin members average 2.01 million yen.

Former public servants who are receiving less than 2.5 million yen annually in pension benefits will not be affected by the proposed reduction. It is expected that the reduction will affect less than 900,000 people. In fiscal 2004, 1.7 trillion yen in tax money was used to pay for the tax-funded portion of benefits.

Even with the introduction of reduced tax-funded portions, it is estimated that tax money will continue to be used over the next 50 years or so. In addition, the reductions will amount to only about 6 percent of the original total estimate of 17 trillion yen for the 50-year period. This contradicts Prime Minister Junichiro Koizumi call in late 2005 to consider abolishing the use of tax money altogether for pensions of former public servants.

The reform plan touches on another benefit for former public servants, paid in addition to ordinary pension benefits. This additional benefit, which amounts to about 20,000 yen a month, has been explained as corresponding to an element of company pensions (kigyo nenkin) in the private sector. The plan calls for abolition of this additional benefit in 2010, yet former public servants who now receive it will continue getting it. The plan proposes that after the abolition of the additional benefit, a scheme similar to a company pension be established. That would allow use of money from kyosai nenkin’s pension reserve. Many company pension plans operate by using part of the retirement allowances. Care should be taken so that the new plan for public servants does not become a new source of inequality.

The reform plan does not touch on the question of how to integrate the kokumin nenkin pension system for self-employed people with the kosei and kyosai nenkin systems. Nor does it deal with the current situation in which many kokumin nenkin members refuse to pay premiums. Diet members need to discuss the reform plan on the basis of the principle of the same premium and benefits for the same salary.

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