Editorials

Expanding employee pension coverage

A key part of public pension reforms being weighed by the government concerns expanding the coverage of the employee pension system so more workers in irregular jobs such as part-timers can join. Widening the coverage by requiring more companies to have their part-time employees participate will not only add to the benefits those workers receive in retirement but shore up pension finances by increasing the number of participants in the program.

Such a measure will be necessary as the pension payout level is set to decline sharply in real value due to the rapidly aging and declining population. Major reform has been shelved for years due to objections from the business sector, especially small and medium-size companies that fear the financial burden of paying for workers’ pension premiums. But it is important to set the stage for substantially expanding the coverage of employee pensions to prevent future increases in retirees in dire economic straits with only meager benefits.

Popular interest in — and concern over — the public pension system surged after the Financial Services Agency, in a report compiled before the Upper House election in July, cautioned that a model household consisting of a retired couple that relies on pensions for income will fall short by ¥20 million of the amount needed to cover their expenses to the age of 95.

The government’s latest review of public pension finances, released at the end of August, underlined the bleak reality of the pension system: The payout level will decline 20 percent in real value over roughly the next 30 years. In the nation’s pay-as-you-go pension system, in which the costs of benefits to retirees are covered by the premiums of the working-age population, curbing the level of payouts to future retirees will be inevitable as the working population shrinks and the elderly ranks expand.

The decline will be even steeper for self-employed workers and part-time workers who only subscribe to the mandatory national pension program, which constitutes the basic portion of the pension system. Concern has been growing that workers who cannot join the employee pension due to their irregular job status will face economic difficulties in retirement because they get only low pension payouts and will seek welfare support in large numbers.

Subscribers to the national pension program will receive payouts in retirement as long as they have paid premiums for at least 10 years. However, they get only up to some ¥65,000 a month even if they have paid into the system for the full 40 years — and the payouts will be even lower if they paid the premiums for shorter periods of time. They will get additional payouts if they can join the employee pension system.

The employee pension program was originally designed for full-time regular company employees. But the scope of workers eligible to join has been expanded over the years as people with irregular jobs have increased and now account for roughly 40 percent of the nation’s workforce. Today people who work at least 20 hours at a week for a company with more than 500 employees and earn at least ¥88,000 a month are eligible to join the employee pension program. However, discussions have been held as to whether the requirement on the scale of the company’s workforce should be eliminated because it would be irrational to treat employees differently in terms of pension coverage due to the size of their companies.

If the requirement on the size of companies is eliminated, it’s estimated that 1.25 million workers will become eligible to join the employee pension program. If the conditions are eased from “more than 500 employees” to “more than 50 employees,” that number will drop to 650,000. Under that condition, business sectors that use large numbers of part-time workers will pay nearly ¥160 billion more for the pension premiums of the workers (each worker’s premium payment is split between the employer and employee). To ease business opposition, the government is reportedly weighing a gradual relaxation to the “more than 50 employees” requirement by 2024.

Aside from widening the coverage of employee pensions to irregular workers, the government needs to crack down on employers who evade their responsibility to have workers who qualify join the employee pension program in an attempt to cut costs. The government believes that some 400,000 businesses across the country intentionally fail to have their workers subscribe to the employee pension program and, as a result, an estimated 1.5 million workers who qualify for it have been left out. It needs to tighten its supervision over such employers to make sure their workers will be adequately covered by the pension program to which they’re entitled.