Future of Japanese pension system as cloudy as ever
One of the original planks in the Democratic Party of Japan’s 2009 platform, or manifesto as it’s normally called, was an overhaul of social security. Acknowledging that the national pension system was irreparably broken, the DPJ proposed tossing the old pay-as-you-go “insurance” model and replacing it with a system that paid benefits completely out of tax revenues. Upon retirement, every qualified person would receive ¥70,000 a month until they died.
With Kaoru Yosano assuming the position of fiscal and economic policy minister in the newly reshuffled cabinet, that proposal is all but doomed. Yosano, who is against ditching the premium system, filled a similar cabinet position under the last Liberal Democratic Party prime minister, Taro Aso, so it’s not likely he’s going to change his mind even while toiling for the DPJ. In fact, Prime Minister Naoto Kan implied only a few days ago that the social security plan in the manifesto is not realistic.
What he means is that it’s not realistic politically. Practically speaking, it’s certainly more realistic than the present system, which the welfare ministry favors because they think it’s more clearly ethical when it’s really anything but. To receive benefits after retirement, one has to pay into the system at least for 25 years. If you pay for only 24 years and 11 months, you get the same benefits as someone who paid nothing: ¥0. (In comparison, in order to qualify for minimum social security in the U.S., you have to pay SS tax for at least 40 quarters, or ten years)
Rather than overhaul a failed system, the welfare ministry continues to tweak it. Two weeks ago the government approved an ¥80 decrease in the monthly premiums people pay into the basic national pension (kokumin hoken), from ¥15,100 to ¥15,020. Though the drop seems hardly significant, the news of the drop is, since it is the first time since the social security system was launched in 1961 that premiums have been reduced. The reason for the cut is downward pressure on wages caused by deflation.
The basic pension premium is fixed, meaning that everyone over the age of 19 is expected to pay it. Salaried employees whose companies belong to the kosei nenkin system or public servants who belong to the kyosai nenkin system split their contributions, which incorporate the basic pension premiums, with their employers. When they retire they receive larger benefits than do people who only pay into the kokumin nenkin system. When the system was started, basic kokumin nenkin was deemed to be for the self-employed, who the government felt didn’t need as much social security as company employees because the self-employed worked until they died. Or, at least, that was the assumption in 1961.
But the labor landscape has changed greatly since then. More than one-third of all wage-earners are not regular employees, meaning they have to cover their basic pension payments themselves, a little more than ¥15,000 a month regardless of their income. In 2008, 23.3 percent of all wage-earners made less than ¥2 million a year, but they were still expected to reserve about ¥180,000 of that amount for pension premiums. Needless to say many of them couldn’t, and didn’t — an estimated 40 percent in 2009, as a matter of fact. And as with many social programs, the national pension system was designed with families in mind. That’s why full-time housewives of salaried employees are exempted from having to pay premiums if they earn less than ¥1.3 million a year but nevertheless can receive basic benefits at retirement age. One can argue about the “ethics” or “practicality” of this particular condition in the present economic climate, especially since wives of the self-employed are not exempted from paying premiums.
Even if a person pays his basic premiums for 40 years, the most he can receive in retirement benefits is ¥792,100 a year, half of which is covered by tax revenues anyway. So ¥70,000 a month seems a fair tradeoff. (For the record, the average monthly payment in 2008 for the basic pension was ¥49,000) It’s certainly better than nothing, which is what an increasing number of seniors are going to end up with. More than 20 percent of people currently receiving welfare assistance are over 65, meaning they don’t receive any social security, either because they didn’t pay into the system long enough . . . or because the government lost their records.