Is the pension waiver for full-time housewives unfair?
Earlier this week the government announced that it will probably submit a bill to the Diet that will allow full-time housewives who did not pay all their pension premiums in the past to receive benefits if they pay some of their premiums retroactively. Originally, the welfare ministry had issued a directive in January to allow this waiver. That plan came under fire from the opposition Liberal Democratic Party, who said that such a matter should be debated by lawmakers and that the waiver is basically unfair. The ministry subsequently suspended the waiver.
This is what is called a “moral hazard,” a term that is used frequently when Japan’s pension system is discussed. Ever since it was discovered that the government had lost or incorrectly filed thousands of pension payment records, there have been many people in the government who advocate scrapping the complicated premium system. They believe it is better to simply pay pensions out of revenues collected through a higher consumption tax. Others complain that this is morally wrong, not so much because it would punish those who have paid into the system properly all along, but rather because it rewards those who have not paid into the system correctly all along.
The housewife issue is even more convoluted. There are three types of beneficiaries in the Japanese public pension system. Type 1 includes the self-employed, part-time workers and the unemployed, who are required to pay a set premium of ¥15,100 a month on their own. Type 2 includes full-time regular employees of private companies and public organizations, who split contributions to their pensions with their employers. Type 3 includes non-earning spouses of Type 2 beneficiaries (technically, “non-earning” means the spouse does not make more than ¥1.3 million a year). Type 3 do not have to pay premiums but nevertheless receive benefits when they reach a certain age. Spouses of Type 1 beneficiares do not have the same advantage, since they, too, are classified as Type 1 beneficiaries and thus have to pay their own premiums whether they work outside the home or are full-time housewives.
The welfare ministry issued the waiver in January because it was discovered in December 2009 that approximately 1 million housewives over the past decade or more had their beneficiary designation switched from Type 3 to Type 1 after their husbands’ work situation changed because they were laid off or their companies switched them to part-timers or contractors. Consequently, their wives became Type 1, too, and had to start paying premiums on their own. However, many weren’t informed of this change by the relevant government bureaus and thus didn’t know that they had to pay. Since an individual has to pay into the pension system for at least 25 years to receive any benefits, many of these wives were at risk of losing their entire pensions.
The welfare ministry’s original directive let them catch up by paying only two years’ worth, since the law limits retroactive pension payments to two years. The moral hazard, according to the LDP, is that these wives get full benefits even though they didn’t pay their full share. Before the ministry withdrew the waiver about 2,300 housewives had already applied for it. The waiver will now be submitted as a bill to the Diet, with the understanding that the main topic of debate will be how far back the housewives will have to pay to regain their pension benefits. If it’s longer than two years, then the basic pension law will have to be revised.
The moral hazard argument might make sense if you compared the housewives who are the subjects of the waiver to those who were Type 1 all along, since the latter theoretically always paid their own way. However, it makes no sense to compare them to Type 3 housewives, who, after all, have paid absolutely nothing. In the realm of moral hazards, isn’t Type 3 even more unfair? Of course, it is the LDP who is responsible for the pension mess, and the housewives who will have to pay retroactively to regain their benefits would be justified in thinking the LDP betrayed them when they lost their Type 3 status and nobody told them.