Posts Tagged ‘moral hazard’

Is the pension waiver for full-time housewives unfair?

Friday, March 4th, 2011

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.

Where the deal goes down

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.

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