Posts Tagged ‘retirement’

Government’s new scheme to bolster social security is still hopeless

Monday, March 10th, 2014

This document was sent out several years ago after the government discovered that it had lost the pension payment records of 50 million people. The document would be used to help locate those records. The program was expensive, but very few people responded.

This document was sent out several years ago after the government discovered that it had lost the pension payment records of 50 million people. The document would be used to help locate those records. The program was expensive, but very few people responded.

The Ministry of Health, Labor and Welfare has announced that starting in April it will “take action” to increase the “collection rate” of national pension premiums, specifically those for kokumin nenkin, the obligatory pension plan for the self-employed and those who otherwise don’t belong to the company-supported kosei nenkin pension system. According to Tokyo Shimbun the idea is to send warning letters to individuals whose incomes are more than ¥4 million and who haven’t contributed for at least 13 consecutive months.

Presumably, the next step will be for the ministry to start siezing assets. The initial criteria would target approximately 140,000 pension scofflaws. Eventually, however, they will go after everyone who hasn’t paid, and since it is estimated that close to 3 million people who should be paying into the system haven’t been for at least 24 months, the job seems daunting if not impossible.

There are many reasons for this delinquency, but the main one has to do with the system itself. Basic pensions apply not only to the self-employed, but anyone who is employed part-time or on a contract basis, meaning their employers don’t pay into the kosei nenkin system. It also includes the unemployed, because according to the law every adult who lives in Japan must belong to the system, whether they work or not. And the premiums are the same, regardless of income or lack thereof: right now ¥15,250 a month (it goes up gradually every year).

The ministry assumes that about 90,000 people who should be “members” are not, and that number is probably higher, but in any case, excluding those who are exempt from paying (very poor, disabled, etc.), the rate of payment into the kokumin nenkin fund was only 59 percent as of 2012, and that portion continues to decline.

In a 2011 government survey, the number one demographic of delinquents was the unemployed, which is easy to understand. However, 28 percent of delinquent payers had part-time jobs, and they said they didn’t make enough to pay. Moreover, 22 percent of the so-called deadbeats were self-employed or working in their families’ businesses. Overall, 74 percent of those who said they couldn’t pay gave their reason as “can’t afford the premiums.” The percentage is increasing because the number of non-regular employees is also increasing.

But the government says that 10.5 percent of households whose income exceeds ¥10 million have also failed to pay their fair share, and it’s these people they are citing first. After that, 17 percent of households with incomes of between ¥5 and ¥10 million are delinquent. Both of these seemingly solvent income brackets say in surveys that they, too, cannot afford the premiums due to “financial difficulties,” but there is also a considerable number who refuse to pay simply because they “don’t trust the system.”

The pension system’s fairness has always been a point of contention. As it stands, if a person pays his fair share for 40 years, the maximum monthly payment he receives at 65 will be ¥66,000, which is not enough to live off of. The main concept behind kokumin nenkin when it was first devised was that the self-employed would still have income from their businesses or the sale of their businesses when they retired. Not only is that not necessarily true, but the bulk of basic pension members are non-regular employees who have nothing else to fall back on when they retire, unless they’ve saved and invested, which is unlikely.

Also, everyone in Japan must also pay into the national health insurance plan, which for most people takes priority since anyone can get sick at any time, but you only retire when you get old. Then there are people with some money who have bought life insurance annuity plans that give them some income when they retire. They may not see the point in paying double for a pension, so they don’t bother paying nenkin.

But the most discouraging aspect of the system is that in order to receive even the minimum payment at retirement, which is less than ¥30,000 a month, you have to pay into the system for at least 25 years. Regardless of one’s mathematical skills, it doesn’t take much calculating to understand that paying ¥15,000 a month for 25 years for a pension that will be so low one will have to apply for supplemental welfare (which is increasingly the case) is not worth it.

What’s particularly maddening about the government’s refusal to acknowledge reality is that it continues to throw money at the problem. Tokyo Shimbun estimates that for every ¥100 that the ministry will collect with its new hardline policy starting in April, it will spend ¥90. In real terms, the ministry has budgeted ¥5.3 billion for “forced collections.” Also, according to the law, it can only make delinquents pay up to two years retroactively, and if the individual has been delinquent for much longer than that the individual may wonder, “What’s the point?,” since he can only receive a pension if he’s paid for a full 25 years.

There is no sense to the system, especially when you consider that the Democratic Party of Japan wanted to change it to something more rational, and made the Liberal Democratic Party promise to revise the system when it gave up the reins of government in December 2012. Since then the LDP has done nothing, because it believes that any change would be unfair to the people who have paid into the system properly all along. Famous last words.

Boomer boom: Businesses tapping consumption where they can find it

Friday, July 20th, 2012

It’s 10 a.m. Do you know where your grandmother is?

In July, the Bank of Japan released the results of its quarterly tankan survey of business sentiment for April-June. The most notable, and hardly surprising, result was the drop in confidence among major manufacturers. Less was said about the fact that domestic demand and individual consumption appear to be stabilizing. The numbers get even more encouraging when you look at specific industries.

In the tankan, an index of “0″ means no change in sentiment, with minus numbers indicating a loss of confidence and positive numbers a gain in confidence. The index for hotels and restaurants was +3, the first positive rise in five years, and a substantial one. Even more impressive was the index for “individual services,” such as travel agents, a category launched in 2004. The most recent tankan showed an index of +25. These numbers are at once heartening and baffling. Average income did not rise during the same period, which means consumption shouldn’t have risen, so why the increase in confidence?

The report’s authors credit these hopeful signs to people over 60, and smaller businesses’ resourcefulness in tapping this demographic. A recent article in Tokyo Shimbun profiled an izakaya (drinking establishment) chain called Hokkaido, which has an outlet in Kokubunji, Tokyo, that offers a special hiru enkai (daytime party) plan: If each member of a party orders at least ¥3,500 in dishes, then the party can drink as much as they like without paying extra.

Continue reading about senior citizen consumers →

Future of Japanese pension system as cloudy as ever

Friday, January 21st, 2011

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.

Spend it if you got it: pension passbook

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.

Continue reading about the Japanese pension system →

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