Reform must be expedited to minimize declines in pension benefit levels expected in the future, with the aim of enhancing the sustainability of the nation’s social security system.
An advisory council of the Health, Labor and Welfare Ministry has worked out a report explaining specifics concerning the government-envisaged pension system reform.
The report centers on steps to adjust benefit levels, the future effects of which were confirmed in pension finance studies the government announced in June last year, including measures to beef up arrangements to rein in pension benefit payments.
To ensure the stability of the finances of the government-run pension system, what is referred to as “automatic adjustment of benefits based on macroeconomic indexation” has been introduced to the current social security system for the purpose of lowering benefit levels automatically in accordance with the rates of declines in the birthrate and increases in the number of the elderly. This is aimed at curbing benefit payments by making increases in pension benefits fall below rises in such yardsticks as per-capita wage growth and price rises.
The problem is that the implementation of this mechanism has been limited at a time of deflation, in which prices and wages decline, and when their growth rates are significantly low. The limitations were aimed at protecting the living conditions of the elderly, but they have resulted in delays in curbing benefit payments.
If the current high average pension benefits for the elderly are left unchanged, funds for financing pension payments for the future generations are bound to shrink, a situation that would make it inevitable to slash benefit levels. The current benefit payment system should be reviewed for thorough implementation of the indexation formula.
The latest report rightly pointed out the need for “best possible efforts to prevent the indexation formula from being postponed” in order to curb benefit payments. This will likely bring adverse reactions from the elderly, while some in the ruling camp are wary of cutting back on the benefits, but the task of reviewing the benefit payment system cannot be left unaddressed if pension funds for future generations are to be secured.
Bigger burden, fatter benefits
The report has also noted the need to encourage non-regular employees to seek coverage by the kosei nenkin company workers’ pension plan.
The current kosei nenkin plan has been focusing on regular employees. Part-timers and other non-regular employees have mostly been excluded from corporate pension plan coverage. Non-regular employees qualify to receive only a basic pension in their old age, which is around a maximum of ¥60,000 per month. With non-regular workers continuing to increase, there are fears the number of low-benefit people will swell in the future.
Effective from October 2016, coverage by kosei nenkin is to be expanded to include “employees working 20 hours or more a week” from the current “30 hours or more.” Because of opposition from the distribution industry sector, in which many non-regular workers are employed, the number of people to be covered under the new requirements is estimated at no more than 250,000, as a number of conditions such as non-regular workers’ monthly income and the scale of the company they work for have been included in eligibility.
Boosting pension benefits for non-regular workers is urgently needed, and expansion of coverage for the kosei nenkin plan is indispensable. This task must be carried forward steadily while paying due attention to business conditions of small and medium-size businesses.
Regarding the duration of basic pension premium payments, the report said the idea of extending the current payment period of 40 years to 45 years for full pension qualification should be considered “a matter of course” in light of rises in life expectancy. The higher the burden of premium payments, the larger the pension benefits.
In a hyper-aging society, it is imperative that an increasing number of people work as long as possible to prop up society, the national economy and the social security system. Doing so, they will be able to help improve pension benefits for future generations.
The problem, however, is how to secure funding sources: Half of basic pension benefits are funded by tax revenues. Discussions should therefore be conducted about not only the need to implement the hike in the consumption tax rate to 10 percent without fail, but also the need to increase the burden further even after the consumption tax hike.
(From The Yomiuri Shimbun, Jan. 25, 2015)
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