Ministry’s Pension Reform Proposal

17 November 2003

Tadayoshi KUSANO
General Secretary

  1. Ministry of Health, Labour and Welfare (MHLW) announced today a proposal to reform the existing pension system. However, the proposal postpones dealing with a question of a tax-based pension system as a fundamental measure to tackle the hollowing of the existing system, saying that it requires “long-term discussion’, and does not indicate when the government’s share of basic pension contributions would be expanded to one-half from one-third at present. As regards benefit and burden, the Ministry plans to raise the premium rate to 20 percent and cut benefit levels to 50% at maximum from the current 59 percent of an employee’s averaged pre-retirement salary. These changes would only increase the public’s burden and the pertaining distrust to the system, but would not be a solution to Japan’s underfunded public pension system.

  2. The proposal incorporates part of Rengo’s recommendations, such as: expanding pension coverage by including short-term workers in the employee pension programme; abolishing the rule to cut 20% across the board the pension for working aged people; strengthening support to young generation and child-rearing; re-examining the survivors’ pension system; and improving the personal pension information system (e.g. a point system). However, a crucial question of the reserves is not well examined. The responsibility for and the investment of the reserves remain unclear. The proposal suggests that ‘an independent third party’ as an investment agency require a further study. On the other hand, it is proposed to consolidate the Class 3 insured by expanding coverage of the employees’ pension. A division of pension between wives and husbands, as well as a division of employees’ pension at a divorce, was also proposed.

  3. The Ministry’s reform plan provides a basis for a government blueprint to be completed in late December through debate at the Council on Economic and Fiscal Policy and adjustments among ruling parties. Relevant bills will be presented to the Diet at the ordinary session in next January. However, the Ministry’s proposal would hurt the nation’s economy and go against actual feeling of the people. While the timing of the increase of the government’s share to one-half is unclear, premium freeze would be lifted and annually raised. Benefits would be lowered uniformly for all including low income pensions like those having worked for small and medium-sized enterprises. The introduction of a defined-contribution plan would not solve the underfunded pension system facing a collapse. Rengo has proposed in order to solve the hollowing out of the pension system that the basic pension contributions be funded by taxes so that the employees’ pension system would be sustained with pension premiums of 15 percent.

  4. Rengo, with a view to building a reliable, sustainable pension system, would propose the following recommendations to be incorporated the government blueprint:
    - To increase the government’s share of basic-pension contributions to one-half at the earliest date;
    - To shift the basic pension plan to a tax-based system;
    - To take necessary measures to maintain current benefit level;
    - To expand coverage of the employees’ pension plan by including part-time workers and unemployed persons.

    To this end, Rengo will work for a pension reform that could be a national discussion on the basis of a wider discussion through workplace- and community-based activities, including the ‘pension reform’ rally on 5 December.