Don’t look away from the harsh reality of the need for reform

Trust in the pension system, which supports the lives of the elderly, must not be shaken. The government and the ruling and opposition parties should face up to the challenges and actively discuss the direction of the reform of the pension system.

Discussions on the 2025 pension system reform have begun at the Social Security Council of the Health, Labor and Welfare Ministry. The system is reviewed based on an examination of the fiscal conditions of the pension system that takes place once every five years.

One of the points of contention at the council is whether to extend the contribution period for the national pension program by five years from the current 40 years.

The public pension system is a two-tiered scheme comprising the national pension program, which includes people aged 20-59, and the employee pension program, which includes company workers and other employees. Currently, the full monthly benefit for a person who has paid into the national pension program, which covers self-employed people and non-regular workers, is about ¥65,000. The figure is insufficient in terms of income security in post-retirement, compared to the amount regular workers stand to receive from employee pension benefits.

The aim is to increase the amount of benefits received from age 65 by extending the contribution period.

The scale of the burden and benefits increase will be left to future discussions. Details have not yet been decided.

Extending the contribution period would incur additional fiscal burdens. This is because half of the national pension program is funded by the national treasury. How will the government obtain the public’s understanding on this issue?

The council is also expected to discuss ways to broaden the scope of the employee pension program to increase pension benefits for non-regular workers.

Last month, the government eased one of the requirements for companies to join the employee pension program. Before, companies had to have “501 or more employees,” but now the requirement is “101 or more employees.” It has been decided that in October 2024 the figure will be “51 or more employees.” A proposal has even been made at the council to eliminate the requirement altogether.

However, labor and management split the cost of employee pension premiums, creating a burden for small and midsize businesses.

The government introduced a mechanism to gradually lower the level of benefits in accordance with the declining birthrate and aging population in a 2004 pension system reform. The ruling Liberal Democratic Party and its coalition partner, then-called New Komeito, said the pension system would be “secure for 100 years,” stressing the sustainability of their system.

However, the number of elderly people receiving pension benefits has increased, while the birthrate has fallen further than expected, leaving fewer people to support the system. It is true that flaws have appeared in the system.

The impact of the reform this time would be significant. Deepening debates on the matter in the Diet, rather than leaving it to the council alone, will help ease public anxiety.

It is vital to keep an eye on the harsh reality. Raising the consumption tax rate is also an important option to ensure sufficient financial resources for the pension system.

(From The Yomiuri Shimbun, Nov. 3, 2022)