Pension System Reform: Consider How to Prevent Impoverishment in Old Age

Public pensions are the foundation for supporting people’s lives in old age, and they also play a role in preventing the impoverishment of the elderly. It is essential to appropriately review the pension system so that it can maintain a level of pension benefits necessary for living.

Discussions within the government have started in earnest with the aim of reforming the pension system next year. This summer, the Health, Labor and Welfare Ministry plans to release a report examining the fiscal conditions of the public pension system, and then formulate a concrete draft reform plan.

The fiscal review is conducted every five years to determine what kinds of reform are necessary to ensure the stable operation of the pension system going forward based on population projections and economic forecasts.

Due to the low birth rate and aging population, the number of elderly people who receive pension benefits will increase, while the number of people in working generations who pay insurance premiums will decrease. Reform must be consistently implemented in light of changes in the economic and social structures.

The focus is on how to prevent a decline in the level of benefits from the national pension program. According to conventional estimates, the benefit level is expected to fall by nearly 30% in 20 years, impacting those currently 40 years or younger when they begin to receive the benefits.

In the past, many members of the national pension program were self-employed, but in recent years, 60% of its members are part-time workers or unemployed. Both enrollment and income from premiums have been declining. Under these circumstances, if the level of benefits were to drop significantly, pension benefits alone would not be sufficient to support people’s lives.

For this reason, the welfare ministry has proposed extending the current 40-year premium payment period from age 20 to 59, by five years, to age 64. The aim is to increase the amount of pension benefits received.

However, some may find the new monthly premium payment of around ¥17,000 to be burdensome. The government should demonstrate whether the benefits will be commensurate with the additional burden.

In addition, half of the financial resources for the national pension program come from the national treasury. If the amount of benefits increases, additional fiscal spending will also be required. To secure the financial resources, tax hikes will have to be considered as well.

The payment rate of premiums for the national pension program remains at 80%. It is hoped that the government will thoroughly explain the significance of pensions as a means of preparing for old age and increase the sustainability of the system.

Another point of contention is whether to change the old-age pension program for those still working, a system that reduces benefits from the employee pension program for elderly workers at companies and other organizations. Currently, the pension benefits received are reduced if total income from wages and employee pension benefits exceeds ¥500,000 per month.

Not a few people adjust their working hours to avoid the reduction. Some argue that this system has dampened the motivation of the elderly to work.

The decline in the working population is a serious issue. To encourage motivated elderly people to work, it is necessary to take measures such as alleviating the conditions for the reduction.

(From The Yomiuri Shimbun, April 19, 2024)