Pension Plan Still has Gaps in Payments

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Pension Plan Still has Gaps in Payments

Yomiuri Shimbun

February 25, 2004

A report on pension reform bills, which were submitted to the Diet on Feb. 10, shows that ratio of the premiums to be paid by employees to the benefits they will receive varies greatly, depending on age.
The report, unveiled by the Health, Labor and Welfare Ministry on Monday, highlighted the huge gap in the ratio of premium payments to retiree benefits, a major concern in pension reform, observers said.
The benefits that workers who turn 20 in 2005 will receive when they retire will be 2.3 times the amount they paid during their working lives, the ministry said.

However, retirees who turn 70 in 2005 receive benefits 8.3 times their premiums.

Under the bills, the rate of premiums for corporate employees would increase gradually from 13.58 percent to a maximum of 18.3 percent, which will be fixed from fiscal 2017. Currently, the ratio depends on the employees' annual income, and the premiums are equally shouldered by employees and companies.

The basic pension premium is set at 13,300 yen per month, but will rise to 16,900 yen by fiscal 2017.

Under the employees pension scheme, the level of pension benefits for a person who has paid his premiums for 40 years since the age of 20 and whose wife was categorized as a full-time homemaker for that period, is set at 59.3 percent of the average annual net income of the working generation. However, the rate will be lowered to 50.2 percent by fiscal 2023 under the pension reform bills.

Estimations of employees' pension benefits and premiums were based on the government's projected life expectancy for each age group, while the estimations of the basic pension scheme were based on a recipient who has paid the premiums for 40 years.

Based on these estimates, a couple who were born in 1935 and paid a total of 6.7 million yen in corporate pension premiums will be eligible for 55 million yen in benefits, which is 8.3 times the couple's total premiums. The ratio decreases for younger age groups.

A couple who were born in 1985 will pay a total of 33 million yen in premiums but will be entitled to receive only 76 million yen, which is only 2.3 times their premiums.