Pension Funding Deadline

Japan Times

September 2, 2008

Japan

In 2004 the government decided to use additional tax money to cover part of the basic portion of national pensions. (At present, tax money covers 36.5 percent.) The decision called for tax money to start covering half the portion by the time the new fiscal year begins in April 2009.

This proposition is the prerequisite for another government objective — to ensure that future pension benefits from the kosei nenkin pension system for company workers amount to at least 50.2 percent of the average income of working people. The government should do its utmost to make good on its promise to implement the proposition.

Covering half the basic portion with tax money would cost about ¥2.3 trillion annually. This amount could be assured if the consumption tax rate was raised by about one percentage point. But deteriorating economic conditions have made it difficult for the government and the ruling coalition to consider a hike in the consumption tax rate. They also fear how voters in a future Lower House election will react to a proposal to raise the tax rate. They will discuss revenue sources needed to implement the 2004 proposition only when the fiscal 2009 budget is compiled toward the end of this year. 

There is talk in the ruling coalition of delaying the implementation of the 2004 proposition. But a delay would make it difficult to make good on the pledge to ensure the "50.2 percent" figure for future kosei nenkin pensioners. The welfare ministry estimates that a one-year delay in implementing the 2004 proposition would decrease estimated pension benefits measured as a percentage of working people's average income by about 0.2 point in the 2020s. 

A possible way to implement the proposition without using tax money is to break into surplus funds of various public pension schemes. To prevent the exhaustion of such funds would require increasing pension premiums. The government should realize that a failure to start covering half the basic portion of pensions with tax money in April 2009 will further erode people's trust in the nation's pension system.

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