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Panel: High Earners Should Pay More toward Pensions

The Yomiuri Shimbun

November 21, 2008




An advisory body to the welfare minister has suggested that high-income earners shoulder more of the burden for their pensions and that plans to finance basic pensions entirely from tax revenues be put on hold. 

Interim recommendations on pension system reform drawn up by the pension subpanel of the Social Security Council also included a plan to increase the threshold on the highest category of standard monthly pay used to calculate monthly premiums, which currently stands at 620,000 yen. 

The eight items will be discussed by the Council on Economic and Fiscal Policy, which will examine where funding for the suggestions might be found. 

The panel suggested deferring plans for a completely tax-funded social insurance system and indicated a direction for amendments to the current system, which is covered by premiums and taxes. 

If the government and ruling parties agree on the items, legal revisions to bring the changes into effect will be considered. 

Premiums for the government-managed pension program for corporate employees, called kosei nenkin in Japanese, are calculated at 15.35 percent of a worker's standard monthly pay. Premiums are shared equally by employees and their employer. 

The standard monthly pay scale used to calculate premiums has an upper category threshold of 620,000 yen, equating to an annual salary of 9.7 million yen. 

The advisory body has recommended that people with high incomes pay higher premiums commensurate with their earnings. Because hiking the upper threshold on the scale could result in higher pension benefits being paid out, the advisory panel recommended benefits on monthly income above 620,000 yen be calculated at half the normal rate. 

Revising the upper-income threshold is aimed at securing funds needed for pension reform. According to the panel's estimates, between 120 billion yen and 600 billion yen could be saved annually if the benefits paid to people paying higher premiums due to the higher threshold, were held in check. Even if these benefits were not curbed, 60 billion yen to 300 billion yen could be saved each year. 

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