EDITORIAL: Making pensions work

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EDITORIAL: Making pensions work

The Asahi Shimbun

October 18, 2003

Voters deserve a clear sense of what will change.

Young people frankly distrust the pension system. They say they will never get the full pension benefits they deserve from the system even if they put their share into it now. Older people worry their benefits might be cut. Reform of the pension system, which hovers near disaster as a result of a sharply lower birth rate and an aging population, is likely to draw much of the attention at the polls in the Nov. 9 Lower House election.

Chikara Sakaguchi, welfare minister, put forward a tentative plan for reform. It calls for setting the ceiling for the premiums for the employee pension insurance at 20 percent of wages, with pension benefits cut in accordance with demographic and economic changes. At the same time, the plan would tap pension fund reserves to pay for benefits equivalent to about half the average income of the working population.

But the pension reform discussion does not go beyond that. When the Pension Law was last revised in 2000, it was decided that the portion of the fund for the basic pension paid from the national treasury should be raised from one-third at present to half when the system again comes up for review in 2004. But there has been no decision on how to do that.

This is the pension backdrop for the coming Lower House election. The pension system affects everyone, and is a bread-and-butter issue for retired people. Every political party needs a specific pension reform plan. Such plans should first address the issue of where the needed 2.7 trillion yen to pay for the increase in the national treasury portion of the basic pension will come from. Political parties must also explain how their pension reforms would be sustained over time.

Minshuto (Democratic Party of Japan) has made its pension reform proposals part of the party manifesto.

It proposes raising the national portion of basic pensions over the next five years by drawing from curbs it would make on wasteful budget spending. At the same time, Minshuto says, drastic reform plans must be developed. The party intends to have universal pension coverage in place by 2009, with premiums and benefits determined on the basis of income, and with a separate, basic pension program funded by taxes that would assure everyone receives a minimum pension payment.

Minshuto's proposals are riddled with questions. Is it really possible, for example, to integrate several established pension programs into one and determine the actual amount of personal income? What would be the value of pension benefits in specific terms under such a plan? Minshuto deserves credit, however, for offering a plan for a new set of arrangements and clearly pointing to the need for an increase in the consumption tax to pay for them.

The Liberal Democratic Party's manifesto promises to present a draft for pension reform by year-end, with enabling legislation to go to the Diet next year. That would possibly be accompanied by raising the consumption tax rate and increasing the percentage of the fund for the basic pension to be bankrolled by the treasury. But it does not indicate when the consumption tax rate would be raised or how to pay for the revised plan-all of which are essential elements in any such undertaking. In this, therefore, the LDP also fails to make a satisfactory pitch to voters.

New Komeito, an LDP ally in the governing coalition, proposes having the treasury pay half of the basic pension fund by fiscal 2008, by abolishing an across-the-board reduction of the income tax now in place. The LDP should follow New Komeito's example by frankly stating the burden on taxpayers must be increased.

The LDP apparently failed to be articulate enough in part because Prime Minister Junichiro Koizumi has pledged he will not raise the consumption tax rate while he is in office-three more years. Koizumi said his mission instead is to see that there is thorough reform of public administration and public finance to eliminate waste.

At the same time, Koizumi said those who oppose raising the consumption tax rate cannot discuss pension system reform. He has thus made it next to impossible to discuss a general pension system overhaul on his own initiative.

What voters want from political parties and candidates in terms of pension system overhaul is to have the parties and their candidates get beyond sweet talk and come up with a credible proposal in the coming days, even if it tastes bitter.