The government’s fiscal assessment results and projections for the public pension program have been published. They serve as the material for reviewing the system by examining how far benefit levels will drop in the long term due to the declining birthrate and aging population and whether the pension’s function can be maintained.
It is imperative to examine the issues underscored by the process and start an in-depth debate on the future of our pensions.
The financial assessments and projections of pensions, which are announced once every five years, are based on new population estimates and economic forecasts, and assume multiple scenarios to calculate the benefit levels.
In the second best of four economic scenarios envisioned, where Japan will post an average real economic growth of 1.1 percent and a real wage growth of 1.5 percent in line with government policy targets, the benefit level for a model household of a corporate employee and a full-time homemaker will decrease by about 6 percent from the current level.
In the second-worst economic scenario, which is basically in line with the trends in the past 30 years, with the economic growth rate remaining slightly below zero and the working population declining, the benefit level will decrease by about 20 percent. In both cases, the decrease rates are smaller than in similar scenarios in the previous assessment.
Although the birthrate outlook has worsened compared to five years ago, the increase in the number of working elderly, women, and foreign residents in Japan, along with a strong performance in pension fund management, has improved the outlook.
However, the basic pension benefit level will decrease significantly, as it did last time. It will fall by 10 percent in the second-best economic scenario and by as much as 30 percent in the scenario based on trends over the past 30 years. In short, those with small pensions will be affected significantly, an alarming prediction that cannot be ignored.
To tackle this problem, the government has been mainly considering three measures: making it easier to join the employee pension system, using some employee pension funds to prop up the national pension (basic pension), and extending the period for paying basic pension premiums to 45 years–from age 20 to 64–to ramp up benefit payouts. Such reforms seem unavoidable.
Despite this unavoidable challenge, the Ministry of Health, Labor and Welfare has already announced its decision to defer the proposal to extend the premium payment period to 45 years, citing overall improvements in outlook.
The premature decision appears to be due to an increased reluctance to proceed with the plan within the ruling camp, which has been criticized during Diet deliberations for “new increased burdens” on the public. The ruling coalition’s weak-kneed stance toward reforms casts serious doubt over the fate of the vital reforms.
The number of people working past the age of 60 is increasing, and the 45-year payment plan was also included as an issue for future consideration in the supplementary resolution attached to the 2020 pension reform bill. This idea should be thoroughly discussed at the government’s advisory council tasked with considering system reforms.
It is also urgent to expand the scope of workers who are eligible to join the employee pension scheme. This time, pension projections for individuals were published for the first time, showing that benefits will improve notably for younger generations of women. This reflects the increase in dual-income households and suggests the significant effects of joining the employee pension scheme.
The primary reason for the deterioration in the basic pension’s finances is that benefit adjustments could not be duly made during the long period of deflation.
The rules for payout adjustments have been partially revised, but whether the changes are sufficient to improve the long-term prospects for basic pension finances is questionable.
There are many other issues to consider, such as reviewing the pension reduction for the working elderly.
The birthrate decline is progressing faster than the population estimates assumed for the pension assessment and projections. It is also unclear whether the increase in working women and the elderly will continue. It is crucial to continue relentless efforts to reform the public pension system without succumbing to unwarranted optimism.
–The Asahi Shimbun, July 5
