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Sunday, Aug. 31, 2003


Reform is required to untangle pension system

A woman I know recently went to her local Social Insurance Agency office to find out about her pension. Since she is 68, she is past the age when she should have started collecting benefits, but she was never sure what she was supposed to do because the SIA never contacted her.

Her husband is eight years younger and therefore has not reached the age when he is supposed to receive his own benefits. She, however, has worked in the past and is the wife of a "company employee," so she thought she should be eligible for her own benefits even before her husband was eligible for his.

Yet the SIA clerk told her that when she turned 60 she was automatically dropped as a dependent contributor, and her husband was not a company employee for the duration of their marriage. Consequently, she is six years shy of the minimum number required to receive "basic benefits." She could have signed up for "optional" contributions when she turned 60, but no one told her this. However, the office decided that she was, in fact, eligible to receive 650 yen a month.

There's a fierce debate going on about what to do with the almost bankrupt National Pension Plan, which consists of two programs: Kokumin Nenkin for self-employed and unemployed citizens, and Kosei Nenkin for company employees.

There are people who believe that the plan should be scrapped when it comes up for review next year and pensions should be incorporated into the tax system. At the very least, the program should be overhauled because, as this woman's situation illustrates, most citizens don't understand it and the people who run it aren't willing to educate them. The SIA, which employs more than 17,000 people, is fighting to keep the system the way it is.

The problem for the agency is that 40 percent of the people who should be paying Kokumin Nenkin are not doing so. Premiums for Kosei Nenkin contributors are automatically deducted from their salaries (and half are paid by their employers), but Kokumin contributors have to pay on their own. Many of the nonpayers are in their 20s, and include students and part-time workers. Kokumin premiums are fixed, and according to surveys, the 13,300 yen a month is too much for many young people, who tend to live on small incomes. Add to this the widespread knowledge that the system is broke and you get a situation wherein young people believe, not unreasonably, that they won't receive benefits in their old age. It's a demographic of self-righteous scofflaws.

So the SIA has decided to get tough. In July they launched a PR campaign targeting Kokumin deadbeats. Against a photo of actress Makiko Esumi looking ticked off is a red banner that reads, "So, you don't mind crying in the future?" The sub-heading makes it clearer: "Pay now. Or later, you don't get paid."

The ad is supposed to scare people into contributing, but its scolding tone may make them more defiant. A woman recently wrote a letter to the Asahi Shimbun saying that two years ago she quit her job to help her husband with his business. His income is unstable, and his first obligation is to meet his employees' payroll. The SIA refused her application for an exemption from paying Kokumin even though she doesn't have the money to pay.

She mentions that if her husband were a company employee, she wouldn't have to pay. This exemption, which went into effect in the mid-'80s, may change as the SIA gets more desperate, but in any case housewives of self-employed individuals feel they are being discriminated against.

It makes no sense to threaten Kokumin deadbeats with nonpayment of benefits if they don't expect to receive them in the first place. Because of the payment method, Kokumin contributors think of the program as a kind of mandatory savings account. It isn't, but if people think they're putting money into a savings account, they expect it to still be there years later. In order to receive the minimum benefits under Kokumin, one has to pay into the plan for 40 years. And even then you only receive 67,000 yen a month after you reach 65.

Last weekend, NHK held a debate in which two men who want to keep the present system argued that it was "unfair" to people who have paid, to give benefits to people who have not paid. If a tax-based system were enacted, everyone would receive basic benefits, regardless of whether or not they paid into the pension system before it was enacted.

In other words, advocates of the status quo say that even if the system as it exists is over-complicated and skewed toward company employees, changing it would punish good citizens and reward bad ones. But as the 68-year-old woman's case illustrates, even those who obey the rules aren't guaranteed benefits. According to a recent article in Shukan Post, the SIA purposely keeps the system vague and complex. Most people don't know when they can receive benefits or how much they'll get. The SIA doesn't give you that information unless you ask the right questions. And if you wait too long, you'll lose out, because the SIA doesn't pay benefits retroactively.

The system's problems are bureaucratic, not social. Launched when Japan was still struggling to get back on its feet, the pension system has been occasionally fine-tuned but not significantly altered as the country's economy and social landscape changed. Some of these changes have been dramatic. The birthrate dropped, the lifetime employment system ended, and the number of two-income households increased. But rather than change the pension system in line with these developments, the government prefers to bend society to its own will. It's bound to snap sooner or later.

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