January 2003 Reform Proposal for the Public Pension in 2004 (Proposal by the Ministry of Health, Labor and Welfare)

1. Title

   Reform Proposal for the Public Pension in 2004 (Proposal by the Ministry of Health, Labor and Welfare)

2. Initiators

   Ministry of Health, Labor and Welfare

3. Funding

   A part of on-going public pension reform and the funding mechanism is the same as before.

4. Beginning, expected end and duration

   It is the first proposal of the reform which will take place in 2004.

5. In one sentence: what are the essentials of the reform ?

   This is the first proposal of the reform of the public pension which specifically states that the pension benefit will be based on the (fixed) pension premium, not the other way around (the premium will be raised according to the amount needed to pay benefit).

   Detailed description of the reform
6. Country-specific institutional setting

   The public pension system in Japan is scheduled to be reformed every 5 years. The next reform will take place in FY 2004, and the discussions for it has began. The proposal is the first proposal put forward by the Ministry of Health, Labor and Welfare, and it sets the backbone and the direction of the reform.
   For details of the public pension and its issues, please refer to : "Social Security in Japan" (https://www.ipss.go.jp/English/Jasos2002/Jasos2002.html).

7. Background of and problems driving the reform

   Please see previous Reform Monitor reports and the web page mentioned above.

8. Basic approach and objectives of the reform

   The 2004 Reform will have four basic approaches:

   1. To wipe off the mistrust of the young and working generation towards the future of the public pension;
   2. To strive not to make the burden of the working generation excessive, while balancing the burdens of the pension-age generation and working generation;
   3. To make clear to the working generation, the future benefit that they will receive;
   4. To adapt to the changing working conditions and womens' participation in the labor force as well as population aging.
9. Target groups and target regions

   All adult population

10. Concrete changes vis-a-vis the status quo
    1. To prevent the future premium rate to go up indefinitely, the premium rate will be fixed and the future pension benefit will be adjusted (i.e. decreased). According to a scenario which fixes the premium rate of the Employees' Pension at 20%(currently about 13.6%), the replacement rate will be around 52% (currently about 59%).
    2. To expand the premium paying population, part-time workers will also be included in the Employees' Pension. Currently, they are either paying the premium of the National Pension, or if their spouses are subscribers of the Employees' Pension and their income is below a certain level, they are covered under their spouse's insurance for free.
    3. To inform the subscribers on the amount of pension they will be entitled to in future, a better notification system will be introduced.
    4. To support to increase the future generations, various measures to help raising children will be incorporated in the pension scheme.
11. Major conditions for success

    It is a part of a on-going process to reform the public pension, and it will be difficult to evaluate for this reform alone. The success of it depends on many circumstances such as economic conditions, the rate of population aging and people's reactions.

12. Expected results

    Future public pension stability

13. First results

    Not yet implemented

14. Effects on other policy fields

    The reform effectively lowers the future pention benefits, and this may result in the increase of elderly in poverty. If such is the case, the elderly will have to be covered by the Public Assistance, and it may lead to a rapid increase of elderly population under the Public Assistance.

15. Arguments raised by opponents of the reform

    The opponents are doubtful that the young generation will be satisfied with the reform, given that the premium rate will be raised (albeit up to a fixed point) compared to the current level, and the future pension benefit will be lowered. Some others are worried about the increase of elderly in poverty.

16. Personal judgement (please also give your judgement on the importance of the reform)

    It is about time that the premium paying base, especially the non-working and part-time working wives who are currently not paying, is included in the system to share the burden. In this regard, the reform is something to look forward to. At the same time, it is also critical that the minimum standard of living is safeguarded for all elderly. It is not wise to leave it to the Public Assistance to take care of the poor elderly.

17. General available references

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