EDITORIAL: Pension system reform

The government and the ruling Democratic Party of Japan say they want to hold talks with the opposition parties to push integrated tax and social security reform.

But such talks are unlikely to take place as long as the DPJ's blueprint for pension reform remains ambiguous.

The ruling party has failed to offer a clear-cut reform plan and given half-baked explanations about its vision for the future of the pension system.

First of all, the DPJ needs to build solid consensus within the party through debate and make clear its reform plan to the public.

The DPJ proposed a new tax-financed system to provide guaranteed minimum monthly pension benefits of 70,000 yen ($840).

But Kaoru Yosano, the newly appointed minister of economic and fiscal policy, is advocating a pension program based on the social insurance formula--financed by premiums paid by the people.

Critics have been quick to point out the difference between Yosano's idea and the party's proposal.

Prime Minister Naoto Kan and the DPJ should swiftly solve this problem.

Unlike the social insurance formula, in which benefits paid to individual pensioners are affected by their premium payment records, the tax-financed system has the advantage of being free from the problem of people who fail to pay into the system.

In 2004, when the coalition of the Liberal Democratic Party and New Komeito ran the government, the Cabinet was hit by a series of revelations about past nonpayment of premiums for the national pension program by ministers.

Kan, who questioned the government over the issue, was forced to resign as DPJ chief after it was revealed that he had also failed to pay premiums for a certain period.

After that, Kan and DPJ Secretary-General Katsuya Okada started making remarks that indicated the party was seeking to introduce a tax-financed pension program. They said the pension system envisioned by the party would eliminate the problem of nonpayment and ensure that all people would receive benefits.

The DPJ's manifesto for the general election in 2009, when the party was led by Yukio Hatoyama, promised to create a pension program to provide guaranteed minimum monthly benefits of 70,000 yen for all people funded by revenue from the consumption tax.

Many voters interpreted this as a proposal of a tax-financed pension system.

In the "basic principles for the new pension system" announced in June last year, however, the DPJ stressed its intention to maintain the insurance formula. The party said with the principle of "zero cases" of nonpayment or nonparticipation, the system is intended to ensure the collection of premiums so that no people will be left without a pension.

Then in December, the party's policy research council for fundamental tax and social security reform, headed by DPJ heavyweight Hirohisa Fujii, now deputy chief Cabinet secretary, confirmed the policy shift.

The panel's interim report said the future pension system should be an income-linked social insurance program supplemented by tax-financed guaranteed minimum benefits.

This proposal is not fundamentally inconsistent from Yosano's argument that adopting the social insurance method would be the rational approach to pension reform.

Under the current system, half of the basic pension benefits paid to all beneficiaries are covered by tax revenue.

The only difference in the DPJ's proposal is that tax-financed guaranteed minimum benefits would be reduced or removed for people entitled to a certain amount or more of benefits.

The DPJ's policy shift to the insurance formula after it came to power could be described as pragmatic. That's because tax financing would sharply increase the amount of taxpayer money needed and is likely to require large increases in the consumption and other taxes.

The change of the proposal should also make it easier for the DPJ to strike a deal with the LDP and New Komeito, which are espousing the insurance approach.

The biggest problem with the current system is that a large number of people fail to pay into the system and will eventually find themselves with significantly reduced or no pension after retirement.

The challenge is how to prevent this by using the limited tax revenue available.

The government and the ruling party must show an outline of its plan to overhaul the pension system as soon as possible to find common ground with the opposition camp and push through the reform.

--The Asahi Shimbun, Jan. 20