Editorial: Pension system must be drastically reformed, welfare pension funds axed
The alleged misappropriation of at least 100 billion yen of welfare pension funds by asset management firm AIJ Investment Advisors Co. has people worried about the survival of public pensions. Those concerns are a bit off the mark, however.
Welfare pension funds are a third tier of pensions set up individually by corporations in addition to the two-tiered public pension scheme, comprised of a basic pension and an employees' pension. The ongoing scandal should not have any effect on public pensions, and any losses incurred by welfare pension funds should be dealt with by member companies.
The problem is that many of these funds cannot dissolve even if they want to, because they manage portions of the employees' pension on behalf of the national government. Furthermore, because many of the funds affected by the scandal are comprised of small- to mid-scale businesses in depressed industries, forcing repayment could push the companies themselves into bankruptcy. Demanding other fund members to take joint responsibility could even set off a chain of bankruptcies.
The AIJ scandal is characterized by welfare pension funds that were lured by the sweet promise of high yields, after which they were dragged deeper and deeper into trouble. Of 578 welfare pension funds in Japan, some 40 percent now lack the cash necessary to manage a portion of employees' pensions; the total deficit comes out to over 700 billion yen.
There's no easy way out of this. As a proposal to make it easier for funds in crisis to dissolve, an expert panel to the Ministry of Health, Labor and Welfare suggested reducing the amount of money that pension funds must return to the government, and eliminating any joint responsibility for repayment among member companies.
How, then, would the gaps left by money that has not been recovered be filled? Reserve funds from public pensions, the panel said. But would subscribers to employee pension plans who have nothing to do with the scandal accept such an idea?
The panel was unable to reach a clear policy on reform that would lower the 5.5-percent projected rate of interest and slash the pension payments that retirees receive, by postponing topics for future deliberation or presenting them with both their pros and cons. This may be due in part to precedents in which reductions in pension payments have not easily been accepted, as welfare pension funds serve as a part of an employee's retirement package. However, unless pensioners who are receiving the third-tier of their pension schemes at high guaranteed yields share in the pain, it will be difficult to convince employee pension subscribers who will suffer the brunt of the damage.
When the workforce was much larger than the pensioner population, pension management went smoothly and reserve funds just kept growing. In contrast, our rapidly-aging society requires us to cut into our reserves bit by bit. To ensure the survival of public pension plans, we must quickly give up on funds that are unsustainable. And if anyone is to decide who must endure the inevitable pain of this situation, it should be our politicians.
All pension funds are suffering from a shrinking work force and a growing population of pensioners. Unless the economic situation undergoes dramatic improvement, provision of pensions at 5.5-percent estimated yield will leave the government even more financially strapped. It is time for the government to begin fundamental reforms, including the complete abolishment of welfare pension funds.
July 16, 2012(Mainichi Japan)