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Pension reform bill intended to address shrinking, aging population enacted

A bill to reform the pension system with the objective of sustaining it was put to a vote in the House of Councillors' Committee on Health, Labor and Welfare and was passed after garnering a majority of votes from members of the ruling Liberal Democratic Party (LDP)-Komeito coalition and the Nippon Ishin (Japan Innovation Party, JIP) on Dec. 13. The bill was passed into law at a plenary session of the upper house on Dec. 14.

The bill is meant to prevent future pension levels from dipping too low, while giving part-time employees at small- to mid-sized companies the opportunity to join employee pension plans. However, because the bill promotes a long-term reduction in pension benefits, establishing a safety net for low-income earners will be imperative.

During the Dec. 13 meeting of the upper house Committee on Health, Labor and Welfare, opposition parties heavily criticized the bill, with Japanese Communist Party (JCP) legislator Akiko Kurabayashi saying, "Alongside cuts in pension benefits, the increasing burden of health care and nursing care continue to weigh heavily on the public." Prime Minister Shinzo Abe sought the opposition's understanding, repeatedly arguing that passage of the bill was necessary in order to "guarantee certain pension levels in the future," and to "secure fairness among various generations."

Social Democratic Party (SDP) deputy chief Mizuho Fukushima said, "Hyakunen anshin (100 years of peace of mind) has collapsed," referring to a slogan the LDP's junior coalition partner Komeito upheld during the pension reforms of 2004. One of the measures incorporated into the 2004 "peace of mind" reforms was the "macroeconomic slide," which would automatically decrease pensions. Reinforcement of that system comprises the latest reform's main pillar.

The reforms made in 2004 were meant to fix pension premium levels in fiscal 2017 and stop further increases, while using pension reserves to make up for the difference, and pumping in more tax money into the pension system. And by gradually decreasing pension benefits, the pension system could be maintained -- or so it had been predicted.

However, because of a rule that the macroeconomic slide would not be instituted under a state of deflation, it has only come into effect once, in fiscal 2015. The predictions that led to the 2004 reform were shown to be off the mark, with current pension benefits higher than when the reforms were put into place. The latest bill will not lower pension benefits immediately in the case of deflation, but rather bring them down during a subsequent reappearance of inflation, in order to ensure that the pension levels of the generation currently in the workforce do not see too significant a drop.

At the same time, rules on pension amounts that are revised every year have been re-examined, with the bill stipulating that pension amounts will fall when the wages of currently working generations fall. Until now, pensions were pinned to consumer prices as a general rule to provide security for the elderly, but by pinning them instead to wages, the intent is to create fairness between the shrinking working population and seniors receiving pensions.

However, the further pinning of pensions to wages will increase the impact of economic recessions on pensioners. The effects of the so-called "once-in-a-century economic crisis" triggered by the collapse of Lehman Brothers in the fall of 2008 surfaced in consumer prices and wages in fiscal 2010; prices went down by 1.4 percent, and wages by 2.6 percent.

Under current rules, pensions would go down by the same rate as consumer prices: 1.4 percent. But under the new rules, pensions would go down by the same rate as wages, which, at 2.6 percent, is much higher. For someone who receives a basic pension of about 65,000 yen a month, the drop in their pension under the new law would be nearly twice of what it would be now, going from approximately 900 yen to approximately 1,700 yen.

If an economic downturn similar to that following the fall of Lehman Brothers were to occur, there is bound to be a surge in the unemployment rate, and relative to that, seniors who are unable to work will face higher risks.

At a House of Representatives Committee on Health, Labor and Welfare meeting held Nov. 25, opposition Democratic Party (DP) legislator Michiyoshi Yunoki asked Prime Minister Abe whether the proposed bill would allow the elderly to live on basic pensions alone. In response, the prime minister said in a matter-of-fact tone, "Basic pensions cannot completely cover the expenses of one's everyday life. That's why we'd like to ask that people save up and build their assets."

The maximum basic pension one can receive is approximately 65,000 yen per month. But the average amount pensioners receive is a little over 50,000 yen per month. Those who are members of the National Pension Plan and only have a basic pension must try to live on this income alone. When the consumption tax is raised to 10 percent, those who receive small pensions will be given an additional 5,000 yen per month maximum, but that is still far from sufficient in sustaining life.

The reason the National Pension Plan provides pensioners with pensions that are not enough to live on is because the program had envisioned self-employed people without a set retirement age as its members. However, as a result of changes in industry structure, only some 15 percent of National Pension Plan members are self-employed, with non-regular workers and the unemployed comprising 30 percent each.

There were a little over 16 million National Pension Plan members as of the end of fiscal 2015. But of those members, around 30 percent (or about 4.5 million people) have been exempt from or are required to pay lower premiums than the standard because they are on welfare or for other financial reasons. Furthermore, the Ministry of Health, Labor and Welfare (MHLW) estimates that 1.9 million or so of the approximately 2.06 million people who are two years behind in their premium payments to be in financial situations that make them eligible for payment deductions or exemptions. That means that of the 16 million members of the pension program, more than 6 million, or a little under 40 percent, are in dire financial straits.

The pension reform bill's objective is, in no uncertain terms, to lower pensions. Measures have been taken to make that more feasible, such as allowing part-time workers who put in at least 20 hours a week at major corporations and receive a monthly income of 88,000 yen -- or an annual income of 1.06 million yen -- or more to join employee pension plans since this past October. The same will become possible for part-time workers at small- to mid-sized companies if the bill passes. Additionally, a resolution attached to the upper house Health, Labor and Welfare Committee's vote stipulated that deliberations will be begun to further expand the scope of those eligible for employee pension plans. It also said that the committee members would continue to consider measures to guarantee pensioners an adequate quality of life.

"Pensioners who receive small pensions are already forgoing medical care and nursing care services that they need, so slashing their basic pensions would pose serious difficulties," Takanori Fujita, the representative director of Hot Plus, a nonprofit organization that provides assistance to seniors facing poverty, points out. "If pensions are going to be lowered, there needs to be a policy for relieving some of the burden shouldered by seniors, in which public livelihood assistance funds cover whatever a pensioner is in need of, whether it be medical care, nursing care, or housing."

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