Japan's occupational pensions are straining under the pressure to provide pensions for its rapidly ageing population, as Gavin Blair reports
Both the public and private components of the occupational pension sector in Japan face structural and demographic challenges coupled with a stagnant economy, a moribund stock market and deflation. Increased contributions for the public pension are already scheduled, with other reforms in the pipeline – though some believe the pace of change is too slow to keep up with the structural shifts that are occurring.
This year, as it did last year, the government will dip into the reserves of its giant Government Pension Investment Fund to meet its pension commitments. Yet, despite all the difficulties, many see the state of the Japanese system as considerably healthier than that of many other countries.
The earnings-related public occupational pension or ‘kousei nenkin’ is compulsory for salaried workers and functions as the “basic safety net” according to Fujitsu Research Institute’s senior economist Martin Schulz. The basic rate of contributions is 16% of salaries, paid half each by employers and employees. On the other hand, the flat-rate National Pension is, “quite small and covers mainly the self-employed, those in irregular employment and the unemployed”. The non-payment rate for the National Pension, which is not automatically deducted, has been growing, and while the government now puts it at 40%, others estimate the real situation to be worse.
“The rate of non-payment is increasing and that is a serious issue. The government claims the payment rate for them is around 60% but I think this is an exaggeration,” said Naohiro Yashiro, an economics professor at the International Christian University (ICU) in Tokyo, and an authority on the Japanese pension system. “The government keeps increasing the number of people who are exempt. According to my own calculations, the payment rate is more like 40%.”
However, according to Dai-Ichi Life Research Institute’s Economics Research Unit’s head, Hiroshi Udo, because the National Pension makes up a small portion of the overall system, the impact is not major, “although non-payment rates have been getting higher among the unemployed and self-employed, overall non-payment rates are still less than 5%”.
Problems with kousei nenkin
However, an issue does exist with the kousei nenkin pension in that, “many small companies are not paying the contributions which they are legally obliged to pay for their employees”, suggested Yashiro. “The government doesn’t collect precise data on this but I’m sure the non-payment levels have grown with the recession.”
One reason for this is The Social Insurance Agency (SIA) which administers pensions and collects contributions, is also short of resources and is currently spending most of them on attempting to recover the huge number of missing pension records that came to light in recent years. When it was finally decided that the records were to be digitalised, it was discovered that the lack of a Social Security or National Insurance Number system had left millions of records untraceable to their owners.
The current Democratic Party of Japan (DPJ) government committed itself to attempting to rectify this, before taking power in September 2009, though many believe the diverted resources are actually causing the payment rate to decline.
Private companies that have been brought in to raise payment rates and inform people on low incomes of available exemptions have also fared poorly. An editorial in The Japan Times in August 2010 suggested that of 312 areas where such companies had been contracted, only 13 had hit their targets. The editorial stated that the companies’ methods of simply informing by telephone wasn’t enough to get the message across and that they needed to visit the individuals and their workplaces to explain the situation properly.
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