(Tentative Translation)
(Full Text Version is here.)

Rebuilding the Public Pension System
which Earns the Confidence of the Citizens

-- Summary --

July 21, 1998

(Japan Federation of Economic Organizations)

  1. Need to Reform the Public Pension System
  2. The on-going public pension system is plagued with serious problems such as:

    1. The Employees' Pension Insurance has 350 trillion yen shortage in fund reserve in its earnings-related component. If one is to maintain the present level of benefits, the premium rate has to be raised to 34.3% in the future.

    2. There are a lot of non-payments of contributions and non-participants in the National Pension System. The Employees' Pension and the Mutual Aid Pension bear the burden of a part of contribution to National Pension, whose burden is, in principle, to be borne by the National Pension.
      There are growing uneasiness and untrustworthiness among the people toward the public pension system. Faced with rapid aging onwards, we have to reform substantially the public pension system so that it gets stable and sustainable. At the same time, enhancing the role of the Corporate Pension and the Personal Pension is called for.
      The government should commit to making public the information related to the public pension.

  3. The Points of our Proposal
    1. Basic Ideas
    2. The basic idea in reforming public pension system is characterized by the following three:

      1. To build the sustainable system which can survive the social and economic changes
      2. To clarify the position of the public pension and enrich the private pension
      3. To take into account the fiscal and taxation reform

    3. Directions
    4. The skeletons of pension reform are (1)considering the two components of the public pension as different things; the basic pension part and the earnings-related components, and (2)reviewing the pension financing.

      1. The Basic Pension Part
        In line with its aim that the nation is to guarantee senior citizens a minimum level of living, the financing way of the basic pension part is to be transformed into the pay-as-you-go method with taxation. Preferably, the basic pension part is to be financed by indirect taxes, because indirect taxation will, desirably, lead to nation-wide burden sharing and vitalizing the economy. This will contribute to solving the problems of non-payments and non-participants in the National Pension.
        The level of the benefit should maintain its present one for the time being, and can be raised in the future, with the national minimum level of living taken into consideration.

      2. The Earnings-Related Component
        The role of the earnings-related component is to guarantee a certain level of living during retirement, which is proportional to the one in working ages. This component is to be transformed into the funded system, and ultimately, privatized. Lowering the level of benefit is unavoidable, given the enormous shortage of fund reserves and income level of working generations.
        The reform of the earnings-related component can be carried out by one of the following three: (1)To maintain the framework of the ongoing system for the time being, (2)To start as a newly-born funded system, by parting with fund shortage, and (3)To incorporate a part of the earnings-related component into the corporate pension system. In every case, the shortage of fund reserves has to be coped with by lowering the benefit and raising the burden of premiums or taxes.

    5. Reviewing the Pension Taxation
    6. With regard to pension taxation, taxes are to be levied in times of receiving benefits, not in times of contribution nor investment. Deduction for public pensions, etc. ought to be reduced.

    7. Others
      1. Adjustment of Concurrent Payments
        Concurrent payments between the benefit of pensions and of other social security systems should be adjusted.

      2. The Issue of Class 3 Insured Person and Improving the Survivors' Pension System
        If the basic pension part is to be financed by indirect taxes, there is no longer places for arguments in the issue of non-working housewives bearing the burden of premiums. The Survivors' Pension System concerning to working housewives need to be improved, so that their contribution to their old-age employees' pension is not wasted.

      3. The Problem of Introducing the "Annual-Income-Based-System"
        Since bonuses are subjected to large volatility, it is concerned that introducing the "Annual-Income-Based-System"(tentative translation), whose introduction is currently considered, will result in destabilizing the pension finance.

      4. Early Ratification of International Agreements for Pension Transferring
        Japan should start promptly the intergovernmental talks with the United States, inhabited by the greatest number of the Japanese.

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