Chikaru Sakaguchi on Japan's Pension Program

April 25, 2012

In a new series featured in the daily Komei Shimbun organ newspaper, senior New Komeito officials provide perspectives and positions on key policy issues. For the first installment, Chikaru Sakaguchi-who served as Minister of Health, Labor and Welfare from 2000 to 2004, and is currently his party's Deputy Chief Representative-addresses Japan's much-maligned national pension program.

In his interview, Sakaguchi debunks the argument raised by detractors, particularly in the ruling Democratic Party of Japan, who allege that the national pension program cannot withstand a shrinking subscriber base as Japan's childbirth rate continues to decline. He points out that the reforms to the program enacted in 2004 at New Komeito's initiative had already factored in the conflicting demographics of a declining birthrate and increasing aging population, and that it is effectively safe and sustainable by making minor corrections in response to macroeconomic conditions and interest rates in the years to come.

Moreover, Sakaguchi points out three major flaws of the DPJ pension reform proposal. First, the vast majority of salaried workers who will average over 4.2 million yen in income over the lifetime of their careers will be receiving less in pension benefits than they can expect under the existing program. The DPJ is also calling for a minimum guaranteed pension of 70,000 yen per month, but that payout won't be available until 40 years hence. Finally, in order to finance its proposal, the DPJ is seeking to raise the consumption tax from 5% now to 10% by 2015, although another 10%-or a total increase of 20%-will be needed in order to fully fund all its proposed entitlements.

In contrast, Sakaguchi asserts that New Komeito, while also focusing on the need to augment pension benefits for low-income subscribers, especially for unmarried individuals who earn less than 1.5 million yen a year, as well as married couples earning less than 2 million yen annually. Unlike the DPJ proposal, however, New Komeito's plan does not rely on a tax hike. Instead, by raising the level of state subsidies of the flat-rate basic pension scheme from 50% now to 60%, low-income subscribers who currently receive 66,000 yen a month will receive 83,000 yen-a monthly payout increase of 17,000 yen.

Sakaguchi downplayed concerns over the state pension reserve, which stood at some 151 trillion yen in fiscal 2009, but has presently fallen to 121 trillion yen. While critics point out that the reserve may be in peril because some 20 trillion yen loaned out to 595 employees pension funds may not be recoverable, he said that these funds have actually been meeting their loan payments on time.

He further noted that the premium payment into employee pension program would be soon raised to a maximum of 18.3% (to be shared equally by the employee and employer) of a worker's annual income, thereby stabilizing financial requirements.