Why pension reform in Japan is coming. So pay your premiums . . .

Yomiuri Online – Parties clash on pension reform

Great article. Things I didn’t know:

Out of pensioners in Japan, 40% get no more than 50,000 yen a month (about $500 for my US readers). The other 60% would be getting something over $500.

420,000 retired people in Japan get no pension. And so for 70% of them, they get welfare. It isn’t clear what happens to the other 30%.

Over one million Japanese residents would be entitled to nothing out of the pension system, even if they started paying in now. Probably, this is due to 25-year vesting.

The Liberal Democrats obviously had no solution to this clear problem. And so the DPJ is putting forth the proposal that everyone is entitled to a minimum 70,000 yen a month pension (about $700 US).

dpjmanifesto

As I have been reading the manifesto–and actually I also have a Japanese copy to learn from—I have been wondering how a $700-a-month program would be implemented.

The linked article above quotes the Diet member in my locality (surprise!): Akira Nagatsuma. Here is his website diary.

misternenkin

He carries the nickname of “Mr. Nenkin” (ミスター年金). “Mister Pension” in English. Don’t ask me why it isn’t “Pension-san”, but I think it’s a bow to our use of “Mister” as an expert, or something someone is known for. Like Mister Baseball or Mister Clean.

I see his posters all over the Yoyogi-Harajuku-Shibuya area. I think he will be the next Minister of Pensions if there turns out to be a Hatoyama Government after next week.

But back on this thing of the 70,000 yen: to solve this crisis, I mean, you can’t just print money. (Well, actually the central bank can. But practically, it’s not a good solution.)

And so here is my guess:

1) People who are really hard up, like those mentioned in the article, are going to get 70,000 yen-a-month fairly quickly. And it’s going to come out of the hides of whoever got the biggest benefits under the LDP. Probably whichever Koizumi reforms that were handing it to the rich and connected, are going to be undone.

The money raised is going to fulfill the immediate promise.

2) The people who aren’t at retirement are going to have to start ponying up. And so my prediction is that word is quickly going to go around that the pension coupon book is important!

Probably, probably, there will be a rule instituted that forgives the vesting gap for anybody in Japan when they were 20. Whatever time they hadn’t paid in, would be counted in the vesting period. This is called “kara kikan” when it involves people who were overseas. Or people who obtained permanent residency in Japan sometime after age 20.

There is nothing to say the next Government couldn’t just modify the vesting rules. Then, someone who had paid 5 years of the the 25 needed, could at least be vested for a fractional pension.

I don’t think this part would take “20 to 40 years” to implement, either.

Of course, if someone had not paid in enough for the 70,000 yen, they are short. On the basic pension, you have to pay in 40 years (480 payments) to get to 66,000 yen. So, it’s clear there will always be a gap on Kokumin Nenkin.

There will have to be a supplemental pension. And the funding may be out of general revenues. But I have the sense it may be a part-part deal, where the individual pays a small, special premium and the government chips in.

In our country, the original contributions you make to Social Security count for more. Your taxes (that’s what they really are) on the first $300,000 in today’s money count for way more than any money you pay on higher than that in your career. I refer to what are called “bend points” and please do your research if you are interested in the topic.

Japan’s solution is going to have to involve something like this: An implied subsidy for those who can’t make the 70,000 yen pension on their own, by current rules.

But what it also means is that the new Government really can’t let anyone slide on those contributions. They can’t do it. There will be enough carping and complaining about having to subsidize people who ignored the pension program. This would be those who didn’t pay up for whatever reason when they were supposed to.

Now, in such a political environment, what are the chances that the new Japanese government is going to let foreign expats here, as I say, slide? I mean, rully . . ..

No, huh? What do you think? What will be your answer? “Well when the old government that screwed everything up was in power, I got away with this!”

I am not sure that will fly.

Like the DPJ is saying, in English, “CHANGE WILL HAPPEN!”

The 15-second commercial on the issue. Notice how the camera flashes from more elderly people to young ones. Time catches up with us all.