More Japan pension reform

I am bored witless about this topic, and I am sure you are, too, but I wanted to post a follow-up to what I had been saying about how the Labor Ministry was on it.

The Japan Times had an article today, and here is one in Japanese by Yomiuri.

The committee that has been working on the issue has come up with a framework to plan out the reform. You know that the proposed consumption tax hike is part of this, and so hopefully we will hear a bit more about what the people’s ideas are in the next few weeks.

Minister Nagatsuma, one the DPJers I am a big fan of, is saying that the 70,000 yen a month minimum pension is a “red line”, which if I interpret it correctly, means that the government wants that rule in as a definite.

What seems to make sense to me is that a hike in the consumption tax is coupled with getting rid of the nenkin coupons. So you pay 10% consumption tax, but no longer contribute separately to the basic pension (the 70,000 yen). This would be Canada’s system, where the Old Age check is paid for out of general revenues, and the enhanced pension comes out of the 4.95% Canada Pension Plan tax, and/or the Retirement Supplement Pension Plan (RSPP).

Seeing as how so many employers want to cheat with the pension, that seems like the reform that would fit best in Japan’s current system. This change would happen around 2013.

So, as an example, let’s take the young fellow who is advertising the English conversation CDs on Japan Times, 16-year-old Shota Tezuka. He is a pro wakeboarder, (a sport I frankly never heard of.)

In his case, there would never be any separate kokumin nenkin payments at age 20. Instead, the general taxes would cover a basic pension check at age 65 (or whenever.) Shota could just go on wakeboarding and not have to worry about pension.

For anybody in between, there would probably be some transition. Whatever you paid in under the old system would be there, and then when the new system started, you get credit for each month of residence in Japan. I imagine, if you are not a long-term resident of Japan, that minimum 70,000 a month pension is probably not going to be part of the deal. And I wonder what happens to people who dodged the pension and then expect a free ride on that figure—I think that might be the biggest stumbling block in working out a plan. I bet some people are going to be required to pony up some extra money in their working years in order to get the 70,000 minimum.

This is why I keep advising people to register with Kokumin Nenkin regardless. At some point, the system will switch over, and you will probably be better off having the pension account already, than if somebody comes to you later and says, “hey, you were supposed to be in this!” You could be hit for a real bill.

The reform is coming. And at some point, it’s going to be really hard for both workers and employers to argue around it.