Japan - Setting priorities for the golden years

“I have to be careful not to allow the bureaucracy to get too far ahead of the government, something the ruling Liberal Democratic Party (LDP) itself needs to reflect on as well. At the same time, if the government and bureaucracy diverge too widely, as happened over the past 39 months under Democratic Party of Japan (DPJ) rule, nothing gets done. There must be a proper balance between the two, especially in the case of the Ministry, which oversees areas that are tied closely to people’s livelihoods. We also need to gain the people’s understanding in examining and reforming the burdens and benefits under the social security system.”

 How do you intend to control social security costs given the aging of society?

“Medical and nursing costs are inevitably going to grow in light of Japan’s aging demographics. At the same time, medical technology is advancing even faster than the aging process in some cases, and we may need to consider how to incorporate that into the insurance system as well. We need a broad-ranging discussion of the topic.”

The LDP and DPJ governments have both shelved the planned increase (from 10% to 20%) in the portion of medical insurance costs to be borne by elderly patients. How do you view this?

“When the law was drawn up, lawmakers did not assume a drop in pension revenues to this extent. Pension income has continued to drop, due partly to the overpayment problem, whereby pension payments have not been cut in years despite falling prices under a special measure that has never been rectified. Under these circumstances, some have suggested a hike in the elderly medical burden. That said, given the fiscal situation, pensions themselves should adhere to the original principle. Improving the economy is everything. If that condition is not satisfied, we cannot move forward on other fronts. We will be in close discussions with the ruling party.

Turning to pension problems, how do you view the macro slide under deflation and the increase in the eligible pension age?

“Regarding the macro slide, we must first solve the matter of overpayments. We will then consider what comes next. Additionally, as all of this assumes an expeditious defeat of deflation, we will direct our initial efforts towards that aim. As for the increase in the eligible pension age, it is true that benefit levels are putting a severe strain on the system. The LDP’s campaign platform included an elective option for pensions. I believe we could consider a system under which individuals can choose to delay their pensions to some extent in exchange for higher benefits. We intend to study the contents of the LDP’s campaign promises carefully and discuss how we can work with those to solve the pension system problems.

The previous government planned to abolish employee pension funds (EPFs). However, the LDP’s project team has said healthy entities should be preserved. What is your view?

“I was involved with this issue when the LDP was in opposition, so it is difficult for me to answer. I think the project team was still preparing its final report at the time. I do recall some opposition to the outright elimination of the scheme during debates. The previous government’s aim in seeking to abolish EPF in 10 years was a slow but steady rescue of corporate pension plans. It wanted to avoid another situation like the damaging shortfalls in daiko (portion of public pensions that companies were managing on behalf of the government). At the same time, it is true that there are some funds operating soundly. They have managed to generate positive returns despite the economic downturn. Forcing such funds to return their extremely thick daiko portions and leaving them only with the thin third-tier portions will make it impossible for them to produce their promised yields, which could lead to a reduction in benefits. Some have argued whether it is fair for the government to decide unilaterally to disband an established system, leaving pension funds that have done nothing wrong unable to fulfill their promises and thus causing difficulty for pensioners. We will certainly keep this perspective in mind in further discussions.
The LDP project team considered a proposal at one point that would allow funds with a daiko shortfall to disband simply by returning their asset holdings. I believe it would be tough to win the understanding either of the parties involved or the general public for such an argument, and this ministry would not find it acceptable.”

Many full-time housewives discovered that a change in their pension status left them potentially ineligible for benefits. The DPJ had proposed a waiver that would have allowed these parties to retain their benefits if they paid their premiums retroactively. But the LDP objected that this was unfair and would create a moral hazard, causing the waiver to be retracted. How about this so-called housewife pension problem?

“This is also a matter from the LDP’s opposition years and is tough for me to answer. The previous administration dithered as to whether to introduce proper legislation, and the LDP had hoped to deliberate the issue in the Diet. In the end, no bill was submitted. This matter needs to be settled quickly. We intend to look closely at the issue, including the DPJ’s proposals, and work with the ruling party to correct what needs to be corrected in order to submit legislation to the Diet.”