Politicians play hardball
According to the government official statistics, the ratio of people 65 years old and over in Japan would double from 17.3% in 2000 to 35.7% in 2050. Without substantial reforms, social security pensions would be unsustainable in this century, so the pension reform is currently the biggest political and economical problem in Japan.
From media and parliamentary discussions, it was revealed that many members of parliament had not paid their premiums for the National Pension (NP) Plan (a flat-rate universal pension plan) which is mandatory for all adults. This scandal is very serious because about half of the Japanese cabinet members admitted that they had not paid mandatory pension premiums, even at the time when the government intended to do its best to press for the passage of the bills amending social security pensions which would increase premiums for people while reducing their benefits. The bills became new acts in June 2004.
Both the media and the public expressed great anger over these scandals and have demanded the abolition of the Parliamentary Pension Plan (PPP), which pays very generous pension benefits to MPs with large sums of money from the general revenue.
Unfortunately for politicians, the election of the upper house of parliament was set for July 2004. So in early spring 2004, the government and many influential MPs, not only members of the ruling LDP but also members of the largest opposition party, the DPJ, have been obliged to express their supports publicly for establishing the Non-Politician Research Committee to conduct research for recommendations to amend or abolish the Parliamentary Pension Plan.
In June 2004, the speakers of the lower house and the upper house established the Joint Committee to look at the plan for the first time since its enactment in 1958 and appointed six members to make a recommendation by the end of 2004 for either “amending or abolishing” the current plan. I was one of the members and the only pensions scholar.
In Japan, the Employees’ Pension Insurance(EPI) Plan A ct was established in 1954, the Central Government Employees’ Pension Plan (CGEPP) was established in May 1958, the National Pension Plan was established in 1959, and the Local Government Employees’ Pension Plan was established in 1961.
The (Central) Parliamentary Pension Plan Act was enacted in April 1958, influenced by the civil service retirement system in the US, just before the CGEPP was established.
The current PPP is very generous to MPs, compared with social security pensions for citizens, and even compared with parliamentary pension plans for MPs in advanced countries.
In January, the joint committee presented its recommendation to the two speakers. The main contents of the recommendations are as followings. Only (1) and (2) were decided unanimously:
(1) To establish a better democratic parliament this century, with the minimum political cost to society, the special retirement income security system would be essential to maintain the independence of activities of MPs and to recruit younger MPs, with harmonising social security pensions to citizens;
(2) To establish this objective, it would be necessary to amend the current PPP;
(3) To establish the new plan with a reduction in the tax-funded proportion coming from the government from 73% in 2004 to 50% in 2009, and thereafter;
(4) To attain and to sustain this 50% level of the money from the government:
q the minimum vested conditions should be changed from “10 years’ service and 65 years old” to “12 years’ service and 65 years old”;
q MPs’ contribution rate should be increased by about 74% (from ¥1.27m (E9,161) to ¥2.20m a year);
q annual pension benefits to MPs with 12 years service should be decreased by about 33% (from ¥4.3m to ¥2.9m)
(5) Not to integrate the new plan with social security pensions, which is very different from the 1983 Greenspan Recommendation in the US;
(6) To permit MPs to receive pension benefits from both “the (Central) PPP” and from the Local Parliamentary Pension Plans, which pay very generous pension benefits to the MPs of all local assemblies (about 3,000 assemblies).
In a move that caused great public anger, the conference of former MPs made an amendment proposal in early 2004 for preserving the current plan with smaller amendments.
Unfortunately, under the leadership of the chairman ( a former president of Government Personnel Agency) and the vice-chairman (president of Government Social Security Council), discussions of the joint committee were greatly influenced by this proposed amendment and support for the epoch-making amendments were dismissed, only to be formally submitted as the committee’s own recommendation.
As part of the 2004 amendment, the EPI Plan abolished the cost-of-living indexation for citizens, although the indexation is unfairly maintained for MPs. Unfortunately, calculations for reducing the weighting of the tax-funded proportion to 50% were not made correctly but on an artificial basis, so there would be a significant likelihood that the proportion would increase again to 70-80% in next 10 years.
The parliamentary pension is at a crossroads, not only in terms of pensions and politics, but also regarding social security and occupational pensions.
To harmonise the parliamentary pensions for MPs with the social security pensions for citizens as closely as possible, it is very important to show that the parliamentary pension arrangement at the minimum political cost to a 21st century democratic society.
Unfortunately, Japan has lost a good opportunity to establish a better, fairer and more stable social security pensions for its citizens by bringing parliamentary pensions more into line with these. Though many have strongly opposed this recommendation, the bigger political parties intend to accept it.
Noriyasu Watanabe is professor at Rissyo University in Japan and member of the Joint Research Committee in the Japanese Parliament
Japan’s Parliamentary Pension Plan
Contributors: 722 (Lower House MPs 480, Upper House MPs 242)
Pensioners: 946 (Former MPs 537, survivors 409)
Average annual benefits: ¥4.2m
Average annual benefits of new pensioners: ¥5.0m
Average EPI Plan’s annual benefits of new pensioners with wife with 40
years’ contributions (including NP Plan’s annual benefits): ¥2.8m
Average NP Plan’s annual benefits of new pensioners with 40
years’ contributions: ¥0.8m
n Annual pay of MPs
Japan:Total ¥20.77m (e153,484) (Regular pay of ¥12.36m and bonus ¥8.41m)
US: $158,100 (¥17.2m)
UK: £57,485 (¥11.3m)
Germany: e84,108 (¥11.4m)
France: e80,829 (¥11.0m)
(Noriyasu Watanabe, Parliamentary Pensions in the World (2005. Japanese))
n Funding type
n Relationship with other social security pensions
Japan: No Integration: Members of the Diet can enjoy another social security pensions at the same time.
US: Integration to Social Security Pension (OASDI)
UK: Replaces State Second Pension benefit, ie, the earnings-related part of social security pension
Germany: Independent of the social security pensions
France: Independent of social security pensions
n Minimum vested conditions
Japan:10 years’ service and 65 years old
US (FERS): Five years’ service and 62 years old, 20 years’ service and 50 years, 25 years’ service.
UK: 65 years old.
Germany: Eight years’ service and 65 years old.
France: 60 years old
n Benefit type
Japan: Defined benefit plan only.
US: Defined benefit plan with additional defined contribution plan
UK: Defined benefit plan with additional defined contribution plan
Germany: Defined benefit Plan only
France: Defined benefit Plan only
n Contribution rate
Japan: 10% of regular pay; 0.5% of bonuses
US (FERS): 1.3% of annual pay
UK: 10% of annual pay
France: Lower House 7.85%_2; Upper House 6%_2 (first 15 years)
Japan: Government pays all shortfalls for benefits. In 2004, ¥2,440m, 72.7% of total needed to pay benefits amount came from the general revenue of government
US (FERS): 15.8% of annual pay from the Congress. But it would be supposed that about 90% of total benefits money came really from the tax money in 2004
UK: 24% of annual pay from the government
Germany: 100% from the government
France: (Contributions of MPs), but all shortage amounts would be supplied from each house
n Accrual rate
Japan: 3.3%,(5/150), and additional 0.6%,(1/150) over 11 to 50 years’ service
US (FERS): 1.7%, over 21 years service 1%
n Average years of service of MPs
Japan about 20 years.
Other advanced countries: about 10 years
n Pension payment to MPs with 10 and 20 years’ service
Japan: ¥4.12m (e30,497); ¥4.94m (e36,504)
US (FERS): $26,225; $52,451
UK: £14,371; £28,743
Germany: e25,232; e50,465
France: e18,187; e36,373 ¥/e rates as at 18/05/05