Japan: Pension reforms

Proposals

Pension reductions: In November 2012 the Noda administration (DPJ) passed an amendment to the National Pension Act to adjust the previous ‘overpayment’ of pension benefits. The adjustment was due to take place on October 2013 (Yomiuri Shinbun, December 21, 2012, p.27). This arose from the fact that pensions had not been reduced, despite price deflation between 2000 and 2002, and which the pensions were supposed to be be pegged to (Yomiuri Shinbun, Decenber 28, 2014, p. 1; Yomiuri Shinbun, December 28, 2014, p.1). Following the election of the Abe Government (LDP) in December 2012, the Ministry of Health, Labour and Welfare (MHLW) announced that the reduction rate would be set at 1 % from October 2013, an additional 0.7% from April 2014, and then a further 0.5% in April 2015 (Ministry of Health, Labour and Welfare, January 2014, Asahi Shinbun, February 1, 2014, p.32, Nihon Keizai Shinbun, 22 September 2015).
sources: 1, 2

The so-called Macroeconomic slide is another pension reform that is also closely related to the reduction of pensions. This was initially proposed as a part the pension reforms of 2004 by the Koizumi administration. This was a policy introduced to reduce pension spending, with the declared ambition of ensuring that the public pensions system was more fiscally sustainable (Yomiuri Shinbun, October 17, 2015, p. 2). The key aim of the policy was to ensure that the increase in public pensions is lower than the growth rate of wages and inflation (Yomiuri Shinbun, January, 11, 2915, p.21, Yomiuri Shinbun, March 25, 2015, p.13). In particular, it dealt with the issue in contexts where price deflation occurs. Under such circumstances, pensions decline in proportion to the decline in prices. However, this fails to achieve the additional reduction in pension provision relative to prices, thereby necessitatating an additional reduction on top of the amount of the reduction explained by the match with price decline – or the so-called “double reduction”  (Yomiuri Shinbun, October 17, 2015, p. 2). The so-called macroeconomic slide was therefore proposed again under the Abe administration in an attempt to reduce pension spending, and would represent a double reduction in pensions in times of price deflation (Yomiuri Shinbun, January 26, 2015, p.8).

Severity: the pension reductions proposed or to be implemented by the Abe administration represented a significant reduction in pension generosity; however, the scale of the reduction did not constitute a major assault on living standards. For these reasons, we consider the proposal to be moderate.

severity:  moderate

target: the reforms are clearly targeted directly at the elderly; although given that the outcome will affect all of those on public pensions, we treat the target of the initiative as universal

target: universal

Refusal

Imperceptible dissent. Perhaps one of the most evident instances of imperceptible forms of dissent in terms of pensions policy is the stubbornly high level of non-payments into the public pension scheme – 36.1 % in 2012, 38.4% in 2013, and 36.9% in 2014 – which is widely viewed as a result of low levels of public trust in the administration of the pension scheme, and has increased from a level of under 20% during the 1990s (Ministry of Health, Labor and Welfare, May 2014, Nihon Keizai Shinbum, June 26, 2015).

Public opposition. One of the major forms of public opposition to the proposed reductions in pensions in Japan has been through legal opposition and challenge. Thus, there have been a large number of lawsuits conducted throughout Japan, with the Japan Pensioners’ Union (Zennihon Nenkinsya Kumiai) organizing and facilitating pension recipients whose pensions have been reduced since 2013 October to sue the government. So far, 27 prefectures have experienced such lawsuits (Asahi Shinbun, July 28, 2015, p.29). As of February 1, 116,795 cases of complaints being filed and requests for official investigations have been made (Asahi Shinbun February 1, 2014, p.37). This includes a case where 117 pensioners in Chiba Prefecture sought to challenge the pension reductions (Asahi Shinbun, May 30, 2015, p.29). This rested on the argument that a reduction in pensions violated the Constitution Article 25, which guarantees the provision of a healthy and cultural life, and also on the grounds that the reduction infringes property rights. Similar moves saw 32 pensioners in Osaka initiate a legal challenge. These lawsuits were organized by the Japan Pensioners Union (JPU), which advised pensioners to initiate legal challenges against the government for reducing pensions without sufficient consultation (Asahi Shinbun, April 11, 2015). A similar case was witnessed in Fukushima, where 40 pensioners between 50 and 80 years old sought to bring a legal challenge against the government for its reduction in pension provision (Asahi Shinbun, August, 19 2015, p.31). These legal challenges are ongoing. For instance, a more recent case was witnessed in Gifu, whereby 175 people filed a legal challenge against the government, again over the pension reduction (Asahi Shinbun, October 22, 2015, p.35).

In addition, specifically relating to the macroeconomic slide, 35 members of the Japan Pensioners’ Union submitted an appeal bill against the Kanazawakita branch, claiming that the macroeconomic slide system, which reduces the amount of pension will infringe human rights (Asahi Shinbun, June 25, 2015, p.28).

In addition to legal challenges, pensioners organised public demonstrations – which the media dubbed ‘pensioner riots’ (although it’s more accurate to call them demonstrations). This included one so-called “Pensioners riot” in Nagasaki in 2013, where 70 pensioners rallied and conducted street demonstrations opposing the reduction of pensions and claiming that life of the elderly has become harsher along with the sales tax hike (Asahi Shinbun, October 19, 2013, p.31). A similar demonstration was conducted in Aomori as well in October 2013 (Asahi Shinbun, October 17, 2013, p.25).  Moreover, in Kumamoto, pensioners who faced the reduction of their pension benefits combined with the increase of sales tax hike conducted an ‘angry pensioners riot’ in the form of street protest in October 23, 2013.  Many participants of this protest events raised their voice against the Abe administration by highlighting the triple damage to their life from inflation, the reduced pension benefits, and sales tax hike (Asahi Shinbun, October 23, 2013, p.34).

Refusal:
imperceptible dissent, substantial
public opposition (non-disruptive), substantial

Obstacles

As noted above, the government faced a considerable number of lawsuits and appeals from pensioners whose pensions had been reduced, as well as relatively high levels of non-payment to the public pension scheme. This represented a significant level of non-compliance with the public pension system, and worsened an already low level of public trust in the public pension system – thereby also contributing, albeit indirectly, to ongoing problems with regard to the public pension system.

In February 2007, the MHLW was exposed for having lost around 51 million pension data entries – with 21 million still remaining unrecovered by 2014 (Asahi Shinbun, January 18, 2014, p.7) (Yomiuri Shinbun, July, 1, 2015, p.13). In addition, the Japan Pension Service (JPS) lost another 1 million people’s private information, being heavily criticized by the public (Asahi Shinbun, August 18, 2015, p.4). Some workplaces did not follow the appropriate rules, including with regard to the confidentiality of pension contributors. This therefore further complicated the Government’s ability to calculate pension entitlements – i.e. exposing the Government to further appeals and legal claims (Yomiuri Shinbun, July, 1, 2015, p.13). It is in this context in which we should understand the announcement of the government in 2013 that up to around 4 million had failed to join the public pension scheme (Asahi Shinbun, November 7, 2013, p.2). We view this high level of non-compliance, therefore, as a result of both the longer term problems experienced by the government in administering the pension system, and one which the announced pensions cut has both directly contributed (in terms of disincentivising membership and creating significant visible opposition to the scheme) and also indirectly contributed to by unintentionally consolidating an already-existing general sense of malaise with regard to the scheme.

In sum, therefore, we see three obstacles being created by the instances of refusal witnessed with regard to the public pension system: an indirect (unintended) reduction in the reputation and trust in the scheme; substantial non-compliance, in the form of non-participation in the scheme; and governing problems, in terms of both low levels of participation and the high number of legal objections that the government is having to respond to in seeking to administer the scheme (and which is also compounding the implementation problems created by the large amount of lost data).

obstacles (substantial):
indirect (unintended);
non-compliance;
governing problems

Response

Concessions

Partly in response to the criticisms discussed above, the Abe administration modified the reduction rate of pension that was due to take place in April 2014, from 1% to 0.7% (although this was also due to the sluggish economic situation) (Ministry of Health, Labour and Welfare, January 2014, Asahi Shinbun, February 1, 2014, p.32, Nihon Keizai Shinbun, 22 September 2015).

In addition, and also in response to ongoing criticism of both the pension reduction and the tax hike, the Abe government announced in November 2015 a supplementary budget to provide temporary benefits of 30,000 yen to low-income pensioners (Yomiuri Shinbun, November 25, 2015, p.2).

Capitulation

With regard to the so-called macroeconomic slide, its initial proposal by the Noda administration ultimately resulted in its non-implementation, in direct response to the public opposition that it received. Thus, the Noda administration was especially afraid of strong opposition from pensioners (also witnessing internal division within the DPJ over the issue) and eventually backed away from implementation of the proposal (Asahi Shinbun, May 12, 2012, p.7, Yomiuri Shinbun, November 7, 2011, p.3; Yomiuri Shinbun, December 21, 2012, p. 27).

Further capitulation occurred in March 2014 under the Abe administration, which planned to apply the macroeconomic slide (the reasons given were a rise in average life expectancy and a shrinking working population). In particular, it considered a review of the rule that prohibits this scheme from being invoked during deflationary periods (which was due to be applied from April 2014) due to opposition from LDP members, who themselves were concerned about strong opposition from pensioners (Yomiuri Shinbun, March 28, 2014, p.2; Asahi Shinbun, February 25, 2015).

Concessions: we consider the concessions announced to have been substantial- the major element of the macroeconomic slide was removed, which was substantial; but the planned pension reduction largely went ahead except for a small reduction in one phase of the reduction (from 1% to 0.7%). As a whole, therefore, we consider these changes to amount to moderate concessions granted ahead of the adoption of the reductions. However , once we also consider the additional concessions granted after the measures were adopted (see below), we consider these in total to amount to substantial concessions.

Concessionssubstantial

Outcome

Pension reduction

Went ahead?

Yes, but with a concession of the reduction of 1 to 0.7 % for the planned reduction in 2014.

Consequences?

A large number of collective lawsuits against the government across the country. The Abe administration has announced a potential supplementary budget to provide 30,000 yen as a temporary support with low-income pensioners (Yomiuri Shinbun, November 25, 2015, p.2).

These consequences are ongoing and the legal opposition continues – for this reason we consider the consequences of the measures to be substantial.

Further, the granting of post-hoc concessions, whilst a small and targeted measure that will only help the most vulnerable low-income pensioners, does nevertheless represent a significant offsetting of the savings that would be produced by the pension reductions.

Macroeconomic slide

Went ahead?

No – The macroeconomic slide has been implemented from April 2015. However, due to widespread problems in terms of legitimacy, trust and implementation, the government gave up submitting the pension reform bill to the Diet in September 2015, ensuring that the most draconian part of the reform (reductions during times of negative growth) have not been introduced (Asahi Shinbun, September 4, 2015, p.4).

Sum: in sum, we consider the outcome of the proposal to be patchy (affected by three types of obstacles (substantial) – indirect unintended consequences, non-compliance, and governing problems) and problematic (substantial consequences), as well as witnessing substantial concessions (2+2+4=8)