This third seminar in the 2011 series, Uncertain Futures: The Individual, Society and the State in the UK and Japan, considered issues relating to employment, retirement and pension reform. Fiscal restraints and demographics are contributing to ongoing policy discussions on working life and pension provision in both countries. Political shifts in the UK and Japan have brought new ideas to bear on these difficult issues. How current governments are responding to social needs and economic circumstances formed the basis of the seminar discussion.
The first speaker, Soichiro Sasago, speaking in an entirely personal capacity, began by stating that his comments didn’t necessarily reflect the views of the Japanese Embassy (in London). He then went on to give a comprehensive overview of the Japanese welfare system, outlining old age pension provision and speaking about future reforms in light of the severity of the current ageing population.
Giving a summary of welfare in Japan, Sasago began by describing how the Japanese national health insurance system works, relating that it covers 70% of medical costs (90% in the case of those over 75) and provides free access to hospitals. Moving onto other areas of welfare in Japan, he said that it is obligatory for those over 40 to pay long-term care insurance for the elderly, that employment insurance benefits are payable for 90-330 days and that income support is means-tested and delivers a minimum amount of benefit. Giving a concrete example, he estimated that someone on the equivalent of £22,000 in Japan would pay roughly £2,270 a year in tax.
Referring to Japan’s declining population and that the proportion of the working age population (20-64) will have decreased from 61% in 2005 to 48% in 2055, Sasago commented that expenditure on health and welfare will, naturally, rise. Total expenditure in 1961 was under ¥1 trillion, rising to ¥105 trillion in 2010 and is expected to soar to¥141 trillion in 2025. Long-term debt outstanding of central and local banks in Japan is huge.
The Japanese two-tier public pension system, said Sasago, is similar to the UK’s but employees are not allowed to opt out of the national basic pension. They are also obliged to join the employer’s pension insurance scheme.
Sasago went on to elucidate the three categories of the old age pension scheme. The first covers the self-employed, farmers and the unemployed and specifies a flat rate contribution of 15,000 a month. The second category is for employees in the public and private sector who contribute with 16.508% of their salary and the third sector is for dependent spouses between the ages of 20 and 60, who are not required to make any contribution.
The task for the Japanese government is how to revise the level of benefits paid particularly in view of the fact that lowering the level would prove unpopular. Consequently, the current and actual level of benefits is higher than the ideal benefit level, as set by the government.
It is hoped that the 2004 Japanese government reforms will be sustainable for 100 years. The basic pension and employees’ contribution levels were increased and though the system will be verified by the government every five years, the contribution levels are set to be fixed after 2017. People won’t be allowed to retire below 60, the pensionable age will rise to 65 and benefits will decrease to a certain level but they won’t fall below 50% of the average wage of the working generation.
A possible future reform, said Sasago, is that the three pension schemes may be unified as, currently, they are unfair and complicated. It is likely that a minimum pension will be established for those who receive low or no benefit, that non-regular employees will receive a better level of pension and that individuals could enjoy contribution exemptions during child care leave to name a few.
In closing, Sasago stated that Prime Minister Kan will be proposing a comprehensive set of reforms of the tax and social security. The deadline for this, initially expected to be in June 2011 will be moved as a result of the March Tohoku Earthquake and Tsunami.
The second speaker, Amanda Rowlatt, began by saying that the overall employment rate in the UK is cyclical, varying between 16 and 64% and that the current rate of employment hasn’t fallen as much as it has in the past. As we are living considerably longer and spending more of our later life in ill-health, said Rowlatt, it is necessary to consider extending people’s working lives. Moreover, the fact that fewer people in the private sector are saving for private pensions (this having peaked in the 1960s) will store up big problems for the future.
Rowlatt went on to explain what the present government has done or has planned in terms of reform including raising the pension age to 66, committing to auto-enrolment with regard to private sector pensions, phasing out the default retirement age to encourage a longer working age and carrying out radical state pension reform resulting in a single pension which can be topped up where necessary.
A simpler universal credit system would merge ‘out of work’ and ‘in work’ payments and ensure that everyone is better off when either increasing the number of hours they work or when opting to leave work.
The problems with the current system, explained Rowlatt, are that it is expensive to administer, that is comprises a complex series of over 30 benefit types, that the financial gains to being in work rather than out of work are slight. At present there is little incentive to work more as, on attaining a certain level of payment, benefit is then reduced. This means that there is an incentive to work up to 16 hours but not beyond.
According to Rowlatt, the new system will replace quite a few benefits such as the working tax credits, for example, but not the disability allowance, contributory benefit, child benefit or pension credit and it will improve work incentives. Rowlatt assured that during the transition care would be taken so as not to reduce anyone’s basic income.
Ending on an optimistic note, Rowlatt said that the new system will lead to improvements in service and operational efficiency; that the increase in incentives for take-up will have an impact on poverty and that households in the bottom three distribution deciles will see their net income rise most – between 1.6 and 2.8%.
The lively questions and comments following the talks covered a range of issues including the stigma attached to Japanese income support as unlike pension and medical support it is not contributory thus not considered a right; the fact that low income has resulted in increasing homelessness in Japan; the reality that increasing the working age is proving difficult as employers are not tending to hire those over 55 despite the fact that they have skills and much to contribute; the suggestion that incentives could be given to women in Japan to encourage them to work and get married/have children as the number of Japanese women who are both working and having children is decreasing; that the new UK benefit system will most probably begin working by 2014; and that the present reluctance to relax Japanese immigration laws is a reflection of the general consensus in Japan that this would destroy Japanese culture.Mr Sasago Presentation
About the contributors
Soichiro Sasago graduated in 1997 from Tokyo University as a Bachelor of Law and joined the Ministry of Health, Labour and Welfare. He has held posts in various departments within MHLW including the Health Policy Bureau, Health Insurance Bureau and Labour Standards Bureau. From 2004 to 2006, he was posted to the Food Safety and Consumer Affairs Bureau, the Ministry of Agriculture, Forestry and Fisheries (MAFF). Since July 2008 Mr Sasago has been serving at the Embassy of Japan in London as First Secretary responsible for issues relating to pension, health and welfare.
Amanda Rowlatt is Chief Economist at the UK Department for Work and Pensions (DWP), and also the DWP Child Poverty Director. She has worked as an analyst in government for over 20 years. She started her career in the Overseas Development Administration, spending 2.5 years in Guyana in South America, and then returned to macro-economics, debt management, and environmental policy in HM Treasury, and a short posting to the European Commission. She moved on to be Chief Economist at the Office for National Statistics and then Chief Economist at the Competition Commission. Her next role was as Director for Trade, Europe and International Financial Institutions at the Department for International Development. Before coming to DWP towards the end of 2008, she spent a year with OXERA, a micro-economics consultancy.
Mark Rebick (Chair)
Mark Rebick (Chair) is Faculty Fellow at St Antony’s College, Oxford University and University Lecturer in the Japanese Economy. His recent publications include The Japanese Employment System: Adapting to a New Economic Environment (Oxford University Press, 2005), Japanese Labour Markets: Can We Expect Significant Change? (Blomstrom et al, ed., Oxford University Press, 2001), and he is co-editor of The Changing Japanese Family (Routledge Markets: Can 2006). He has been interviewed by Radio Scotland, Swedish National Television, The Nikkei Weekly and Nihon Keizai Shimbun, and given presentations at the Rand Corporation, the Japan Institute of Labour and the Japan Development Bank, as well as at numerous universities in Europe, North America and Japan.