With Japan's population aging rapidly, overhauling the underfunded public pension system for company employees is an urgent priority. The reform package approved by the Cabinet on Tuesday contains important reforms, but it entails painful adjustments. Its primary aim is to balance revenue (premiums) and expenditure (pensions), meaning that premiums will go up while benefits go down.
Pension reform is certainly a difficult undertaking, particularly in times of slow economic growth. Nevertheless, the package, as is, falls so far short of expectations that voters may give it a thumbs down in July's Upper House election -- unless it is improved significantly during coming Diet debates on the package's bills. The ruling and opposition parties will have their work cut out hammering out improvements during deliberations that begin in earnest in April.
The government proposal has two salient features. The first is that an upper limit will be set on the premium rate. The idea is to adjust benefits to premiums, not vice versa. Capping the rate makes sense; otherwise, the premium burden on active workers will reach an unsustainable level at some future point.