Murky Proposals for a New “Welfare Stipend”

A Policy Proposal Without Principle

Included in the proposed bill for an integrated reform of the social security and taxation systems, supported by the Democratic Party of Japan, the Liberal Democratic Party, and New Kōmeitō, is a provision to provide elderly people on low incomes with a ¥5,000 monthly “welfare stipend.” This results from a major revision of the government’s initial draft of the bill. The need for compromise to win the support of other parties has blurred the original purpose behind the policy to the extent that even some within the DPJ say they are no longer able to explain the policy to voters.

According to the proposal, a new welfare stipend will be paid to elderly people with an annual income of ¥770,000 a year or less, starting in October 2015, when the rate of the consumption tax will increase to 10% (from 5% now). The stipend will be paid for out of taxes. The figure of ¥770,000 is the amount of the basic pension, assuming no other source of income. The ¥5,000 monthly stipend, along with an additional monthly benefit of up to ¥10,700, is designed to boost the income of pensioners whose incomes during their working careers were low enough to exempt them from making pension contributions. In the case of people who failed to make pension contributions without completing the necessary exception procedures, the basic amount of pension payments will decrease accordingly.

In its original form, the government’s draft bill proposed a flat stipend of ¥6,000 a month to top up the basic pension of those living on ¥770,000 a year or less. But this was vehemently opposed by the LDP and New Kōmeitō, who argued that paying out a flat sum regardless of the pension contributions a person had made during his or her working life would pose a “moral hazard” by undermining the incentive of other people to pay into the system.

New Kōmeitō suggested an alternative: an additional stipend worth 25% of a person’s pension benefit. The logic was that topping up the pension by a percentage of current payments rather than a flat amount would better reflect the contributions people had made during their working life.

But the LDP opposed that proposal, too, insisting that the fundamental principle of the pension system is “no burden, no benefit.” LDP politicians such as former environment minister Kamoshita Ichirō, who has been spearheading the drive to revamp social security, refused to budge from this position.

A Watered-Down Plan

In his eagerness to raise the consumption tax, Prime Minister Noda Yoshihiko directed Maehara Seiji, the chairman of the DPJ Policy Research Council, to cooperate with the main opposition parties. This concession led the DPJ to draft a bill for a welfare stipend separate from pension benefits—thus changing the nature of the bill from a revision of existing pension law to a new piece of legislation altogether. At the same time, the new policy directs that pension payouts will be reduced in line with the length of time a person failed to make contributions, and stipulates that the Japan Pension Service will handle pension payments and other administrative tasks. Leaders of the DPJ Policy Research Council explained that they wanted people to feel that their pensions were getting a boost as a result of the new legislation.

Ultimately, the government managed to hammer out a consensus by incorporating elements of the DPJ, LDP, and New Kōmeitō proposals. But this has come at the expense of watering down the aims and principles of the policy. If the new measure was going to live up to its “welfare stipend” label, it should have been made uniformly available to anyone in need. Instead, by insisting on the principle that the stipend correspond to pension contributions, the drafters have come up with a policy that will penalize those who have not made contributions. The opposition parties that were not involved in drafting the policy describe the bill as a “complete muddle,” and are prepared to oppose it in the House of Councillors.