Leak indicates long, final round for civil service pension plans

After a decade of talking, reform of civil service pension schemes so as to align their benefits and contributions with those of private sector defined-benefit plans now looks set to happen – in about another seven years.

The Nikkei news service simply asserted this development on 3 October when it reported that the new arrangements would be in place by the year ending 31 March 2013 with the first enabling legislation submitted to the Diet (parliament) by “as early as next year”.

The story appeared with no source as is normal when the Nikkei is handed information by establishment sources seeking to send up trial balloons.

How the multi-trillion yen civil service pension pools, known as mutual aid associations (MAAs), will be managed, and by whom, has in the past proved a stumbling block to reform. If this happens again the mechanism may not be set out in the legislation but left instead to be defined in subsequent administrative orders.

Also likely to be absent is any mention of how funding gaps between the schemes’ assets and projected liabilities are to be filled. These holes are probably large but an absence of reporting requirements means their size is shrouded in fog and kept super secret. It was the crippling size of Japan Railways’ pensions deficit that in 1987 precipitated its division into privatised regional franchises.

The Pension Fund Association for Local Government Officials (known as Chikyoren and not to be confused with the Pension Fund Association) has done much to shed light on the funds it manages; with such startling departures as publishing an annual report and maintaining a web site (http://www.chikyoren.or.jp/) which briefly notes meeting agendas.

Chikyoren manages 16.5 trillion yen for the MAAs of the national police force, prefectural government employees, public school teachers and many municipality and city workers.  It ranks in the most recent P&I/Towers Watson listing, published last month, as the seventh largest pension fund in the world and the second largest in Japan.

The plan maintains a reserve to help any fill funding gaps that might arise in participating schemes but it does not publish their liabilities and neither do they.

The number of members contributing to the MAAs which use Chikyoren’s services – several of which also manage money through other means – has shrunk significantly over recent years from about 3.4 million in 2001 to under 2.9 million today.

The number of MAA beneficiaries currently drawing pensions has risen to almost the same level during the time that the debate over how to bring civil service schemes into line with those in the private sector has dragged on.

Sending up a seemingly endless series of trial balloons is the Japanese way of reaching the vaunted goal of “achieving consensus”. 

This is very like the Chinese system of assessing legal cases by “custom & practice” under which nothing can be done until every participant has talked him or herself to a standstill. The fairness of the decision that can then be doled out is ultimately less important than everyone feeling he or she has been heard.

Unfortunately this process has in recent years melded with political instability and corruption – as well as attempts to stamp out that corruption – and created a policy vacuum which civil servants working for central  government have moved to fill. 

These mandarins see generous pensions packages as their birthright.

The most recent postponement of reform came in 2007. The then ruling coalition of the Liberal Democratic Party and New Komeito submitted a draft bill  aimed simply at  aligning public and private sector contribution levels but the measure was withdrawn soon afterwards. 

A delay of coming up for 20 years is tardy even by Tokyo standards but the 3 October Nikkei story looks very like a firm advance warning of the final leg.

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