Pensions Are Slowly Vanishing for Japanese Workers
Can this crisis resolve itself?
Although most of the research dates from 2015 it is still relevant and valuable information. Since then calls to action have been made to reform the pension system, however it missed the mark.
Japan is undergoing a pension crisis that’s led to protests from middle-aged workers who fear they won’t be able to retire. The country’s aging population is taking its toll on the country’s pension funds, with an annual deficit of 3.2 trillion yen ($28 billion) by the end of 2015. Some companies are offering some pay to employees to work until they are 70. But even with contributions from workers and employers, the problems persist, and they could get worse in the coming years, Reuters reports. People in Japan are working longer than ever. A record 33.4% of the population was 65 years old or older at the end of 2015, compared with 28.5% in 2004, according to data from the National Institute of Population and Social Security Research, cited by the Japan Times. The ratio is expected to reach 41.1% in 2025.
The Elderly Face A Bigger Issue
That means more elderly people are collecting benefits from the country’s pension programs. Those benefits don’t just go toward elderly retirees. All citizens get a small monthly pension from the government, as do civil servants, but the rest of the population also contributes to a fund. The country has two major types of pension, both funded by employers and employees. The first, called the national pension, covers both people who earn a minimum amount of money through their jobs. People with a higher income are expected to contribute more.
People in Japan are working longer than ever. A record 33.4% of the population was 65 years old or older at the end of 2015, compared with 28.5% in 2004, according to data from the National Institute of Population and Social Security Research.
“It is shameful that an increasing number of Japanese employees can’t make any contributions to the pension,” the chairman of the Japan Pensions Association, Satoru Morita, said in May, the Japan Times reports. “There is a trend that people are working longer and earning more than they used to,” Yoshiki Sasai, a professor at Hitotsubashi University, told The Wall Street Journal.
Part Time Jobs, the Elderly, and Retirement Issues
Even people with part-time jobs or little work are expected to contribute. But some people have started to delay retirement to avoid the charges from their employers. The government recently offered firms an incentive to delay the retirement of workers who have been with the company for 20 years or more. At least 2,000 companies out of a total of 10,000 are offering to pay their staff up to 5% of their salaries for extra years of work.
One reason employees are putting off their retirement is that they’re concerned they won’t be able to afford it. According to Reuters, a quarter of Japanese workers expect to live longer than 65. And in 2015, 14% of people in their 30s still living with their parents. And a big part of that number is because the Social Security benefits they get won’t be enough to live on. The crisis is why the Japanese government is considering increasing the retirement age, according to The Wall Street Journal.
“The cost of pensions is increasing as a result of a rapidly graying population and increasing life spans, and this will put a major strain on government finances,” Bank of Japan deputy governor Kazumasa Iwata told Reuters in January. “We can’t keep seeing the increasing costs of pensions as a hidden tax.”
A U.S. Comparison to the Retirement Crisis
In the U.S., too, the population of older people is growing quickly, with more than 10,000 people turning 65 each day, the AARP reports. In 2014, nearly half of those 65 and older in the U.S. were women, according to the Centers for Disease Control and Prevention, and they are most likely to be poor, live in urban areas, have a high school education or less, and have difficulty walking or climbing stairs. They are also more likely to suffer from mental illness and addiction. About a quarter of the U.S. population has not retired at all, with nearly two-thirds of those 65 and older still working.
The Future of Retirement and Pensions
Shifting the retirement age is one way Japan can close the pension provision gap, he said, and it is likely to prove to be one of the main drivers of Japan’s long-term economic growth, according to a report by the International Monetary Fund (IMF) and the World Bank. Delayed retirement is “one way Japan can make up for pension shortfalls,” said Yoshihide Suga, an economist at the Japan Institute for International Economic Research (JIER).
The Japanese government is finally hoping that the introduction of the DC plan could spur new private-sector jobs, especially in health and education. To ensure the security of retirement, Japanese should weigh the pros and cons of different pension plans, which they are slowly starting to do.
Most in Japan pay about $100 a month into the pension system, no matter how much they earn. People can also pay into a state pension — provided they get up to ten years of pension after retirement. If the employee switches to a new employer that does not have a pension plan, they must transfer their accumulated funds into the DC plan.
Hopefully government intervention can restore the hope of retirement for the elderly and reform the pension system.