The Financial Services Agency earlier this month released a report on the future financial security of senior citizens that suggested people would have to save more to make up for expected shortfalls in the public pension system, sparking public anxiety and major controversy over the government program’s dependability.

The report presented an estimate that stated, in one scenario, as much as ¥20 million would be required to make up for such deficiencies for an “average” retired couple in their 60s or older.

But for many, particularly those of the younger generations, saving ¥20 million is seen as a daunting task. Meanwhile, data also suggests many elderly households have more than ¥20 million in savings.

What are the issues behind the controversial report and what is the status of the public pension system now? Here are some questions and answers to help assess the current situation.

How is Japan’s public pension insurance system structured?

It consists of three components:

The Japan National Pension system, or kokumin nenkin, applies to all residents in Japan aged between 20 to 59 and irrespective of nationality. They are basically obliged to join and pay premiums into the system.

The Employees’ Pension Insurance system, or kosei nenkin, a mandatory supplemental pension plan for corporate workers.

The Mutual Aid Associations, or kyosai nenkin, an additional mandatory supplemental pension plan for government workers.

The Employees’ Pension Insurance and Mutual Aid Associations members usually pay higher premiums in accordance with their income levels and receive higher benefits than those covered only by the basic pension system, such as self-employed people.

Currently, those covered only with the basic pension are required to pay ¥16,410 per month, regardless of their income levels.

However, numerous people, particularly younger workers with unstable, irregular jobs, do not pay premiums into the obligatory basic pension system. This could make them ineligible to receive pension benefits when they get older and are unable to work.

What does the report say?

The report, compiled by a 21-member working group composed of outside experts and academics, was intended to encourage senior citizens to strategically manage their retirement funds.

It highlights that the declining number of children that are being born coupled with the graying population will strain the existing financial system. As more people live longer on average, more money will be required to support such an expanding demographic, according to the report. Along with pension benefits, retirement payments have been declining in the past few years.

It also recommends that workers start their financial planning early and save and invest for the longer term.

How did they crunch the numbers to come up with the ¥20 million shortfall?

The report raises questions over whether the nation’s pension system will have enough to support post-retirement life for the elderly.

The model used by the report assumed a scenario in which a retired couple with a husband older than 65 and a wife older than 60 were not working and had no savings in the bank.

The scenario in question determined the couple on average would spend ¥263,718 per month and receive ¥209,198 in income after their retirement.

Of that income, 92 percent was social welfare benefits. This creates about a ¥55,000 gap monthly.

Presuming the monthly shortfall persists for 30 years, the report concluded about ¥20 million would be needed.

Are there any problems in the model simulation?

One major issue is there is wealth disparity among households in Japan, and thus the model, which looks at an average, doesn’t tell much about the different realities most people face.

According to a 2015 Ministry of Internal Affairs and Communications survey, households whose head is 60 years or older have about ¥24 million in savings on average. The figure is higher than the ¥20 million savings recommended by the agency’s report.

About 18 percent of households headed by someone in their 60s have as much as ¥40 million or more in savings, whereas about 22 percent of households in the same age category have only ¥5 million or less saved.

The same survey also reveals significant intergenerational gaps in savings. Households headed by someone 29 years or younger have on average only ¥2.5 million in savings with debts of ¥4.9 million, a net loss of about ¥2.4 million.

Between those 40 to 49 years old, the average savings is about ¥10.24 million, but they carry about ¥10.68 million in liabilities.

There is, however, a net surplus of about ¥22 million on average once the heads of households reach their 60s.

What should people do then?

There is no magic number in how much money has to be saved that universally applies to everyone.

Kazuhiko Nishizawa, an economist at the Japan Research Institute, said it is important to understand how much money one would need for retirement. Whether through savings or investment, people need to individually do their financial planning, he said.

However, those who work in unstable, irregular jobs, and who are already struggling to pay the premiums for the basic pension plan, may not have much wiggle room for saving money, said Kazumasa Oguro, an economist at Hosei University in Tokyo.

The young generations need to be aware that they may face harsher realities than that which the report showed when they reach retirement age, Nishizawa warned.

“It is impossible to live on the pension alone for sure,” he said.

How did the government respond to the report?

Prime Minister Shinzo Abe has played down the significance of the report, saying it is “inaccurate and has caused misunderstanding.”

He emphasized the report is contradictory to the government’s official view that the pension system can be counted on as a source of income for retirees to some extent.

Meanwhile, Finance Minister Taro Aso, who tasked the expert panel to draw up the report, refused to receive it — a highly unusual move.

Political analysts suspect that Abe and ruling Liberal Democratic Party and Komeito lawmakers are fearful that the report may inadvertently give a boost to opposition parties ahead of the Upper House elections expected to take place next month.

What is the state of Japan’s public pension system in general?

It appears to be dire, as has been pointed out for several years. The combination of a growing senior citizen population and a dwindling working-age population is destabilizing the foundation of the system.

Back in the early 2000s, every four workers aged between 20 and 64 supported one senior aged 65 or older. By 2050, the Finance Ministry estimates 1.2 workers will have to shoulder the burden of supporting one retired or elderly person.

In addition, the government has yet to unveil this year’s findings on the state of the pension system that is required every five years. The failure to do so has drawn much criticism from opposition lawmakers who claim the government has intentionally delayed its release because of the upcoming elections. The government has flatly rejected the notion.

Enacted in 2004 as part of the country’s pension system reform, the evaluation looks into whether pension replacement rates — a percentage showing how much pension benefits supersede income — are above 50 percent over the next 100 years.

Oguro, the Hosei University economist, pointed out the country’s pension replacement rate projections have been falling in recent years.

“I cannot say what the latest rate projection will be in this year’s report,” he said. But he added if you look at the numbers for 2014, with a rate of around 62 percent, that compares with a projection nearly 40 years out made in a 2009 report that put the rate at about 50 percent, a substantial drop.

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