The welfare ministry has made public the results of a once-every-five-year review of the financial status of the nation’s pension system. Under the basic scenario, the ratio of corporate employees’ pension benefits to their after-tax salary is forecast to drop from 62.3 percent in fiscal 2009 to 50.1 percent in fiscal 2038 — narrowly clearing the 50 percent threshold that the government promised to maintain as part of its 2004 pension reform. But this projection may be too optimistic.
The ministry’s report assumes that a corporate employee works for 40 years while his wife remains a full-time homemaker. The basic scenario in the 2004 review assumed that a birthrate of 1.39 (average number of children born to a woman in Japan), annual salary growth of 2.1 percent and an annual average yield of 3.2 percent on pension reserve fund investments.
This time the ministry used a lower birthrate of 1.26, but higher figures of 2.5 percent salary growth and a 4.1 percent investment yield on the ¥15.5 trillion pension reserve fund. Given the current global recession, it is not convincing to assume that salary growth and investment yields will attain such high rates. The ministry explains that it is unlikely that the current economic crisis will continue for a long time, adding that other nations use similar assumptions.
The ministry’s report also assumes timely Diet passage of bills to raise the contribution of tax money to the “basic” portion of public pensions from one-third at present to one half. If the bills are not passed, reserves for paying the basic portion will dry up in fiscal 2027. This would greatly affect self-employed people for whom the basic portion is the sole source of pension benefits.
As the population grays, it is clear that the pension system will face difficulties sooner or later. The government and the political parties should present concrete proposals to ensure reliability of the system for a long time to come.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.