A report compiled in early June by a Financial Services Agency council that estimated that a model household consisting of an elderly couple who lived to the age of 95 would face a shortfall of ¥20 million if they don’t work and rely solely on public pension benefits to cover their expenses, and urged people to build their own assets to help cover their retirement expenses, came under fire from both the ruling and opposition parties. In an unusual move, the Abe administration said it would not accept the report as a formal document, effectively withdrawing a report released by a government panel.
As the opposition parties charged that the report raised doubts about the government’s long-standing claim that public pension finance will be secure “for 100 years,” members of the administration have distanced themselves from it, with Prime Minister Shinzo Abe calling the report “inaccurate and misleading” and Finance Minister Taro Aso — who had commissioned the FSA council to compile the report — saying it not only caused “extreme concern and misunderstanding” but deviated from the government’s policy stance. It is deemed that the administration wanted to silence any controversy over the sensitive issue to avert negative repercussions on the performance of the ruling coalition in the upcoming Upper House election.
The report’s conclusion, however, is nothing more than a simple calculation based on statistics about the income and expense of an average elderly household. According to the report, a model household consisting of a husband aged 65 or older and a wife 60 or older who rely mainly on their public pension benefits will have some ¥210,000 in monthly revenue and about ¥260,000 in expenses — and thus experience a monthly shortfall of roughly ¥50,000. If the couple lives 20 years following in retirement, the shortfall will add up to ¥13 million, and if they live 30 years it will reach ¥20 million.
The report goes on to urge people to start managing and investing their assets at younger age to help cover their retirement expenses. A similar calculation has also reportedly been submitted earlier by the Health, Labor and Welfare Ministry based on household surveys.
In response to the controversy set off by the report, the government emphasized that there’s no problem with the financial durability of the public pension system. In fact, the 2004 reform of the pension system focused on ensuring the sustainability of the pension finances against the anticipated decline of the working-age population — whose pension premiums cover the benefits paid to retirees. A mechanism put in place through the reform will curb the level of benefits paid to retirees relative to the income of the working-age population in proportion to the shrinking ranks of the younger generation as the aging and decline of the nation’s population progresses.
With the ever-extending longevity of the Japanese population, it’s estimated that 1 out of 4 people who were aged 60 in 2015 will live to the age of 95 — meaning that the total amount of money needed to pay for their living will increase. As people live an increasingly longer retirement life, it is deemed inevitable that more people will find it difficult to enjoy a decent standard of living by relying solely on public pension benefits. The FSA council report also noted that the average retirement allowances for company workers — which once was another key pillar that supported retirement life — has declined by 30 to 40 percent from its peak to around ¥20 million among people who entered the workforce with university diplomas.
The reported figure — a ¥20 million shortfall in post-retirement funding — may sound alarming, but the amount is a model case estimate and the actual revenue and expenses will differ for each household. However, as the pre-release draft of the FSA council’s report is reported to have warned, it is a realistic assessment that large numbers of retirees will have a hard time covering their expenses with their pension benefits alone.
What is needed, then, is to neither unnecessarily fuel people’s anxieties nor deny their concerns over what the pension system can offer retirees, but instead to squarely look at the plausible prospects of people’s retirement finances and discuss how to cope with them. In that sense, the government needs to promptly update and release its review of the public pension finances — which is released every five years and now due — examine the health of the pension funding in light of the nation’s changing economic conditions, demography and employment situation, and show the prospect of adjustments to the level of pension benefits. That will serve as the basis for public discussions on the future of the public pension system and what will be needed to make up for its shortcomings.
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