The public pension system and people’s concern over their retirement finances emerged as a key campaign issue for the upcoming Upper House election after a Financial Services Agency council report estimated that a model household of retirees dependent on pension benefits to cover their expenses would face a shortfall of ¥20 million if they lived to the age of 95.
Prime Minister Shinzo Abe and his ruling coalition rebutted opposition criticism and emphasized that sustainability of the public pension system will be secure over the long term. However, it is undeniable that the pension system is under increasing pressure as the population rapidly ages and declines, and that benefits will need to be cut as the working-age population — whose premium payments pay for benefits to the retirees —shrinks. Voters’ concern over retirement financing will not go away by simply repeating that the pension system is secure. All the parties involved should engage in practical discussions over what can be done to reform the public pension system so it can reliably support retirees.
The report cited the example of a model single-income household consisting of a 65-year-old former company employee and his 60-year-old wife, and estimated their monthly income and expenses assuming they rely mainly on public pension benefits. Based on official statistics, it calculated that their monthly income would fall short by roughly ¥50,000 and that they would need ¥20 million extra to cover costs if they live to the age of 95.
Apparently worried that such estimates could fuel the electorate’s concern over the pension system and affect voting behavior, the government rejected the report as “inaccurate and misleading.” When opposition parties used the report to attack the government over the shortcomings of the pension system, Abe lashed out against the opposition for fanning public concern without engaging in concrete discussions over pension finances.
But the report only highlighted what is commonly known — that public pension benefits alone do not cover the expenses of many retirees — and put it in the context of the population’s extended longevity. The national pension program, mainly for self-employed workers, offers up to about ¥65,000 a month in benefits to those who pay premiums for 40 years (or some ¥130,000 for a couple) in fiscal 2019. In the pension program for corporate employees, a model household — a husband who worked 40 years earning an average income and his spouse who is a housewife — receives some ¥220,000 in monthly benefits. The amount of benefits vary per household, but many retiree households try to manage by cutting back on expenses and using their savings.
People who have only partially paid into the pension system or not at all receive little or no pension benefits in retirement. That 55 percent of the roughly 1.62 million households on welfare in April were elderly households speaks of the plight of many elderly people.
As many people remain healthy longer in life than earlier generations, the government is taking steps to get more elderly people to remain in the labor market — partially to make up for the labor shortage in the aging and declining population and also to help sustain the social security programs. But while the number of elderly who work is indeed rising, a 2018 survey by the Health, Labor and Welfare Ministry shows that 51 percent of the households of people 65 or older depend entirely on public pension benefits, and 55 percent of the elderly respondents said it’s tough to make ends meet.
Among major parties, only Nippon Ishin no Kai has included fundamental reform of the public pension system in its campaign promises. It’s calling for a long-term transition to a program in which people receive the premiums they pay into the system while working as benefits when they retire. It’s hoped that such reform will help resolve the generational divide over the public pension system — which is said to lie behind the younger generation’s lack of trust in the system’s future. More concrete discussions are needed as to how to move to such a plan while sustaining the current system during the transition phase.
Some opposition parties call for revamping the pension system so that it offers a minimum guarantee of a decent living standard or providing additional benefits to people who receive only partial pension benefits. Such proposals need to be packaged with concrete plans to generate the resources to finance them. The government, for its part, needs to promptly disclose its assessment of the health of the public pension finances — which is released every five years and is deemed overdue, since the last assessment was disclosed in June 2014. That will be the starting point on the discussions as to whether the pension system is truly secure or what needs to be done to reform the system.