The government's latest review of the public pension finance underlines the bleak reality of the pension system under the pressure of a rapidly aging and declining population. It estimates the payout level for a model household will decline by 20 percent in real value in the next roughly 30 years. The level of pension benefits paid to retirees in proportion to the income of the working-age population could fall even further if economic growth falters or plunges into negative territory.
Public interest in the health of the pension system spiked after a report by a Financial Services Agency panel noted in June that a model household of retirees who rely on pension payouts as their source of income will face a shortage of ¥20 million to cover their daily expenses if they live to 95. Apparently trying to contain any negative impact on the ruling coalition in the upcoming Upper House election, the government played down the report as "misleading," even refusing to accept it as an official document.
However, it has already been made clear that under Japan's pay-as-you-go pension system, in which the costs of benefits to retirees are covered by premiums paid by the working-age population, curbing the level of payouts to future retirees will be inevitable as the working population shrinks and the elderly ranks expand. The 2004 reform of the pension system mandated that the payouts will be adjusted in accordance with the demographic changes to keep the pension system sustainable.