SHOCKING FACTS ABOUT JAPAN’S INADEQUATE PENSION SYSTEM
“I am shocked! Told abruptly that the average Japanese couple needs an extra ￥20 million (US$185,000) in addition to pension income to live out their remaining years comfortably, there’s really nothing a member of the younger generation like me can do.”
These comments came from my young engineer friend, who was reacting to a controversial report released by the government’s Financial Services Agency (FSA) on June 3. It stated that, because the government’s pension system is insufficient, an aging Japanese couple with a 95-year life expectancy with no other form of income will require ￥20 million more than what their pension benefits can cover to make ends meet through their post-retirement life. My friend is in his thirties, runs a small engineering firm, and is married with a two-year-old daughter.
He was shocked that the FSA called on the citizens of the world’s top country for longevity to take greater charge of their finances in planning to live their remaining years comfortably, urging them to more proactively manage their financial assets to make up for the government’s ineffective pension system. The report states that, because an average retired couple (husband 65 or older, wife 60 or older) are believed to require ￥260,000 (US$2,407) as monthly living expenses but receive a pension of only ￥210,000 (US$1,944) per month, they will face a monthly deficit of ￥50,000 (US$463). The report pointed out that, if they live 20 years after retirement, the couple will be short by a total of ￥13 million (US$120,370). If they live 30 years after retirement, they will be ￥20 million (US$185,000) short.
Because of a dramatic extension of life expectancy in Japan following the end of the last war, it has become mandatory to plan our financial future more carefully than before. And yet, I don’t blame anyone, including my young friend, for being shocked by the FSA report.
The “￥20 million shock” that my friend is experiencing now reminds me of my own “￥1 million shock” that I had in my late twenties as an aspiring journalist.
During those days, the Tokyo bureau of an American newspaper I was working for suddenly pulled up its stakes, compelling me to start a new career as a freelance journalist. To be honest, I was totally unknown in the Japanese media then. And I badly wanted to be a full-fledged journalist.
So I started writing articles without any idea who would buy them. I vigorously thought up story ideas, did my research until I was satisfied with what I had, and took great pains in rewriting my drafts time and again. But it was very difficult to find editors willing to use my pieces. In the meantime, expenses piled up with little money coming in, compelling me to live a life of dire pennilessness—I say without exaggeration.
In a desperate effort to support myself, I took up translation assignments. Translating what others had written into Japanese or English presented its own difficulties different from writing magazine or newspaper articles, but it brought in a steady income.
Stunned by Sum Never Before Imaginable
While I initially did translating work between writing articles, I was gradually driven to devote more time to translation. One day, I was stunned to find how much money I had accumulated in my bank account. I instinctively felt a stab of fear about what I was doing. The amount in my bank account was huge by my standard. I had always wanted to be a journalist, but was earning a significant sum of money as a translator. What should I do?
I feared I wouldn’t amount to anything should I continue translating. I was afraid I would lose sight of my original goal forever unless I changed course right away. Driven by a sense of urgency, I made up my mind to fundamentally forego translation altogether and get back to news writing—not an ideal profession as far as earnings were concerned.
What I had in my bank account at the time was approximately ￥1 million. It translated into a mere US$2,778, but was a real pot of gold at the time, especially for a young journalist-to-be.
Unlike the sense of money entertained by the middle-aged and seniors today, that of the younger generation is modest. Politicians must not forget this. As I recall my own “￥1 million shock” of nearly four decades ago, I think I can understand why members of the younger generation today are baffled by being abruptly told that they would be ￥20 million short in their post-retirement life.
Living in Japan, where we can reasonably expect to live to a great age, compels us to plan for our future by taking into consideration many vital points, as I will explain later. I believe it worth paying attention to questions raised about the FSA report by Etsuro Honda, former ambassador to Switzerland and a respected economist. Honda took issue with how Finance Minister Taro Aso disseminated the report on the government’s inadequate pension system. He stated:
“Aso was only speaking for the FSA in discussing the report at the Diet. The report makes a special note of the ‘greater importance of financial assets held by aging couples,’ obviously reflecting the agency’s awareness of the significant savings Japan’s senior citizens have built. This is synonymous with its assertion that they must invest more for asset building.”
To support the lives of senior citizens in a rapidly aging society, the government must work with a comprehensive new vision to get out of its vertically segmented pension administration system. There is a need to explore: 1) how much an average couple will require to live out their remaining years comfortably and what taxation system is needed to allow aging citizens to live happy retirement lives; 2) how to maintain the health of individual citizens; 3) how long should senior citizens be permitted to work; and 4) how citizens can enjoy happy and meaningful lives outside the jurisdiction of all of the ministries and agencies concerned.
Honda criticized the FSA report for having created unnecessary worries among a cross section of the people of Japan.
“If the FSA had explained more minutely the plain facts about the government’s pension system and the overall financial situation of Japanese households, the public would have been able to take a more prudent look at the reality they are faced with. It’s no time to panic. The younger generation still has plenty of time to prepare for their post-retirement. Generally speaking, our senior citizens are in fact far from hard pressed financially, as the average bank deposit of a senior household is estimated at ￥23 million (US$212,965), with the median number at ￥15 million (US$139,000), showing that there are differences between households. But the fact that our senior households have a certain level of savings must definitely be recognized in objectively discussing this matter.”
Needed: Forward-Looking Vision
According to the latest family budget survey conducted by the Ministry of Public Management, Home Affairs, Posts and Telecommunications, the average net savings of households headed by persons in their sixties is estimated at ￥21.77 million (US$ US$201,574) after deducting ￥2.05 million (US$18,980) in debt. Meanwhile, the average savings of households headed by persons in their seventies is estimated at ￥22.64 million (US$ 209,630) after deducting ￥1.21 million (US$11,203) in debt.
The percentage of home ownership among households headed by persons in their sixties is 93.3%. It is higher, at 94.8%, among households headed by persons in their seventies.
These are the real numbers. Senior citizens living on a pension alone against such a backdrop may presumably have already started spending down their savings up to a point, but there are a good number of those who are financially stable enough to make up for the ￥20 million deficit referred to in the report. Needless to say, we should recognize households unable to cover the ￥20 million deficit and implement effective countermeasures to back them.
Japan has aspired to be a nation with long life expectancy, and we have fulfilled that goal. How should we enjoy and utilize this magnificent accomplishment going forward? This is a subject we must earnestly grapple with. Japan has improved its public medical care system by introducing a universal health insurance program, coming up with a variety of safety nets for people unable to live on their own, which we need to continue improving.
Japanese are hard-working by nature. Presumably, most of us desire to work as long as possible, preferring to manage our own affairs as much as we can. As the sayings go, it should be our ideal to “be active until death” (“shogai gen-eki”) or “stay healthy until dying a sudden death” (“pin-pin korori”).
I also suspect that, rather than living on a pension alone, most of us would rather live our post-retirement life in such a way as to be useful to others, enjoy doing some work and gain some income, be in a position to pay what taxes we owe, and be able to lavish our pocket money on our grandchildren once in a while.
If that is the case, the government must take countermeasures aimed at turning to the innate Japanese sincerity toward work and create an environment which encourages the people to have a positive vision toward the future. What is needed to invigorate the young people while simultaneously supporting state finances? What should the central and local governments do to reach for a new horizon which nurtures the spiritual wealth superseding material riches? To attain that goal, Japan badly needs invigorating measures based on a forward-looking vision.
Simultaneously, we the people must realize that we are ultimately responsible for our own lives. As for me, I earnestly hope that, when my time comes, I will still be writing something right up to the week before my death. (The End)
(Translated from “Renaissance Japan” column no. 856 in the June 20, 2019 issue of The Weekly Shincho)