One of the biggest fiscal issues — if not the biggest fiscal issue — facing the government is the expected steep increase in the number of seniors who will require welfare benefits after retirement. Everyone assumes that the various national pension systems by themselves are not enough to sustain a minimum standard of living for the people who receive them, and so they will need additional income, either in terms of savings, returns from investments or wages.
Back to work?
In a recent survey conducted by the prime minister’s office and whose target respondents were people between the ages of 35 and 64, nearly 70 percent said that they are not now, nor do they think they will be, financially prepared for retirement. The government, anticipating this reality, several years ago passed a law to ensure that people who wish to work after their designated retirement age will be able to do so, though, as is often the case with socially-minded legislation, there is no compulsion toward employers to make this happen or any penalties if they don’t. It’s up to the employee and the employer working together.
In any case, when asked if they want to work after “retirement,” 31.4 percent of the respondents said they would after the age of 65, and 20.9 percent said they would want to do so after the age of 70. That means more than 52 percent want to work after the age of 60, which is still the standard retirement age at most companies. When asked why they want to work, 77 percent said “to make a living.”
As far as people who are trying to save money for their old age, only 1.6 percent admitted to having “more than enough,” with 21.7 percent saying they have saved or expect to have saved “the minimum necessary.” Of those who answered that they haven’t saved enough, half admit that their savings is “almost nothing,” with 74 percent in the 35-39 age bracket saying their savings is “insufficient,” which probably means nothing so far.
But perception of what they need is also an important consideration. In a survey conducted in June of 2013, the Ministry of Internal Affairs found that the average household whose head is between 60 and 69 spent ¥259,695 a month. This amount dropped to ¥196,500 for households whose head was over 70. According to another survey conducted by the Central Council for Financial Services Information, respondents who are currently working believe, on average, that a retired person needs ¥260,000 a month to live off of.
The government organ, Japan Pension Service, says that the monthly pension income of a retired “model household” is ¥230,000 a month, which comes down to ¥100,000 for a husband who was enrolled in the company sponsored koseinenkin system, ¥65,000 for the same husband’s basic pension (kiso nenkin), and his wife’s own basic pension of ¥65,000. The model assumes that the husband and his employer paid into both pension systems for a full 40 years, and since the dependent wife, as the spouse of a full-time regular employee, is categorized as a “number 3” national pension subscriber, she is assumed to have paid her fair share, even though, in reality, she paid nothing.
This model household, however, represents a minority. Many other households have heads who are non-regular workers or who were not consistent in terms of payment schedules over the years. And there are other factors that can reduce what a household can expect. The JPS survey found in July 2013 that the average retired household of a former regular employee who paid into the koseinenkin system was ¥215,780. The monthly benefit for people who paid into the basic pension system for a full forty years is now ¥65,541 a month, but the average payout is ¥49,947. Households whose heads are between 60 and 69 said on average that their pension income was 44,000 less than what they needed.
This latter point is important because payments for the basic pension don’t start until age 65 for both spouses, so even for a model household, that means if the breadwinner retires at 60, their pension income is only ¥100,000 for five years. That means they would need another ¥160,000 to reach the level that most people now think you need when you retire. So for those five years, the couple will be short about ¥9 million in total.
In addition, the government is trying to extend the starting age for koseinenkin payments. Right now it starts at 61, but eventually the government wants it to start at 65, or even later, so that limit will rise gradually in the future, further reducing the pension amounts that people receive if they retire at 60. That’s why the government is trying to encourage employers to retain employees even after their mandatory retirement age. According to Asahi Shimbun, employees who are retained after retirement are essentially let go and then rehired at one-fourth to one-third their former salaries. There is nothing in the new law that guarantees a minimum wage for these workers.
And with boomer retirement increasing through to the middle of the next decade, it’s assumed that senior welfare rolls will just keep increasing as well. In 2011, 46.4 percent of the 2 million people on welfare were over 65. The majority of these people are seniors who only receive basic pensions and have no other income or property. The only bright spot is that many boomers already own their homes, so at least they won’t end up on the streets.