How Secure is Retirement in Japan?
Bangkok (UN Information Services) – Japan is facing monumental challenges in its public pension system with rising numbers of elderly facing insufficient funds for support over the two decades of averaged expected life after retirement, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) reported in its latest regional survey.
The Economic and Social Survey of Asia and the Pacific 2008 says there is a need to re-examine the basic pension which “alone does not guarantee sufficient income to support the minimum standard, particularly for single households.”
The Survey notes that “a possibly significant proportion of elderly people experience difficulties in maintaining a minimum standard of living – particularly those unable to earn additional income beyond the basic pension.”
Ongoing socio-economic changes were also causing an erosion of the traditional family support system, as was the increasing number of households with one or two elderly people.
The Survey notes that Japan’s elderly tend to have lower incomes than the working age population, with 45 per cent of Japan’s elderly households belonging to the lowest income quartile. “In 2002, more than 20 per cent of elderly people in Japan had incomes below the poverty line, compared with 13.5 per cent among the working population,” the Survey says.
The Survey found that in disposable incomes, Japan’s elderly as a group remained reasonably well off, maintaining 80 per cent of the working age disposable income. While older people spent significantly less on housing than the younger generation, “almost 30 per cent of elderly single-person households (65 and older), however, do not own a home.”
Many elderly households, as a group, do appear to have sufficient savings to support themselves – however, distribution remains uneven. The Survey points to research which indicates that as many as “20 per cent of people older than 60 have no savings.” Also, the savings rate among elderly households was declining from over 20 per cent in the 1990s to just over 10 per cent in the early 2000s. Also, many people in their 60s work to supplement their pension income. But as they age they come to rely largely on pension benefits.
There are two principal forms of public pension systems in Japan. The Employees Pensions Scheme (EPI) for private sector employees and the National Pension System (a basic pension). The latter largely consists of self-employed people, farmers and many of the non-regular workers not covered by the EPI.
While the public pension system is seen as “not very progressive,” it does contribute to poverty reduction among households. At the same time, the Survey warns, “the basic pension alone does not guarantee sufficient income to support the minimum standard, particularly for single households.”
But, the Survey adds, livelihood assistance – meant for the poor and requiring stringent means and asset tests – is compounded by the stigma of the scheme so only a small portion of those eligible apply. Up to 28 per cent of elderly single households and 11 per cent of elderly couples could otherwise receive assistance compared with the five per cent granted support in 2001.
The public pension system, while meant to be universal, has instead “created pockets of the population that, for one reason or another, are wholly or partly excluded,” especially due to payment default as a result of the 25 year minimum requirement to be qualified to receive the pension.
The Survey says there are lessons that can be drawn from the Japanese experience in creating a universal pension scheme and the challenges faced in developing a coherent and effective social insurance scheme. It recommended closer examination of alternative schemes, such as the superannuation policy in New Zealand, as a way forward in designing future policy.
As the region's most comprehensive annual review of economic and social developments, ESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2008 Survey, entitled “Sustaining Growth and Sharing Prosperity” looks at the most critical issues, challenges and risks our region faces in the months ahead.
Headquartered in Bangkok, Thailand, ESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.