While the pension problems facing the UK are considerable, the issues surrounding retirement, accumulation and an ageing population are much more severe in Japan. Not only has Japan got the highest debt to GDP ratio in the world after Zimbabwe but the Japanese are also the oldest population in the world.
So, how is it dealing with its retirement crisis and what can the UK learn from Japanese policy and thinking?
The latest data to come from the Japanese Ministry of Health, Labour and Welfare revealed that Japanese males’ life expectancy is now 79.59 and women 86.44 years (this compared with UK life expectancies of 77.4 and 81.6 respectively). This is coupled with fertility rates of just 1.34 in Japan compared with the UK’s 1.94.
Richard Jackson, an academic specialising in ageing and a fellow at American think-tank the Center for Strategic and International Studies, warns that by 2050, 40 per cent of the Japanese population will be pensioners.
Jackson says: “Everybody knows that Japan is ground zero for global ageing. If trends continue, it will push Japan towards a greatly diminished geopolitical role in the world.”
Japan is also the only developed nation more indebted than the UK – the UK’s public sector debt is currently the equivalent of 68 per cent of GDP, according to the Office for National Statistics, but Japan’s public debt is now the equivalent of 18 per cent of GDP.
Just to compound its problems, Japan also has the fast-est-falling savings rate in the world. Japan’s Ministry of Finance policy research institute scholar Kentaro Katayama says: “The savings rate in Japan has declined rapidly. It is said that Japan’s savings rate was one of the highest in the world but an ageing population is a major cause of the sharp decline.”
Katayama says an ageing population, coupled with Japan’s stagnant economy, the increase of government welfare and a move to a more “selfish consumption of durable goods” has meant elderly Japanese have been spending more and saving less, all the while getting older, and he says the savings rate will continue to decline.
This has put a strain on Japan’s welfare state. In 2007, it spent 12.9 per cent of GDP, or 48,273.5bn yen (£356bn) on public pensions, a number that has been rising by as much as 5.6 per cent annually over the last decade. In comparison, the UK spends 4.9 per cent GDP or £68.9bn on public pensions.
The strain on the welfare state has been exacerbated by the chaotic Japanese pension system. Hitotsubashi University Institute of Economic Research professor Yukinobu Kitamura says it is widely acknowledged that there is no accurate central record of the number of pensioners in Japan.
Kitamura says: “It is widely recognised that record management for Japanese pensions has been, moderately speaking, incomplete and, more strictly speaking, defective.”
Japan will have to move beyond the “three box lifecycle” of education, work and retirement
The system has allowed huge frauds – a recent report found that Japan’s oldest man had in fact been dead for 30 years while his children cont-inued to collect his pension. Reports also say Tokyo officials are now searching for Japan’s oldest woman, who is also missing. One Japanese newspaper report says the government is missing 18 centurions.
Worryingly, it seems that the Japanese are further away from a solution that the British. The last Japanese government pledged to “establish a social system that can accommodate a super aged society by advancing reforms” but as yet no concrete plans are in place.
East Asian Institute senior research fellow Dr Lam Peng Er says a governmental advisory panel recently proposed that the consumption tax be more than trebled by 2025 from 5 to 18 per cent if the system were to be covered by tax alone. The Japanese Journal of Social Security Policy says the government may intro-duce a “personal retirement account” to aid younger employees to save.
Kentaro Katayama says: “An economic policy to stimulate the saving behaviour such as a tax incentive on interest will need to be considered.”
But the Japanese people are beginning to change their attitudes towards retirement. Twenty-nine per cent of Japan’s men are now working past 65 and the government is planning further cuts to public pensions, to the extent that Jackson says “reductions…are threatening the adequacy of the system.” There are also plans to improve Japan’s childcare system so women can stay in work for longer.
Jackson says: “Japan must search for ways to strengthen the traditional ethic of filial piety before it weakens irrep-arably. It will have to move beyond the “three box lifecycle” of education, work and retirement. Japan stands at one of history’s great crossroads.” Japan will have to move beyond the “three box lifecycle” of education, work and retirement