The Japan Financial Services Agency recently announced that due to the dwindling amount of reserves available and the declining birth rate, the current generation of young people is expected to be unable to receive the same amount of pension payouts as the current generation of retirees.
Currently, a household of an unemployed married couple aged 65 and 60 years old receives about 200,000+ a month while the average household expense is at about 260,000+. That is a shortfall of over 50,000 yen per month. This means, if they live another 20-30 years, that would be a shortfall of between 13 million and 20 million yen. Therefore, the government is urging young people now to plan for their future by spending less, saving more, and investing. This obviously drew the ire of the young with many claiming that this is but a scam, a broken promise, and requests for the government to at least return what they paid into it.
One comment that stood out online picked up by the late night news said that the pension system fell into this state because young people refuse to vote. While I can’t comment on the factuality of that statement, I find it shocking that the voting turnout rate in Japan is only a little over 50% when in Singapore, it’s over 90%.
It’s been said to death that Japan needs foreign workers but the system and culture doesn’t seem to create an environment that promotes such a policy yet. According to a survey conducted monthly for Reuters by Nikkei Research that polled 477 large- and mid-size firms on the new immigration law that plans to bring in some 350,000 blue collar workers in the next 5 years, some 41% of firms say they do not intend to hire foreigners at all, 34% do not plan to hire many and only 26% have plans to hire such foreign workers. Of those considering hiring, a majority said they have no plans to support them in areas such as housing, Japanese language study and information on living in the country.
But hiring aside, I do not blame the companies on not supporting their staff because I myself have never received such support, so I don’t see the crucial need for it. With the increasing number of English support services regarding housing, phone lines and what not, even without support, workers should be able to get by. It’s true that I had some level of Japanese language understanding when I first arrived, but I know people without any knowledge of Japanese settling down by themselves getting by living here for years. I feel that humans are like that. When you put them in a situation where they have to do everything by themselves, they will be able to do it. But throw them a translator to assist them, suddenly they can’t do anything at all.
If nothing gets done, perhaps it’s not such a great idea to be a permanent resident here. Although I won’t be able to get back all the sum paid into pension, I could still get back a small percentage of it when I leave. I’ve still got some time to think about it.
This is a very important topic which I currently also think a lot about it. Some thoughts:
– The 200,000 Yen/month are already on the better end.
– It is easy to blame young people for not voting, but the truth is also, that they are already in a minority. So the majorly (elder people) can ensure that their benefits don’t diminish. This is a voting behavior that is seen in other aging developed countries as well.
– While neither you or me needed or received support, I think its different from people from emerging markets who have a less understanding in english/japanese, who also have a less understanding of how the social setup in Japan (or other developed countries work). So I think for the mass more support is necessary.
– There are steps introduced the last years so people can invest more into their own pension, but imo they are half-baked.
– While it is a long discussion for itself, if pension should be arranged by government or privately, the currently added pension investing (Nisa, tsumitate, Nisa, iDeco) attracts the usual amount of high fee products from the financial industry. Understanding that needs a lot of reading and studying, and I am not sure if that is in the interest of most people.
– While iDeco, (tsumitate) Nisa are a good start, it is clear that there is a fight between the governmental part who wants to enable better pension investment and the tax office who fights against using tax loss.
– Therefore it makes no sense that (tsumitate) Nisa is time limited. Also the max investment in iDeCo is pretty low currently (23000 Yen a month). Considering the gapmentionend of already 50000 Yen a month, and compared to other countries, this is not that much.
That’s a lot of good points you’ve raised. I was discussing this with another colleague in her 50s recently, and she suggested that the 200,000 yen is for households with 厚生年金, and those like me who are under 国民年金 only receive about 60,000 yen a month. My response then was, “Wow, 60,000 yen’s not bad.” And she was surprised. Reason being, I don’t plan to rely entirely on the Japanese pension system to retire in the future, and so, if I can get 60,000 a month out of the Japanese pension, that’s a pretty decent additional income for me, so I agree that 200,000 is pretty good to me. But I understand why the Japanese people feel betrayed since many of them assumed they could depend on the pension entirely after retirement.
I’ve never been trusting of money not in my own hands, that’s also why, despite being ranked one of the best pension systems in the world, I’ve not contributed to my Singapore pension fund since I stopped working there. Many people suggest I should do it voluntarily due to the high interest rate and also the fact that working here means I don’t get employer contributions unlike those working in Singapore (and also I can use the money to buy a house). But a brief check with someone my age making decent salary and saving decently, our total networth is about the same except that her cash-to-pension ratio is about 40:60, while mine is closer to 90:10. That’s to be expected since 10 out of my 12 working years were spent in Japan. Nevertheless, I find the argument that “you can use the money to buy a house” most ridiculous because using cash makes more sense since I don’t have to pay back the interest into my pension should I sell it in the future, but I digress.
Japanese investment options are very unattractive as you probably already know as the returns are typically very low + a 20% tax on profits makes it hardly sensible to take the risks involved in the ones with higher returns. I’m still trying to figure out what to do with my money but if you have some tips, I definitely want to hear more.
I agree, as a base for the living neither 60,000 or 200,000 a month are bad as a base. But depending on were you live, and with raising health costs when you get older, it still sounds harsh now.
I am also skeptical how that will develop over the next 25-30 years for our generation and if the government can keep the promises, so I am more focused on getting my own wealth for after retirement. I will not bed on living on the governmental pension.
I am not into owning a house or so. Maybe I am wrong on that and understand that Japanese market not enough, but so far it doesn’t look appealing.
As mentioned above, there are currently two option for pension investing in Japan:
– iDeco: The benefit here is that the amount you invest (limits depend on the work conditions) can be deducted from you taxable income. The profits that accumulate in the account are taxfree. But you cant access the money until you retire (even if you leave Japan), and when you start with drawing money from it when you retire, it is taxable income.
– tsumitate NISA: There are no immediate tax benefits here, but here all the profits with it are taxfree, and the money can be withdrawn anytime. For example if you invest into a fund 400,000 JPY into a fun and after 10 Years its 1,000,000 and you decide to remove it from the container – the profit remains completely taxfree.
If you are interested in retirement in Japan – there is a lof of info and a good community in the forum of http://www.retirejapan.com/
Thanks! Apparently, they released the official statement that the 20 million yen shortfall per household is not an exact representation of the situation. The media has blown it out of proportion, or so the saying goes ¯\_(ツ)_/¯