NCPA - National Center for Policy Analysis

The Clock is Ticking for Japanese Pensioners

February 20, 2003

This month the Japanese government, which until now has gone out of its way to protect the nation's senior citizens, swallowed hard and moved to re-establish the link between pensions and the consumer price index. In the context of Japan's deflation-ravaged economy that will mean a 0.9 percent cut in benefits.

After more than a decade of economic malaise, during which equity and property prices have tumbled 80 per cent, observers wonder why the government has not done this before.

  • According to one economist, the state pension system registered its first deficit in fiscal 2002 of about $6.7 billion, a figure that will rise to almost $28 billion this year.
  • The situation will get progressively worse as society ages -- the workforce is already shrinking by 0.6 per cent a year and by 2040 there will be only working-age adult for each Japanese over 60.
  • There is already talk of sharper reductions when pensions come up for a five-year review in 2004.
  • There are also plans to scale back favorable tax treatment for pensioners -- workers will be asked to raise their pension premiums, in other words to pay more for lower benefits.

Many economists argue that Japan's economy will never regain its vigor because of its shrinking population. If that is true, pension funds cannot hope to make the investment returns -- at least domestically -- they need; investments in the Nikkei over the past decade have shrunk by four-fifths, while returns on 10-year government bonds yield a wafer-thin 0.8 per cent.

Source: David Pilling, "Golden age over for Japanese pensioners," Financial Times, February 19, 2003.


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