TOKYO – Japan’s government unveiled estimates on Tuesday that showed public pension benefits steadily declining during coming decades, as it prepares to open up a debate on social security reforms needed to support an aging population.
Curbing bulging welfare spending is a vital step toward fixing the industrial world’s heaviest debt burden, which is currently more than twice the size of Japan’s $5 trillion economy.
While Prime Minister Shinzo Abe’s government has made welfare reform a top priority, it has moved slowly due to fears that it could alienate the public.
Japan has one of the oldest populations in the world, due to a low birth rate and people’s longevity, putting pressure on its pension system.
In its pension estimates – which are issued every five years to gauge health of public pensions – the government estimated monthly pension benefits at 220,000 yen ($2,087.48) per model married couple, worth about 61.7% of pre-retirement income.
This pension-to-wage ratio is projected to fall to about 51-52% by the late 2040s, with the possibility of sliding further to around 45% in the 2050s, depending on growth and population outlook.
By some estimates, the ratio would fall below 40% in the 2050s, assuming the national pension fund dries up while the economy contracts mildly and labor participation stalls.
The government presented six types of estimates based on various scenarios, including a high economic growth case and base-line case.
The estimates also took account of optional scenarios such as a wider range of part-timers include in corporate pension schemes, and delayed pension payments for people who work well past their retirement age.
The estimates were largely unchanged from the prior projections made in 2014, due partly to rises in the number of people paying into the system and rising yields on investment.
The government has vowed to keep the average pension-to-wage ratio from falling below 50%, but worries are persisting Japan’s ‘pay-as-you-go’ pension scheme may be unsustainable, with fewer workers paying into it and a larger retired population drawing from it.
“In Japan, adjustment in pension benefits and burdens has been lagging, while the overhaul of pension system has been left untouched,” said Kazuhiko Nishizawa, social security expert at Japan Research Institute.
Pensions in Japan are a politically sensitive topic.
The estimates came a month after July’s upper house polls, raising some speculation that the government may have delayed the release until the elections were out of the way.
In June, a report by advisers to the Financial Services Agency said a model case couple would need 20 million yen on top of their pensions if they lived for 30 years after retiring, fuelling doubt about pension sustainability.