business

Pinched pensions limit Japanese consumer clout

27 Comments
By Tetsushi Kajimoto and Stanley White

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“To improve income conditions for the elderly, policymakers need to promote ways to boost their incomes other than pensions, such as by encouraging them to work or raise business income.”

absurd statement.

10 ( +12 / -2 )

Just hike the pension payouts.

This situation will only going to get worse when the consumption tax rises again.

7 ( +9 / -2 )

So we have a significant portion of the populace who are on fixed incomes and won't be affected by wage hikes, and the government thinks that they can stimulate the economy by increasing the sales tax, without increasing the spending power of these pensioners. Not gonna happen. Once more we see that trickle down economics doesn't work. Not only are the companies not trickling down the profits to workers, even if they did it wouldn't affect these pensioners at all.

12 ( +14 / -2 )

"with savings of 20 million yen or more"

Amazing.

0 ( +4 / -4 )

the government thinks that they can stimulate the economy by increasing the sales tax

The government doesn't want to increase the sales tax to stimulate the economy - a strategy that has been criticized by leading economists - but rather to simply to increase its coffers. It not only needs this money to pay down the ridiculous amount of debt it has accrued, but to fund more 'committees' and 'working groups' for useless studies (i.e. more $$ for cronies) and to fund more projects, which increase their kickbacks. The J. government is unbelievably corrupt. Why don't we hear more about it? Because the Abe government has muzzled reporters with its new secrecy law!!

6 ( +6 / -0 )

the government is also planning to raise healthcare costs, which will disproportionately affect the elderly, as it grapples with a huge public debt.

As long as those in the Japanese government continue to believe they have a public debt problem, and that this alleged problem must be "grappled" with, things will continue going downhill. They don't have even a kindergarten level of understanding of how government finance and the economy function.

2 ( +4 / -2 )

"with savings of 20 million yen or more"

That's actually peanuts. Retire at 60 with 20 million savings to support (one average) one man for 10 years (if he dies at 70) and one woman for 20 years (if she dies at 80).

That's 20 million for 30 years to supplement their pensions, only about 670k a year.

That's not good.

5 ( +7 / -2 )

Real wages rose 0.1% in April, the first increase in two years

A whole 0.1%?!?! Wow! A 10th of a percent. Finally I can afford to buy once a month that extra-large size of mixed nuts at the convenience store I've been dreaming of. Thanks, Abe!

6 ( +7 / -1 )

The problem is that pensions are transfer payments, not some kind of savings account that people have.

They report it as such, since they like to pretend it's like that, but it's not.

Working people pay into the pension system, and the politicians, after taking their cut, pay it right back out, to the elderly.

Less working people, bigger government cuts necessarily mean less for the retired.

“It is possible that the increase in pensioners has weighed on consumption, because pension payouts have been falling in real terms,” said Hiromasa Matsuura, economist at Mizuho Research Institute (MRI).

Possible? Glad those super geniuses at research institutes have got this complicated wizardry all figured out.

4 ( +5 / -1 )

The sooner I start planning leaving this place the better, I can't afford fruits, beef or bacon for my children as everything is so exhorbitant. Life is still difficult even with an income of ten million yen and the quality of life is not that fulfilling and rich at all. Japan is not just the place to raise a family.

-1 ( +8 / -8 )

Life is still difficult even with an income of ten million yen

I beg to differ. I made less than that the first few years I started my businesses, and I lived pretty comfortably, even with a family.

11 ( +11 / -1 )

One note about the pensions and lack of speding power; Abe and his cronies just past a law basically ending all chances of the younger generation getting full-time work. Before Abe gutted it, the law said that companies must upgrade temporary workers to full-time status after three years of work. The new law, that Abe claims will help part-time workers, now says that companies can keep any and all positions as temporary for as long as they like.

Now here is how this will likely play out.

1.) Number of full-time workers drops to record lows. 2.) Women most likely won't marry a man who isn't employeed full time. Number of marriages and children born drops to new record lows. 3.) Number of tax payers and amount of taxes collected by government drops to record lows (remember dear politicians; you can only tax what people make so if the average Kenji/Keiko is making less money that means you get less tax revenue). 4.) Government panics and finds that it has painted itself into a corner as raising taxes will not the situation worse but cutting government programs will be even worse.

If Japan can keep its head for 20 years until most of the Baby Boomers pass away and most of the Social Security debt with them (and I am not suggesting that the Boomers have caused this debacle) it might be OK but I am not confident.

1 ( +1 / -0 )

Working people pay into the pension system, and the politicians, after taking their cut, pay it right back out, to the elderly.

When the Boomers were all working (and earning good money, paying huge amounts of tax and pension premiums, which are income-related, during the Bubble) there was a massive surplus in the pension fund that should have been invested and built on for when the Boomers started to retire and welfare costs started to rise - the demographics were there for all to see. Instead the LDP got high on all the 'surplus' money and built empty concrete boxes and roads to nowhere all over the country. It amazes me that no one has had their head put on the block for this. It wasn't even simple incompetence, it was blatant pork barrel.

8 ( +10 / -2 )

It’s been bad for several years, especially fiscal 2014, when pensions fell in real terms by 3.8%, after a 2.5% fall in 2013, and the introduction of a new sales tax.

Interesting article, but it misses an obvious point. Because the vast majority of these pensioers put all their savings over the years in extremely low rate JP savings accounts, they have not enjoyed gains from increases in other investments, like folks in say the U.S. have, through 401k investments in mutual funds, tied to the stock market. So while the government has had a great source of funds to tap into at low rates to fund its debt, the people retiring are paying that price. Sad.

1 ( +5 / -4 )

they have not enjoyed gains from increases in other investments, like folks in say the U.S. have, through 401k investments in mutual funds, tied to the stock market.

Now what folks would these be? Not the majority and the 401k system has many problems. Why would anyone want to follow the US neo-liberal model that has led to the highest inequality among OECD nations?

Some information about 401ks

Not enough people even have a 401(k) plan. Fifty-three percent of the population isn't covered. Since fewer than 10 percent of the population has a regular pension, a huge chunk of Americans depend solely on Social Security, whose typical benefit is $12,000 to $20,000 a year. Even those people with 401(k) plans can't retire because employers don't contribute enough. The meager three percent contribution rate is the lowest in the advanced world. Australia's contribution rate is equal to nine percent of pay. Denmark's is 11.8 percent, Hungary's is 8 percent, Mexico's is 6.5 percent, Poland's is 7.3 percent and the Slovak Republic's is 9 percent. http://www.cnbc.com/id/100578392
-1 ( +2 / -3 )

Welfare is fine. Put in for that.

2 ( +3 / -1 )

Increase pensions. Easy to do. And quit taxing food, meds etc. Idiots.

0 ( +3 / -3 )

Increase pensions. Easy to do.

By how much? What's it going to cost the government, and how is it going to be paid for with a stubbornly large budget deficit?

If you're talking about private pensions, how are you going to force companies to increase pension payouts?

Increasing pensions is far from easy, unless you just whack it on the national credit card and expect future generations to pay it off.

0 ( +3 / -3 )

By how much? What's it going to cost the government, and how is it going to be paid for with a stubbornly large budget deficit?

You increase pensions by typing numbers on a computer keyboard. JapanGal is correct. And the idiots are everywhere

0 ( +2 / -2 )

65 and older account for 40% of all households with savings of 20 million yen or more

Scores of kechi old skins sleeping on their millions, saving fortune for after their deaths... I'm all for helping the 30% of poor elderly but no need to help the 50% that have enough to live well (that is better than working households) and the 20% that concentrate most of riches of the nation.

That's 20 million for 30 years to supplement their pensions, only about 670k a year.

First, it's OVER 20 millions of 'cash', which means a lot more for many and these people tend to own their houses fully paid. Second, their money makes little ones and get royalties while maintaining the capital, so your calculation is wrong. In comparison, many workers survive on less than 670k a year left after they paid their rent, work expenses and (that's getting rare ok) basic child care. Why would improductive old people get more ? Unless you are on a country's suicide mission...

the vast majority of these pensioers put all their savings over the years in extremely low rate JP savings accounts

Urban legend. Only those that have little do that. You never wondered who owned the company stocks and the real estate in the country ? The banks, of course. But who puts money in those banks ?

“To improve income conditions for the elderly

But why ? Make them use their savings. Otherwise, the money will go the next batch of non-spending misers as people tend to be over 65 when they inherit.

-1 ( +1 / -2 )

Pension funds have been mismanaged for decades and those responsible who must have noticed the trends, said/did nothing. They lacked any sense of responsibility, any calculation ability, any management skill. And it still goes on like that. Does the current cabinet think they can fix the problem by raising taxes and try to suck more money from the elderly whose only backup to supplement their meager pension is their equally meager savings?

-1 ( +0 / -1 )

Stop inflating the money supply and the value of a fixed-income pension will rise in real terms.

Abe and Kuroda create these problems and then their lapdog media suggest solutions that completely ignore the fact that the problems were the direct result of their actions.

A 0.1% decline in consumer prices means a 0.1% increase in the real value of any fixed income.

1 ( +1 / -0 )

"Just hike the pension payouts."

"Increase pensions. Easy to do."

"You increase pensions by typing numbers on a computer keyboard"

Obviously the experts at Japan Today comments have a good grasp on the problem at hand. If only the Japanese electorate would just look here to find the answers to Japan's issues. (/Sarcasm. If that day ever came, which it fortunately won't, I'd be saving my money wholly in foreign currency.)

cleo,

When the Boomers were all working ... there was a massive surplus in the pension fund that should have been invested and built on

This is the problem with short term thinking. In hindsight it is always obvious what should have been done in the past.

The unfortunate reality is that we always have to deal with dangerous thinking that puts short term gratification above longer term prosperity.

And so it goes on. Japan, and particularly Abe's government, appears to have no serious intention to deal with its problems before they get even worse.

2 ( +2 / -0 )

“As incomes improve among working generations, private consumption is expected to pick up through fiscal 2016, but growth would be restricted by rising retirees,” said Kiichi Murashima, economist at Citigroup Global Markets Japan.

1% wage hikes aren't exactly a sign of incomes improving. First, a meager bump in pay, while better than nothing, isn't going make a difference in how people spend their discretionary income. Second. "as incomes improve" tax rates on those incomes rise, seriously limiting the benefits of a pay raise.

Scores of kechi old skins sleeping on their millions, saving fortune for after their deaths... I'm all for helping the 30% of poor elderly but no need to help the 50% that have enough to live well (that is better than working households) and the 20% that concentrate most of riches of the nation.

Fair point, however, the "kechi" had paid "millions" into the system, helping support the retirees before them. Their "millions" were earned through long, hard hours of work, and careful financial planning. Also, their "millions" are sorely needed to pay for their health care needs, housing, support for relatives caring for them, etc.

There should be some reform of the public pension scheme. The government could encourage more investment with tax write offs for those who set up a mutual fund, private retirement savings plans, etc., or allow such people to opt out of the public pension plan.

The underlying problem here is a lack of confidence in the economy, and the government constant moves to squeeze more and more money from a heavily taxed population (considering the high living costs). There's no incentive for frugal retirees to more of their discretionary incomes than they already do.

-1 ( +0 / -1 )

@cleo

When the Boomers were all working (and earning good money, paying huge amounts of tax and pension premiums, which are income-related, during the Bubble) there was a massive surplus in the pension fund that should have been invested and built on for when the Boomers started to retire and welfare costs started to rise - the demographics were there for all to see. Instead the LDP got high on all the 'surplus' money and built empty concrete boxes and roads to nowhere all over the country. It amazes me that no one has had their head put on the block for this. It wasn't even simple incompetence, it was blatant pork barrel.

This is an excellent point - and also the crux of the problem. This is Japan, so it's never anyone's fault - especially those in power. Just shouganai, gaman & everyone has to deal with the aftermath. I swear this country is going down the drain... FAST.

1 ( +1 / -0 )

Demographics, especially for a country without much immigration, are just about the one part of the future that you can predict with high accuracy. You just look at the number of forty year olds, your death rate for people in their forties and fifties, and bang, there you have the number of sixty year olds you'll have in twenty years' time.

So criticism of the pension scheme is not reliant on hindsight. It was obvious a long time ago how many people would be retiring now and what their approximate life expectancy would be (i.e., how many years they'd get to receive the pension). It was also obvious how many fewer workers there would be to support them. You just had to subtract the number of babies twenty years ago from the number of people at the pension qualifying age minus twenty.

With people living longer, the minimum age for receiving the pension is going to have to go up. It's that or people are going to have to pay more in. Most public pension schemes were never designed to support people for twenty years or more. People may have paid in all their lives, but the calculations only had them receiving the pension for ten to fifteen years.

1 ( +1 / -0 )

So criticism of the pension scheme is not reliant on hindsight.

You've not supported your argument there, kohakuebisu. I can how, for yourself, criticism of the public pension scheme isn't reliant, but, the government run pension system isn't beyond criticism, and certainly not reform.

A hard, thorough, critical look at the public pension scheme should happen. There should also be provisions for people to opt in as they approach working age, or opt out if they feel the public plan isn't necessary.

Also, most public pension plans don't deliver much in benefits when its time to collect. People would get more from a retirement savings plan (RSP), or some form of investment.

You're also not taking into account that public pension benefits are subjected to taxation. In Canada, they're taxed at source. I don't know if it's the same here, but, even if benefits aren't taxed directly, VATs, property taxes, etc, not to mention basic living costs, take a big chunk of those benefits that go directly back to the government.

You make some good points, kohakuebisu. However, to just dismiss reasoned criticism of the public scheme isn't really the way to go. Japan is faced with serious economic problems, looking at as many options as possible is the best way deal with it.

-1 ( +0 / -1 )

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