Japan’s elderly will need more money for retirement

Japan’s rapidly aging society will face a retirement shock along with pensions, according to a government report.

The country, which is now due to host this year’s G20 summit at the end of June, suffers from a major funding shortfall for its retired citizens. His financial services agency found that a couple with a life expectancy of 95 will need at least 20 million yen, or nearly $200,000, more than their retirement benefits can cover to live on. comfortably his last years.

Since these payments are usually their only form of income, this poses a huge problem in a country where life expectancy of 85.7 years clashes with a mandatory retirement age of 60. Not to mention that the elderly made up 26.6% of the total population in 2016, according to a 2018 report by Natixis, which also notes that the old-age dependency ratio equates to around “45 elderly people per 100 workers”.

Many retirees also live below the poverty line or with family. And even though the retirement age will slowly reach 65 by 2025, baby boomers will soon leave the workforce in droves.

The government is considering extending this mandatory age to 68, as a significant increase in the number of retirees will create a huge financial imbalance in the Japanese economy.

In the meantime, however, the Financial Services Agency report suggested that individuals need to increase their exposure to risky investments in a bid to bridge the gap, but also need to be mindful of the products they choose.

“For a long time in Japan, the majority of household financial assets were held in cash and bank deposits,” said Toshihide Endo, the organization’s commissioner, in a recent keynote address. “This led to poor performance relative to the portfolios of UK and US households, which tended to invest more in stocks and mutual funds.”

As a safer investment vehicle, Endo highlighted the UK-based Japanese Individual Savings Account 2014 Nippon, which was made more investor-friendly last year. The upgrade, which is expected to end in 2037, increases an account’s tax-sheltered holding period to 20 years instead of five, and it seems to be working.

“There has been a strong demand for these products, with 1 million new NISA accounts after one year,” he said, adding that the government wants to make the product a permanent fixture given the pressures of aging” will only increase with time.”

He also suggested Japan borrow additional pages from the UK’s pension manual, such as its defined-contribution options. This includes retirement date funds, as well as auto-enrollment selections, which drive people to invest.

“The flexibility of the UK’s defined contribution pension schemes and tax-free investment savings accounts, and the authorities’ continued efforts to improve them, are helping to make UK savings and pensions systems fit for purpose. to an aging society,” Endo said. “Perhaps these are powerful examples for Japan when setting our own policies.”

Finally, Endo urged the government to step up the pace for foreign investors to put their money into the Japanese market, which should expand its pool of capital. “Our vision is to transform Tokyo into a global financial center like the City of London, which attracts businesses, people, finance and information from all over the world,” he said, noting that the agency has launched a consultation office to help expedite overseas access.

The commissioner said this economic stimulus would help meet the challenges of aging by encouraging financial institutions to offer more investment products to Japanese people and boosting the country’s markets.

Endo, a Shakespeare enthusiast, ended his speech by channeling the playwright. Rather than serve his people like King Lear, who failed miserably in deciding his daughters’ early inheritance, he would rather Japan’s elderly “go out in the direction of ‘All’s well that ends well'”.

Natixis representatives could not be reached for comment.

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Tags: Elderly people, Financial Services Agency, Japan, Japan aging problem, pension, Toshihide Endo