Japan's creaking pension system could deal Abe election blow

Fresh concern over the ageing nation's pensions system comes before national upper house elections due next month.

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    A rally against the government''s handling of Japan''s pension system on June 16 [Emi Nobuhiro/Bloomberg]
    A rally against the government''s handling of Japan''s pension system on June 16 [Emi Nobuhiro/Bloomberg]

    Japan’s pension system has been a worry for decades and fresh concern erupted at a tenuous time for Prime Minister Shinzo Abe, just weeks before national elections for parliament’s upper house.

    A report published June 3 on the Financial Services Agency’s website pointed to serious shortfalls, saying a couple in their sixties retiring on a pension would need a nest egg of up to 20 million yen ($184,000) to help cover living expenses. Opposition parties seized on the renewed unease, trying to leverage the rapidly aging country’s creaking pension system to dent Abe’s majority in the election.

    “The government is trying to cover up things that are inconvenient,” Yukio Edano, leader of the main opposition Constitutional Democratic Party of Japan, told a press conference last week. “And isn’t it the job of the government to figure out how we can build a system that will work even if people don’t save 20 million yen?”

    The pension issue typically tops surveys of voter concerns in Japan, the world’s most aged society, and has the potential to trip up Abe. Even though his ruling Liberal Democratic Party-led coalition is set to retain its majority in the election for the less powerful upper house expected on July 21, opposition parties are looking to erode Abe’s power by showing his LDP as out of touch with the financial concerns of ordinary Japanese.

    Finance Minister Taro Aso, who oversees the agency, effectively withdrew the report, saying it had caused misunderstanding and it was possible to live on the public pension.

    At a rally of several hundred people in central Tokyo on Sunday, protesters accused Abe’s government of financial bungling and waved placards reading: “Give us back our pensions!” Hanae Nakao, 37, who joined with her baby, said the government had its spending priorities wrong.

    “If they have enough money to buy weapons, I would prefer them to switch it to pensions,” she said, adding that she was unsure whether she would be able to save up 20 million yen by the time she retires.

    Falling Support

    Social media lit up with complaints from people who said they had little hope of ever accumulating as much as 20 million yen. According to the National Tax Agency, Japan’s average salary was 4.3 million yen last year, but the figure varies widely between men and women, as well as those on full-time contracts compared with casual workers.

    While the government has tried to assure the public that its pension planning is sound, support for Abe’s cabinet dropped in the wake of the pension report incident by three percentage points to 40%, a poll published by the Mainichi newspaper Monday showed.

    More than two-thirds of respondents said they found Aso’s handling of the issue unacceptable and more than half said they didn’t feel they could rely on the public pension as the basis for their post-retirement livelihoods. Opposition parties are planning to submit a no confidence motion against Aso, Kyodo News said Sunday.

    Pension woes have hit Abe before. A scandal over lost pension records was one of the problems that prompted Abe to step down in 2007 after an abbreviated first term as prime minister. Not only are the elderly growing in number - forecast to make up almost 40% of the population by 2065 - they are far more likely to vote than are their younger counterparts.

    Abe, who returned as premier in 2012, is now set to be the longest-serving Japanese prime minister in November but before then, he is expected to take a blow from a planned hike in the sales tax from 8% to 10% in October. Two previous hikes have slammed the brakes on the economy.

    Poverty

    Questions have also arisen over a separate five-yearly review of Japan’s public pension finances. In 2014, the report was published in June, but this year’s report may be delayed to avoid the issue becoming a political football in the run-up to the elections, according to public broadcaster NHK.

    Adding to the uncertainty, was a report earlier this year that showed Japan’s Government Pension Investment Fund, the world’s largest, lost a record 14.8 trillion yen, or 9.1%, as the nation’s stocks erased 18% of their value.

    A report published by the World Economic Forum last week warned that Japanese workers were among the world’s worst prepared for rising life expectancy because of their tendency to hoard cash savings rather than invest.

    “If we go on as we are, the number of elderly people in poverty will increase,” said Haruhiro Nakano of Saison Asset Management Co., one of a group of private sector panelists who worked on the report for the FSA. “There’s a need to review our life plans in an aging society and we wanted to share our sense of crisis,” he added.

    Yuichiro Tamaki, leader of the Democratic Party for the People, said consumer spending - a major economic driver - will be hit by the sales tax and worries over the adequacy of public pensions.

    “All generations will hold back on spending,” he told a press conference last week. “That means consumption will get even weaker. And with the October sales tax, the Japanese economy will be in quite a crisis.”

    With assistance from Yuki Hagiwara.

    SOURCE: Bloomberg