Can we rely on pensions?

[northSaver]

I found this graph, which is not super-encouraging:

Thanks! The pension adjustment graph seems to match this inflation rate graph (click on the 25Y button to compare), but the % amounts are less in the pension graph:
https://tradingeconomics.com/japan/inflation-cpi

This ties in with something my wife read earlier. That they do adjust for inflation but the increase is less than the inflation rate due to too many pensioners and not enough young people paying into the system. So that's something else we can't really rely on in the future

On the plus side, it's good that you can get the same pension anywhere in the world (unlike the UK one). Perhaps there haven't been enough Japanese expats to make them reconsider this.

[RetireJapan]

On the plus side, it's good that you can get the same pension anywhere in the world (unlike the UK one). Perhaps there haven't been enough Japanese expats to make them reconsider this.

I can't see any logical reason for the UK approach beyond being mean to people with less (voting) power and community ties so I hope Japan wouldn't come up with anything similar.

[captainspoke]

Excuse the question, and maybe it's a US/UK terminology issue, but I'm wondering about a private pension vs. an annuity.

Would anyone care to lay out the similarities and differences?

[Haystack]

Excuse the question, and maybe it's a US/UK terminology issue, but I'm wondering about a private pension vs. an annuity.

Would anyone care to lay out the similarities and differences?

Private pensions themselves can be radically different. You can have pensions that,

1. Invest only in government bonds
2. Invest directly in the market
3. Invest in private equity and real-estate.

The structure and payout of private pension is incredibly varied as well.

In Canada and America private pensions are a benefit of employment.

..........................

Annuities can work in a few different ways, but essential you enter into a contract to receive a fixed or variable return over a set period of time.

Annuities do not require you to be a part of a company or organization and are often sold in a way similar to insurance.

The annuity company then takes your premiums and invest them attempting to make a profit net the return they will need to pay you. (Again it can be a Risky investment, or an incredibly safe investment),

[ClearAsMud]

The pension adjustment graph seems to match this inflation rate graph (click on the 25Y button to compare), but the % amounts are less in the pension graph:

The exact calculations are beyond me, but average wages over a three-year period are also a factor in adjusting pension benefits, not just inflation. For 2022, the inflation rate used for the adjustment was -0.2% (for 2021) while the wage-change rate (for 2018-2020) was -0.4%, resulting in a final 0.4% decrease in public-pension benefits for fiscal 2022. This is the second year in a row that benefits have been reduced.

According to the Ministry of Health, Labour and Welfare, the maximum reduction for kokumin nenkin comes to 259 yen per month, so from April the maximum monthly basic pension will be 64,816 yen, or 777,792 yen annually. For kousei nenkin, the model pension for a two-member household in which the husband has paid premiums for 40 years and the wife has been a sengyou shufu will decrease by 903 yen per month to 219,593 yen, or 2,635,116 yen annually.

This isn't the whole story, though, because there also exists a "macroeconomic slide" introduced in 2004 -- taking into account changes in overall population, age distribution, and wages and prices -- which is supposed to be included when making the annual adjustment to pension benefits. The basic idea of the slide is to lessen the burden on those paying into the system by restraining benefits to keep payments down. The problem is that the slide, which would have pushed down benefits a further 0.3% this year, is only applied when wages and prices go up, so it was excluded from this year's calculations (in fact, it has only been applied three times since it was introduced). And because negative values carry over into future adjustments, even if wages and prices do start going up, future pension benefits may not reflect that increase.

So despite the existence of cost-of-living adjustments, Japan's public pension system does seem to be finding itself increasingly stuck between a rock and a hard place. The question becomes how quickly politicians are going to gather up the nerve to bite the bullet and undertake reforms like extending the payment period to the age 65, for example. Well, one can always hope, right?

A good general explanation of the COLA in Japanese will be found in the following article from the Asahi shinbun:
https://www.asahi.com/articles/ASQ1P3RHJQ1NUTFL00L.html

For the more wonkish, the official 2022 announcement from the Ministry of Health, Labour and Welfare can be downloaded from the following link:
https://www.mhlw.go.jp/content/12502000/000725140.pdf

A 2021 report from Mizuho Research and Technologies, also in Japanese, adds two recommendations for improving the system, one of which has been mentioned above:
https://www.mizuho-ir.co.jp/publication ... 210122.pdf

[Wales4rugbyWC23]

On the plus side, it's good that you can get the same pension anywhere in the world (unlike the UK one). Perhaps there haven't been enough Japanese expats to make them reconsider this.

I can't see any logical reason for the UK approach beyond being mean to people with less (voting) power and community ties so I hope Japan wouldn't come up with anything similar.

Hopefully for those British expats who have been not residing in the UK for over 15 years we will be getting out vote back. Even though it was quite bureaucratic when any of us did try to vote before.

I think being a British expat residing in Japan we have a number of advantages over nationalities in that because of the absence of a pension totalisation treaty between the UK and Japan, we can contribute to both and get both- anywhere in the world.

Although we won't get the triple lock when we retire, we will get the advantage of when we are contributing the annual raises of the triple lock we get. Although it is a pay-as-you-go scheme so a politician could turn round one election and say that he/she is going to stop the triple lock and get elected.

[captainspoke]

Excuse the question, and maybe it's a US/UK terminology issue, but I'm wondering about a private pension vs. an annuity.

Would anyone care to lay out the similarities and differences?

Private pensions themselves can be radically different. You can have pensions that,

1. Invest only in government bonds
2. Invest directly in the market
3. Invest in private equity and real-estate.

The structure and payout of private pension is incredibly varied as well.

In Canada and America private pensions are a benefit of employment.

..........................

Annuities can work in a few different ways, but essential you enter into a contract to receive a fixed or variable return over a set period of time.

Annuities do not require you to be a part of a company or organization and are often sold in a way similar to insurance.

The annuity company then takes your premiums and invest them attempting to make a profit net the return they will need to pay you. (Again it can be a Risky investment, or an incredibly safe investment),

AFAIK, private pensions--those connected to a specific company (or union/industry)--have almost generally been phased out (and 'extinguished' might be a better word, tho there are still some cadillac plans for executives). They've been replaced by IRA and 401k, often with company matches of some kind. The range of options can vary, but some offer choices like 1-3, above.

For fixed annuities, there are no choices--the insurance company is assuming the risk and making its bets, and the client gets a guarantee (which is why buying from a good insurer is important). But I think variable annuities can offer similar choices (1-3), and the client can self-select, tho without any guarantee.

**

I still wonder that it might be a terminology difference between UK and US. Eg, the UK company above that went bankrupt was offering 'pensions', but in the US a comparable private insurer (MetLife?) would be offering a 'whole life' insurance plan or some flavor of annuity.

[northSaver]

So despite the existence of cost-of-living adjustments, Japan's public pension system does seem to be finding itself increasingly stuck between a rock and a hard place. The question becomes how quickly politicians are going to gather up the nerve to bite the bullet and undertake reforms like extending the payment period to the age 65, for example. Well, one can always hope, right?

Thank you for the detailed explanation and links. That's very interesting. Yes, they have to balance the needs of both workers and pensioners, which will only become harder in Japan as time goes on.

Although we won't get the triple lock when we retire, we will get the advantage of when we are contributing the annual raises of the triple lock we get. Although it is a pay-as-you-go scheme so a politician could turn round one election and say that he/she is going to stop the triple lock and get elected.

A cheeky British expat pensioner living in one of the frozen-pension countries might go back to live in the UK for six months just to get the increase, then return to their retirement country with an increased pension. I don't think there's any current rule that would block this. And if they did it every few years... ? Wishful thinking perhaps.

[RetireJapan]

A cheeky British expat pensioner living in one of the frozen-pension countries might go back to live in the UK for six months just to get the increase, then return to their retirement country with an increased pension. I don't think there's any current rule that would block this. And if they did it every few years... ?

This did strike me as an option, although I'm guessing a fair amount of hassle would be involved: registering with a doctor, renting accommodation, etc.

Also absent a big change in immigration policy, difficult to take a spouse with you. Probably not worth it in practice, but I'll keep an eye on the option as I get closer to retirement.

[Wales4rugbyWC23]

A cheeky British expat pensioner living in one of the frozen-pension countries might go back to live in the UK for six months just to get the increase, then return to their retirement country with an increased pension. I don't think there's any current rule that would block this. And if they did it every few years... ?

This did strike me as an option, although I'm guessing a fair amount of hassle would be involved: registering with a doctor, renting accommodation, etc.

Also absent a big change in immigration policy, difficult to take a spouse with you. Probably not worth it in practice, but I'll keep an eye on the option as I get closer to retirement.

It is what the super-rich do, in order to be a tax exile in the UK jetting in from Monaco or the Channel Islands. I think it is something about not being in the UK for a certain number of days a year.