How to talk to pension non-believers

[Deep Blue]

A big advantage of the Japanese system is that it is far more sustainable, given the gigantic investment fund Japan puts aside and ringfences for making those payments. Conversely, in the UK the last time I checked, the state pension payouts account for 17% of the entire budget (correct me if I’m wrong, of course!), and there is NO Japan-style megafund to pay for it! Given the triple lock and the UK’s financial dire straits, this is completely unsustainable!

This is spot on. I have not been able to find how funded the Japanese national pension system is. However, we know it is a damn sight better off than the UK system which is entirely paid for by current taxation.... and as you again rightly say is indeed completely unsustainable.

[sutebayashi]

I am not sure that the Japanese system is ideal, even if it might compare well with the UK system.

Yes there is the GPIF in Japan, but even that huge fund is not expected to cover more than a fraction of the pension payments, per my understanding. (Edit: this GPIF material suggests that fraction be about 1/10th of pension costs: https://www.gpif.go.jp/about/pamphlet.pdf )
The bulk of pension payments each year is paid for by the 年金保険料, which is basically just a tax, misleadingly named as pension insurance premium. Japan’s system is a pay-as-you-go tax based system at the core.

With a shrinking population, those paying the tax will shrink, and those receiving pensions will increase in number. The GPIF is one mechanism to try to paper over the cracks, and the iDeCo is another.

I think in an ideal state the pension system would be wound down completely and only iDeCo style accounts left, but to transition from the existing system to that one is too politically difficult for Japanese politicians to contemplate. Thanks to inflation the real value of the pension costs can be reduced, as well as increasing the age of receiving it, etc etc, these hacks seem to be the strategy.

I don’t plan to rely on it at all, if I get anything from it it will be a bonus. I may be a little extreme on this.

[RetireJapan]

I think in an ideal state the pension system would be wound down completely and only iDeCo style accounts left

I think that would be incredibly dangerous as it passes all the risk to the individual, and we can see how well the average person is doing at saving and investing. I could see vast swathes of the population not having any kind of pension or retirement income.

So then what? We put everyone on 生活保護? That would be more expensive than nenkin...

Maybe something like Australia's Superannuation fund would be an option, where it's like iDeCo but compulsory?

[Wales4rugbyWC23]

A big advantage of the Japanese system is that it is far more sustainable, given the gigantic investment fund Japan puts aside and ringfences for making those payments. Conversely, in the UK the last time I checked, the state pension payouts account for 17% of the entire budget (correct me if I’m wrong, of course!), and there is NO Japan-style megafund to pay for it! Given the triple lock and the UK’s financial dire straits, this is completely unsustainable!

This is spot on. I have not been able to find how funded the Japanese national pension system is. However, we know it is a damn sight better off than the UK system which is entirely paid for by current taxation.... and as you again rightly say is indeed completely unsustainable.

As a Brit residing in Japan, I think you get the best of both worlds, British and Japanese state pensions. Even though I would take a different opinion to you that the Japanese state pension is more sustainable than the British one. Personally, I think in the medium to long term future with far better demographics and less government debt the UK pay as you go state pension system is a lot more sustainable than the Japanese pension.

[Roger Van Zant]

A big advantage of the Japanese system is that it is far more sustainable, given the gigantic investment fund Japan puts aside and ringfences for making those payments. Conversely, in the UK the last time I checked, the state pension payouts account for 17% of the entire budget (correct me if I’m wrong, of course!), and there is NO Japan-style megafund to pay for it! Given the triple lock and the UK’s financial dire straits, this is completely unsustainable!

This is spot on. I have not been able to find how funded the Japanese national pension system is. However, we know it is a damn sight better off than the UK system which is entirely paid for by current taxation.... and as you again rightly say is indeed completely unsustainable.

As a Brit residing in Japan, I think you get the best of both worlds, British and Japanese state pensions. Even though I would take a different opinion to you that the Japanese state pension is more sustainable than the British one. Personally, I think in the medium to long term future with far better demographics and less government debt the UK pay as you go state pension system is a lot more sustainable than the Japanese pension.

Spot on.
I have zero worries about the sustainability of the UK pension. Any UK government sorely needs the elderly vote, so they'll make it work, even if that means printing money or other financial trickery. The triple lock is also fantastic, and woe betide any government that tries to cancel it. I don't really even care that the pension is frozen once I start drawing it; I have another 20 years to go until retirement, and the triple lock metrics (1. Average earnings / 2. Inflation as measured by the Consumer Price Index (CPI) / 3. 2.5%) are always going to outstrip inflation in Japan, so a full UK pension will end up being quite decent for someone living in Japan. Things in Japan are only going to get worse from now on, as the race to the bottom picks up speed. It wouldn't surprise me at all if the Japanese government even bans non-Japanese from drawing their pensions; that's about how much faith I have in the government and pension system here!

[sutebayashi]

I think in an ideal state the pension system would be wound down completely and only iDeCo style accounts left

I think that would be incredibly dangerous as it passes all the risk to the individual, and we can see how well the average person is doing at saving and investing.

More dangerous than the status quo?

The risk is with the individual either way, it’s their future livelihood that is at stake.

In the vast majority of cases, I personally would back the adult individual to make better decisions for him/her/themself than what a meeting room of lawmakers or bureaucrats can come up with, with their minds focused on the next election cycle or whatever.

Maybe I am too optimistic.

Maybe something like Australia's Superannuation fund would be an option, where it's like iDeCo but compulsory?

I am not familiar with Australia’s system, but yes, “compulsory iDeCo” is more what I have in mind.

There would need to be a transition period (which I skip over although it’s the hard part), but ultimately instead of paying taxes for the unsustainable pay-as-you-go scheme, people would pay solely into their own personal pension fund and manage it for themselves, according to their own personal objectives. After reaching a certain size of fund, the person could even be exempted from making further compulsory contribution. This gives people more control over their own lives, which I regard as a good thing.

Is that “the average person” you mention really not capable of making adequate decisions for themself, or is that just a byproduct of the existing system that lulls people into a false sense of security? With the impetus, I think the majority would do fine. (And it could really boost your business opportunities:))

[Tsumitate Wrestler]

I think in an ideal state the pension system would be wound down completely and only iDeCo style accounts left

I think that would be incredibly dangerous as it passes all the risk to the individual, and we can see how well the average person is doing at saving and investing. I could see vast swathes of the population not having any kind of pension or retirement income.

So then what? We put everyone on 生活保護? That would be more expensive than nenkin...

Maybe something like Australia's Superannuation fund would be an option, where it's like iDeCo but compulsory?

I generally agree. The average person will do nothing for retirement and be heavily dependent on a future pension of some form.

We need to move in the OPPOSITE direction and make the pension mandatory for all working persons, and make the employer responsible for paying it. Then refund employers whose workers do not meet a certain threshold of income.

I would prefer UBI as it would be a cheaper, less bureaucratic solution, but I do not see it happening in aging Japan.

[Wales4rugbyWC23]

This is spot on. I have not been able to find how funded the Japanese national pension system is. However, we know it is a damn sight better off than the UK system which is entirely paid for by current taxation.... and as you again rightly say is indeed completely unsustainable.

As a Brit residing in Japan, I think you get the best of both worlds, British and Japanese state pensions. Even though I would take a different opinion to you that the Japanese state pension is more sustainable than the British one. Personally, I think in the medium to long term future with far better demographics and less government debt the UK pay as you go state pension system is a lot more sustainable than the Japanese pension.

Spot on.
I have zero worries about the sustainability of the UK pension. Any UK government sorely needs the elderly vote, so they'll make it work, even if that means printing money or other financial trickery. The triple lock is also fantastic, and woe betide any government that tries to cancel it. I don't really even care that the pension is frozen once I start drawing it; I have another 20 years to go until retirement, and the triple lock metrics (1. Average earnings / 2. Inflation as measured by the Consumer Price Index (CPI) / 3. 2.5%) are always going to outstrip inflation in Japan, so a full UK pension will end up being quite decent for someone living in Japan. Things in Japan are only going to get worse from now on, as the race to the bottom picks up speed. It wouldn't surprise me at all if the Japanese government even bans non-Japanese from drawing their pensions; that's about how much faith I have in the government and pension system here!

My only caveat about the British state pension would be the Triple lock- It is simply unaffordable in the medium to long term future, by all means uprate the pension by inflation, but the best of earnings, inflation or 2.5%- not sustainable. Over the last 13 years pensioners have received the greatest uplift in their incomes for a century. Whether any political party would abandon the triple lock is another issue and now extremely unlikely.

[Moneymatters]

https://www.cfainstitute.org/en/about/p ... index-2023

UK breaks into the top 10! Meaning this isn’t voted on like Eurovision.
Then scroll all the way down for Japan..

Note the different sustainability figures between Japan and Italy for example. We know they have population decline challenge similar to Japan but clearly the Japan system is deemed far more sustainable. (And obvious correlation as they give a more adequate amount than Japan.)

The fact Japan isn’t even talking seriously about raising the pension age shows it’s working as a form of UBI for those who contributed/were a qualified dependent. Dramatic reductions means they’ll need UBI or more social care. As a foreigner I don’t want to be lining up for either of those but I could naturalize if I was really concerned.

Selfishly, erosion of pension rights will take decades and I’m now just over a decade from getting that sweet sweet nectar, comfortable shoes, elasticated slacks, a grey sun hat, string for my reading glasses, fear of change, a passion for pulling up ladders, blaming youth for all problems, etc.

(OK. I’ve got a head start on one of those but it’s focussed at just two youths in particular. For now..)

[captainspoke]

...
Selfishly, erosion of pension rights will take decades and I’m now just over a decade from getting that sweet sweet nectar, comfortable shoes, elasticated slacks, a grey sun hat, string for my reading glasses, fear of change, a passion for pulling up ladders, blaming youth for all problems, etc. ...

That's an interesting link--thanks.

*

And, you won't need a string for them, since your reading glasses will become your 'seeing' glasses.