Raising the Japanese Retirement Age and Abenomics

A greater proportion the Japanese population is over 65. Combined with a life expectancy of 84 and a declining birth rate, it is widely known that by 2030, 40% of the population will be over 65, the traditional retirement age. Thus, a new focus of the Liberal Democratic Party has been to change the economic structure of Japan to fit the “100-year life.” Currently, 38% of people want to work beyond the age of 65. Yet Shinzo Abe is looking into abolishing retirement ages, and finding ways to keep workers on the job past 70. Unfortunately, many of Japan’s most needed jobs right now, construction, nursing, and delivery, aren’t suited to an elderly population. Many businesses expect high productivity, yet older workers are considered less productive and potentially frail. The ultimate goal, however, is to reduce the nation’s growing pension bills. The government has offered to increase payments by 40% if workers delay their pensions 5 years, yet only 1% of the population has taken advantage of this. For the most part, however, many are struggling to make ends meet, and many work in addition to taking a pension. 

The government focus on raising retirement age, pension age, and dependence on pensions is part of a larger focus on streamlining the national pension: as yearly dependents continue to grow, so will the cost. Yet reducing the ultimate bill by manipulating retirement ages is only one facet of Shinzo Abe’s plan, and reflects only one of the many extreme measures the Japanese government has been willing to take in recent years. In 2012, Shinzo Abe revised the rules for the Japanese Government Pension Fund (GPIF) as a part of Abenomics. One facet of this plan was allowing the GPIF to invest in Japanese bonds rated BB or lower; however, this is not considered extremely risky, as there are so few low rated corporate bonds. This is only the tip of the iceberg, however, as the GPIF reforms were largely created to increase potential reward by increasing risk. The GPIF has also expressed interest in allowing for greater risk in order to hire new more experienced managers, and changing payment to performance based compensation - a stark change from previous years.

The greatest change in the reforms, however, was boosting the allocation of the GPIF’s stocks to 24%. Between 2012 and 2018, Abenomic principals helped boost stock returns; however, between a number of Japanese scandals, in addition to Trump tariff wars, the fund lost a record 135 billion dollars. The GPIF is one of the largest funds in the world, known as “The Whale” by some in Japan, and thus this was a huge hit, raising questions over the safety of stocks in the GPIF, as well as the effectiveness of Abenomics. Thus, increased efforts on raising retirement age may signal doubled efforts as a result of fund losses, as well as looking towards the future.