Ageing populations are a challenge for countries across the developed world, none more so than Japan.

Japan has the longest life expectancy in the world, reaching 83.8 years in 2018. It also has a looming crisis in how it will fund the retirement of its elderly population. 

Japanese workers have the option to start withdrawing their pension at any point between the ages of 62 and 70. At present, Japan’s overall pension funding gap is $11,000bn, and this is expected to rise to $26,000bn in 2050. By this time, it is estimated that people aged 65 or over will make up one-third of Japan’s population. 

In principle, this should not be a problem, as Japanese consumers are the biggest savers in the world. However, the distribution of these savings is skewed, with two-thirds held by the older generation.

The way the younger generations save is also a problem. As well as saving less, their funds are usually held in standard bank accounts that yield little to no interest. To remedy this, the Nippon Individual Savings Account (NISA) was launched in 2014 – modelled on the UK’s Individual Savings Accounts, or ISAs – with tax-free interest on savings deposited over the year. One million NISA accounts were opened in the first year – but for a country of 126 million, this does not begin to solve the problem.

Pensions have also been overhauled, with the launch of a national employment savings trust-style government-backed workplace pension scheme. The Japanese government has tabled raising the upper age limit of beginning to withdraw pensions to 71 to combat the shrinking labour force and the lack of overall funds.

However, besides saving more, there needs to be a change in consumer attitude to investing. Improving the ratio of investments to savings in the country has been made a priority for Japan during its G20 presidency. To achieve this, Japan needs learn how to embrace risk, without being reckless.  


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