Japan's Ministry of Health, Labour and Welfare released the results of a financial verification of public pensions on March 3, with growing assessments that the sustainability of pension finances has improved due to factors such as the increased employment of older people and women. However, it is crucial to implement institutional reforms that broaden the base of support to address the anxiety about the pension system that is prevalent among younger generations. Companies are also rapidly moving to prepare for the "100-year life" by extending retirement ages to 70, underscoring the need for a new institutional design involving both the government and the private sector.

The most noteworthy aspect of the financial verification is the "income replacement ratio," which shows the proportion of income that can be received at the start of pension payments compared to the actual income of the working generation. Comparing the four scenarios calculated in the financial verification with the current level (61.2%), none of the scenarios offer a better outcome. Notably, the past 30-year forecast scenario, which closely reflects recent economic growth, indicates a decline of more than 10% compared to the current level.

One of the policies the government is pursuing to strengthen the pension system is the gradual expansion of coverage to part-time workers. In October this year, the coverage will be expanded from companies with 101 or more employees to those with 51 or more employees. The Ministry of Health, Labour and Welfare demonstrated in this verification that a gradual abolition and relaxation of these requirements would lead to an increase in the number of subscribers and higher benefit levels. Expanding the coverage to include all workers who work 10 or more hours per week would add 8.6 million new members to the welfare pension, and in the past 30-year forecast scenario, the income replacement ratio would rise to 56.3%.

Another option is to work while healthy and delay receiving pensions. Extending the basic pension insurance premium payment period from the current 40 years to 45 years would increase the income replacement ratio to 57.3%. However, to extend the starting age for pension payments, it is necessary to create an environment that encourages employment for older people who are willing to work.

Meiji Yasuda Life Insurance plans to extend its retirement age from the current 65 years to 70 years starting in 2027, which would make it the first major financial institution to do so. According to a recent government survey, only 30% of companies offer employment opportunities up to age 70 for those who wish to continue working, highlighting the need to expand efforts to encourage such self-help measures.

The government plans to collect and publish best practice examples to encourage more companies to reconsider positional retirement ages and retirement systems. The growth strategy "New Capitalism Implementation Plan," which was decided by the cabinet in June, also states that "we need to provide information on how to provide appropriate compensation for seniors' skills so that capable young people do not feel dissatisfied." Employment of seniors also has a role in alleviating labor shortages. A series of institutional reforms to secure the sustainability of pensions contributes to Japan's economic growth in the face of labor shortages. (Fumi Miyazawa)