Can the Elderly Thrive in an Aging Japan?

According to Japan's Ministry of Internal Affairs and Communications (MIC), as of September 15, 2024, the percentage of the total population aged 65 and over increased by 0.2% from 2023. It reached a record high of 29.3%, a very high ratio compared to other countries. Furthermore, the number of workers aged 65 and over increased for the 20th consecutive year, reaching a record high of 9.14 million. This represents 25.2% of the elderly population in the workforce and 13.5% of the total workforce aged 15 and over.

Meanwhile, according to MIC, the number of Japanese births in FY2023 was 727,000, down 5.6% from FY2022. The total fertility rate was a record low of 1.20. In FY2024, the number of births may fall below 700,000. This simultaneous wave of aging and declining births seriously impacts the country's employment system.

Elderly Employment

In Japan, the mandatory retirement age of 60 for companies was enacted in 1994. In 2013, the law was amended to make it mandatory for companies to secure employment until the age of 65 for those who wish to work.

Then, in 2021, companies were encouraged to secure employment opportunities until age 70. The employment landscape for older adults in Japan has been evolving toward a society where people can continue working for longer periods, in line with an aging population.

However, the types of jobs available after employment extensions are limited. Their employment status is often either "rehired" or "contracted," with salaries significantly reduced compared to pre-extension levels.

Limited Employment Options

Silver Human Resource Centers have been established throughout Japan to provide jobs to people aged 60 or older who wish to work. This project is subsidized by the government.

The centers collect ¥1,000 JPY (About $6 USD) per year from members. For example, the Silver Human Resource Center in Setagaya Ward, Tokyo, provides job placements. However, the types of work are extremely limited, often consisting of tasks like weeding or cleaning.

The Silver Human Resource Center contracts out the work to its members, who receive a payment in return. Since this is not an employment contract, the Minimum Wage Law does not apply. In the case of weeding, the work takes several hours, and the compensation is ¥1,300 to ¥1,400 (about $9) per hour. Members are also allowed to take on multiple jobs.

Although it is not a sufficient source of income, it has become a support system not only for elderly individuals struggling to make ends meet but also for those seeking a sense of purpose.

Some members ask if there are jobs that better align with their work history, beyond mowing grass. In response, I observed a staff member at a Silver Human Resource Center giving a lecture, saying, "Work is not something you choose, but something you are given."

Japan's Pension Unable to Keep Up with Inflation

According to the FY2022 Survey on the Health of the Elderly released by Japan's Cabinet Office, 21.8% of people aged 65 and over were engaged in income-generating work. Of these, 41.6% indicated in the survey that their reason for working was to earn income to support their living.

Even though their job conditions and salaries are not ideal, a growing number of elderly people are compelled to work because they cannot rely solely on their pension income.

National pension payments are revised annually in response to changes in prices and wages. However, in some years, the macroeconomic slide mechanism is triggered to further subtract a certain adjustment rate. Recently, this adjustment was made in 2019, 2020, 2023, and 2024.

Calculating Pension Adjustments

When the macroeconomic slide mechanism is triggered, the revision rate for pension beneficiaries aged 65 to 67 is based on the nominal wage fluctuation rate. This age group consists of those about to start receiving their pension benefits.

For those aged 68 or older, the revision rate is based on whichever is lower: the previous year's price fluctuation rate or the nominal wage fluctuation rate over the past three years.

The macroeconomic slide adjustment rate is then applied to finalize the revision rate for that year. This rate is calculated by the government. It takes into account the decline in the number of pensioners and the increase in their life expectancy. The adjusted rate for FY2024 was announced as -0.4%.

For 2024, the revision rate for all beneficiaries aged 65 and older was based on the lower of two values: the previous year's price change (3.2%) or the nominal wage change (3.1%) over the past three years. In this case, the 3.1% wage change was used as the benchmark.

Subtracting the macroeconomic indexing adjustment rate of 0.4% from this, 2.7% was the year-on-year increase in the pension amount in FY2024. However, this figure is lower than the 3.2% rise in prices in FY2023. This means that those living solely on pensions will have to tighten their belts.

Challenges of Japan's Aging Society

In contrast, Social Security recipients in the United States received a notice for FY2024 stating, "Your Social Security benefit will increase by 3.2% in 2024 because of a rise in the cost of living."

Unlike the US, Japan's declining working population means that pensions are insufficient to cope with rising prices. Therefore, many pensioners are forced to work to make up the shortfall.

Given this situation, it is not difficult to imagine that many in the younger generation are concerned that they too will eventually face the same fate, or worse.

In 2021, the population of people aged 65 and older in Japan exceeded 21% of the total population, making it a super-aging society. Japan's rapid aging has continued unabated, with those aged 65 and over accounting for 29.3% of the total population in 2022. It is expected to reach 30% by 2025.

This population increase did not come out of nowhere. An analysis of the population pyramid 20 years ago would have predicted a very high probability of the aging trend we see today.

Elderly Health Insurance

In Japan, most citizens are covered by either the national or employer health insurance program, with exceptions such as welfare recipients. The insured are obligated to pay the insurance premium.

All insured persons are transferred from their previous coverage to the health insurance system for the elderly when they turn 75. This transition reduces the burden of health insurance premiums on the insured.

The generation born around 1947-1949, during the first postwar baby boom, is the largest population group. People born around this period are known as Japan's baby boom generation. The number of people insured by the elderly health insurance system began to increase rapidly around 2022 when baby boomers started turning 75. By 2025, most baby boomers will be 75 years old.

The number of people with elderly health insurance is expected to increase from 17 million in 2020 to nearly 20 million in 2025. The transition from conventional health insurance to elderly health insurance reduces premiums paid by the insured, but the government's social security expenditures will rise accordingly.

This has led to speculation that the Japanese government will increase the premiums for the insured, which would only make life more difficult for the elderly.

Government Action and Future Outlook

While the workforce is shrinking due to a declining population, the elderly are retiring in Japan's super-aging society. In response, the government has introduced measures such as promoting post-retirement employment and delaying the start of pension payments, with the condition that the payments will be higher.

However, it is unclear whether the purpose of these measures is to delay pension payments or to secure labor by encouraging the elderly to work longer. If the goal is to strengthen the labor force with older workers, the types of jobs and salary levels available to them are hardly appealing. Furthermore, the infrastructure to attract older workers into the labor market is inadequate.

Twenty or even thirty years ago, the aging population could have been predicted with great certainty. What have the government, politicians, and relevant ministries and agencies done to prepare for this long-term challenge? If they had anticipated potential problems, developed solutions or mitigation strategies, and put them into action, they might have prevented the current mess.

Author: Yoshifumi Fukuzawa

Yoshifumi Fukuzawa is a business consultant and former lecturer at Waseda University.