Table Speech

Initiation Speech I
Towards a Dynamic Aging Society

December 12, 2012

Mr. Toshiro Mutoh
Chairman of the Institute, Daiwa Institute of Research

 In Japan, the ratio of people 65 years old and over against total population exceeded 14% in 1994, and today it has surpassed 23%. The UN defines ratio of over 14% as an “aged society” and over 21% as a “super-aged society,” thus we have become a super-aged society.

 Expenditures of pension, medical service, nursing care and social security benefits increase as the population ages, half of which are funded by a premium, 40% by public defrayments and the remaining 10% by beneficiary fees. Social security-related expenditure exceeds 100 trillion yen today, while public defrayments have reached 40 trillion yen. Government bonds have been issued to cover the expenditure, and today the balance of our government’s public debt is double the GDP. Japan’s Diet passed the legislation this August to raise the consumption tax to 10%, which I believe is a significant step forward to secure stable financial resources.

 Japanese population is estimated to grow even older, with the percentage of population aged 65 or older to reach 40% sometime between 2050 and 2060. We therefore need an even more ambitious plan to balance social security service standard and national burden, based on a long-term perspective. Today, let me share with you the estimate calculated by our research institute.

 Income replacement ratio is the percentage of working income that an individual needs to maintain the same standard of living in retirement. The ratio marks around 80% today. If we try to maintain this ratio in 2060, when the elderly population is estimated to account for 40%, the national burden ratio will amount to 70%. This is a sharp rise from the current level of 38%, which could adversely impact the economy in the private sector. A realistic figure is to cut the income replacement ratio by 30% to make it around 50%, which is similar to that of Germany or France, so that we can provide secure living for the elderly while maintaining the vitality of the working generation. Concrete measures could include applying macroeconomic slide mechanism to the basic pension, raising the pensionable age or reducing basic state pensions for affluent elderly people.

 I believe a new framework of social security services will encourage job creation, including the development of advanced medical devices, medication for the elderly or nursing-care equipments. Housing and urban-development businesses that respond to the needs of the elderly could flourish. What is more, vigorous senior citizens can also join the labor force.

 I feel the need to formulate and implement a “plan to build a dynamic aging society” with concrete goals for the coming 10, 20 and 30 years. South Korea will become a super-aged society by the late 2020s, and China by the late 2030s. Japan can become a role model for countries around the world, if we succeed in constructing a sustainable and dynamic aged society.