TT-634 -- Pension Age to Rise to 70? ebiz news from Japan

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A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, October 16, 2011, Issue No. 634


- What's New -- Pension Age to Rise to 70?
- News -- PM so poor he must be honest
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- Japanese acquirers' inability to
manage a global operation
- News Credits

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Politicians they come and go, but bureaucrats hang around
for a life time, and in the end they do run the country. So
when the Labor and Welfare Ministry floats a trial balloon
saying that Japan may have to raise the pension age from
the current target of 67 due to take place next year (up
from 65 this year) to 70 years old, that's another way of
seeing into the future.

For anyone in their 40's or 50's the Ministry's
announcement is really just a confirmation of what we all
already know -- that it is unlikely that many of us will
get to enjoy the return of our pension contributions
despite the smooth talkers in the nation's leadership. In
fact, it's easy to imagine that there won't be an automatic
pension by the time we're 70 -- or 75, as it is likely to be
in another 10 years time.

The reason for this is three-fold:

1. The dwindling number of people able to contribute funds
to support pensioners. The Welfare Ministry says that the
ratio of employees supporting pensioners has fallen from
40:1 in 1979 to just 2.5:1 in 2009. That is: a 20th of the
payment base, for significantly more pensioners -- clearly
an unsustainable situation.

[Continued below...]

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[...Article continues]

2. The number of people who are drawing pensions is
increasing rapidly. Out of the JPY75trn or so in this
year's budget, social security spending for fiscal 2011
will be around JPY28.7trn, a record level. That's bad
enough, but because of the ever-increasing number of
retirees, who are living longer and who are receiving
nursing care in increasing numbers, the social security
budget will increase by JPY1.2trn annually from here on
out. Meaning that within 5 years, HALF of the government
budget will be spent on retirees.

3. The government is broke. Japan's GDP last year was
JPY476trn and her public debt was JPY862trn. Since debt
servicing costs about JPY10trn and overall tax income is
about JPY40trn, borrowings exceeded income for the first
time in 2010. This gap between income and lending will
increase even more now that the government is running a
JPY75trn budget, and this funding gap can only come from
savings, borrowing, or more taxes. Until now about 96% of
government borrowing has been from domestic funding
sources, but the IMF says that by 2015 public debt will
exceed household savings -- meaning that there are few
places to turn to keep things going.

For these reasons, the pension system and with it the
overall concept of citizen entitlement has to change.
Raising the pension age is just part of the program that
will inevitably come. Here are some of the things that we
believe will happen:

1. Pension age will rise to 70 by 2015 and to 75 by 2020.
2. Pension benefits already being paid out will be cut by
5%-10% over the next 5 years. Already, a deflation-adjusted
cut is being discussed.
3. Hospitalized pensioners with significant assets will be
required to pay a higher personal contribution to health
costs, currently set at just 10% (30% for regular workers).
4. Intending pensioners will be encouraged to keep working
longer before drawing a pension, by allowing tax and
threshold changes in what they can earn from part-time
jobs. This is also being discussed.
5. The Tohoku disaster-related tax increases of 5%-10%
being mooted for 10 years will become permanent.
6. Consumption tax will rise to 10% in 2014 and to 20% by
2020 (a Todai professor recently said that 20% consumption
tax would actually support the current pension system
without further adjustments -- a big temptation for
7. Social Insurance (shakai hoken) costs to companies and
individuals are supposed to top out at 22% over the next 10
years or so, but are instead likely to keep rising.

This all makes for rather bleak reading, and certainly it
is bleak IF Japan continues to stick to the idea that
pensions should be an entitlement. However, there is an
alternative future. In it, the working population will say,
"We've had enough" and vote in a party (or a faction) that
represents the youth and vigor of the nation more than
pandering to old folks. That party will appeal to older
people to do the right thing for their nation and accept
that only those who really need financial support should
get it, leaving everyone else to live off savings and

It's a tough call, but to continue in the current direction
of increasing taxes both direct and indirect can only
damage Japan's economy beyond repair, accelerating the exit
of companies and people. And it doesn't take much imagination
to see that the quicker they leave, the quicker the problem
will get worse.

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+++ NEWS

- PM so asset-poor he must be honest
- New study shows strong foreign hiring
- Plankton contaminated with cesium
- Palm oil waste into coking fuel
- Hitachi to dispatch thousands overseas

-> PM so asset-poor he must be honest

We hope there will come a time when all politicians are
forced to have an income UNDER a certain threshold or they
can't represent their country. If that was to come to pass,
a sure qualifier in the honesty stakes would be the new PM,
Yoshihiko Noda, who has disclosed family assets of just
JPY17.74m, the lowest ever for a Japanese prime minister.
Noda apparently has a house in Chiba worth JPY15.14m and
JPY2.6m in savings. ***Ed: Even more impressive is that
these numbers include the assets of his wife.** (Source:
TT commentary from, Oct 15, 2011)

-> New study shows strong foreign hiring

A new study put out by serviced offices firm Regus has
found that 63% of Japanese companies plan to hire foreign
workers over the next two years, the largest increase in
intent to hire foreigners amongst the global 12,800 businesses
polled. Germany was second with 59%. Smaller Japanese
companies were characterized in the study as turning to
flexible labor, with 47% planning to increase the use of
freelancers and 35% the use of remote staff. Despite the
increases, Japan is apparently still well behind SMEs
elsewhere in the world in this respect. (Source: TT
commentary from Regus press release, Oct 14, 2011)

-> Plankton contaminated with cesium

In a development that will be concerning to the Japanese
public, plankton caught around the Fukushima Daiichi power
plant have been found to contain cesium contamination. The
Tokyo University of Marine Science said plankton caught 3km
from the plant measured 669 becquerels/kg, not high, but
prone to further concentration as the animals are consumed
and absorbed into the food chain of larger fish. (Source:
TT commentary from, Oct 15, 2011)

-> Palm oil waste into coking fuel

The mountains of waste from palm oil processing factories
all over Southeast Asia may soon be a thing of the past, as
Nippon Steel Engineering (NSE) brings its new
waste-to-coking fuel plant on stream in 2013. NSE will be
the first Japanese entrant into the field and plans to
produce about 3,000 tons of the CO2 neutral fuel a year.
The fuel will be sold to Japan, particularly targeting local
government waste incineration plants. (Source: TT
commentary from, Oct 16, 2011)

-> Hitachi to dispatch thousands overseas

Whether you are good at English or not, if you're an
employee of Hitachi there is no place to hide. The company
is planning to dispatch 2,000 "lucky" employees in their
20's and early 30's to short-term overseas positions within
the group, customer offices, and language schools, over
2012. The company also plans to redo their promising
employee training programs, creating a more "practical"
curriculum for 3,600 future leaders. ***Ed: Would be
interesting to hear more about their plans for the local
restructured training. More language? Or more socialization
skills? (Source: TT commentary from, Oct 15,

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.



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In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to

*** In TT-633 Are We in an M&A Bubble? we discussed the
concern of smaller Japanese firms over-leveraging themselves
in the rush to foreign acquisitions. A reader picks up on
the ability of such firms to not only finance their new
trophies should things go bad abroad, but also their
ability to run them as well.

=> Reader says:
I like the summary of the M&A situation that you give in
the latest Take. From personal experience I don't think that
Japanese companies are capable of competently managing a
foreign subsidiary. I have just left a major Japanese
financial company after several years and part of the
reason was the lack of ability in management in Japan to
bring the company together. Outside of Japan things work
better but true globalization hit a block when Japanese
management was consulted and sacred cows protected. For me
the international "experiment" has failed and the primary
reason is the lack of direction from management. In my time
with the firm there was never any stated strategy, agreed
goals, and little communication. We were basically running

Thus I fully agree the need for guidance either from the
government, or it could even come from the private sector
if there was an organization with that kind of expertise.
At the point of purchase the strategy for the merger
should be understood and agreed upon. Is it full
globalization or will the entities be managed separately?
And if it is full globalization then will the final culture
of the firm be the international culture or not? That
question applies even here in Japan. There are two reasons
for this. The first is that the direction needs to be set
at the very start in order for the integration process to
move forward quickly. The second is that the appropriate
management can be put in place. A Japanese manager with
little experience outside of Japan and no experience
outside of the company cannot run the integration in the
majority of cases.

I actually see this as a huge risk for Japan. From
practical experience, I suspect that the actual ROI on the
average acquisition by a Japanese company is going to be
very poor due to this lack of ability to integrate and
lack of desire to change. I am afraid that all the cash
that has been built up will be wasted with little return.
The need for the kind of organization you mention is
critical and will make a huge difference in the economy of
Japan for the next 20 to 30 years.


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