Dogs and Demons_ Tales From the Dark Side of Japan - Kerr [118]
Extremely low interest rates have also heavily affected the nation's pension funds. In 1991, pension funds in the United States made a whopping 28 percent return on their investments; Japanese pension funds gained only 1 percent. By 1998, Japanese pension funds had made the lowest returns of pension funds worldwide, declining at a rate of minus 3.2 percent, while U.S. funds garnered 14.6 percent. The year before, the rate for the United States was a hefty 18 percent. Rates of return like these, compounded annually on immense pools of money, make a difference of literally trillions of dollars to public savings.
When Japan founded its national pension-fund system in 1952, planners set 6 percent as the minimum annual rate of return for employee savings plans. Pensions have not met this goal since 1991. One survey, in September 1996, showed that only 4 percent of corporate pension funds had sufficient reserves to make payments to pensioners, and since then the situation has deteriorated further. Dozens of pension funds are outright bankrupt, with assets worth less than the cumulative money paid in by participating workers. The number of pension funds in arrears has become such an embarrassment that the Labor Ministry lowered the minimum rate of return to 3 percent in 1995, and then to only 1 percent in 1997. Meanwhile, since 1998 a record number of companies have resigned from the national pension system – more than 800,000 companies simply don't pay premiums for their employees, even though they are legally required to do so.
As in the case of health insurance, the pension system cannot survive without lowering benefits and raising taxes. Pension premiums are rising rapidly, growing from 14.5 percent of salary in 1994 to 17.4 percent in 1997, and reports say they may even reach 30 percent by 2020. In addition, in 1994 the government raised the minimum age for beneficiaries from sixty to sixty-five. As many Japanese firms and government agencies mandate retirement at age fifty-five, this leaves workers with a ten-year gap after retirement before they can receive their pensions.
Private industry faces an exposure to unfunded pensions that could develop into one huge flat tire for Japan's manufacturing businesses; for some companies, the cost of funding pension shortfalls is approaching half of their net profits. According to a survey carried out at the end of 1999, 70 percent of Japanese companies did not have enough money set aside to cover their pension obligations. In fiscal 2000, MOF changed its accounting rules to better reflect pension liabilities (previously completely unreported), but the new rules left plenty of «cosmetic accounting» techniques in place to veil the true extent of the danger. Only a handful of large companies have divulged their pension shortfalls, but the numbers for the few that have are sobering: in spring 2000, Mitsubishi Electric announced that it owed ¥540 billion; Honda Motors and Toyota Motors were short ¥510 billion and ¥600 billion, respectively; Sony needed to make up ¥225 billion. While nobody knows the true number, the aggregate shortfall for companies on a national basis is estimated to reach tens or even hundreds of trillions of yen. Given corporate unwillingness to admit embarrassing facts and the worsening economic situation in the late 1990s, the true situation is probably much worse. To get a sense of scale, the World Monetary Fund estimated Japan's pension liabilities in 1997 at roughly 100 percent of GNR As Jane Austen said, «An annuity is a very serious business.» Life will not be easy for Japan's future pensioners.
A favorite mantra of economics experts is to say that Japan's debt is of less concern than that of other countries because it owes this debt mostly to its own people. While this is true, the fact remains that the Japanese people must repay the debt through taxes, and the burden will be crushing. By 2005, according to Gavan