Retiring late: As pensions underwhelm, more Japanese opt to prolong employment

TOKYO (Reuters) - Yasuhiro Furuse could have retired two years ago, but he wasn’t entirely happy with his pension income and had to put any such thoughts to bed.

Yasuhiro Furuse, a senior adviser of corporate sales headquarters of Orix Corp., unfolds his laptop at a meeting room in Tokyo, Japan, February 19, 2019. REUTERS/Kim Kyung-hoon

It was just as well for Furuse’s employer Orix Corp, a financial services group, which would have struggled to find a replacement, with Japan’s jobless rate at 26-year lows.

This win-win arrangement, increasingly common in Japan, highlights a structural and policy challenge facing the world’s third-biggest economy.

Prime Minister Shinzo Abe’s government is considering raising the retirement age to 70 or 75 from 65 now, to ease pension burdens as well as a labor crunch. But a more durable longer term solution, analysts say, is for Japan to relax its strict controls on foreign workers.

“I have no choice but to work,” said Furuse, 62, a senior adviser at Orix’s corporate business headquarters.

“I appreciate that I could keep working, which makes me better off than living on pension and savings. Besides, I want to do something to contribute to society.”

Japan’s population is among the oldest on the planet and has one of the longest lifespans, putting pressure on its pension system. The old-age dependency ratio -- or the numbers of elderly against those of working age -- is the highest in the OECD.

The situation is being compounded by Japan’s deep-seated reluctance to fully open its gates to foreign workers, leaving many companies to rely on the old guard to overcome severe labor shortages.

On top of that, a lengthy spell of monetary easing by the Bank of Japan to battle deflation and spur growth has led to near-zero bond yields and crippled savings.

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The current law requires companies to allow employees to work until 65 if they wish. In practice, most companies, trying to keep a lid on labor costs, set a mandatory retirement age at 60, with an option of further five years’ work on reduced pay.

That is changing.

Orix has raised the mandatory retirement age for its employees to 65 from 60. Some other firms such as Taiyo Life Insurance and restaurant chain Skylark Holdings Co, now also allow staff to work until 65, or 70 if employees wish.

“We will raise the retirement age to 65 to ... cope with a decline in the workforce,” Nippon Steel Corp said in a statement this month.

Mayumi Waki, a human resources manager at Orix, says the move was worth the extra spending. The older workers seem more motivated, the firm can benefit from their client relationships for longer and younger talent has more mentors available.

“We don’t consider raising the retirement age as a cost but a necessary investment,” Waki said.

To keep costs under control, Taiyo Life has changed the company’s pay review processes to be more focused on merit, and less on career length - another change in culture which is being increasingly adopted throughout Japan.


Over 8 million Japanese workers are 65 or older, a staggering 12 percent of the entire workforce, government data shows. The old-age dependency ratio is over 50 percent, and is expected to rise to nearly 80 percent by 2050, the OECD says.

The average employee pension in Japan is about 150,000 yen ($1,350.01) a month, lower than government’s target of 60 percent of the pre-retirement income for salaried workers, which would be 220,000 yen on average.

Some economists expect the average pension-to-wage ratio to keep deteriorating and worries are growing that Japan’s ‘pay-as-you-go’ pension scheme may be unsustainable, with fewer workers paying into it and more elders drawing from it.

In a significant move, immigration-shy Japan is taking tentative steps to let in more foreign, blue-collar workers to ease the labor shortage.

Other labor reforms also kicked in this month to curb overtime and promote more flexibility, such as shorter days or working from home, with some analysts saying this could encourage more women and retirees to look for jobs.

Cutting back on Japan’s notorious long hours at work may also make longer careers easier to sustain, analysts say.

“The era of retirement at 70 will come sooner or later,” Taiyo Life’s chairman Katsuhide Tanaka said.

Reporting by Tetsushi Kajimoto; additional reporting by Izumi Nakagawa; Editing by Marius Zaharia and Shri Navaratnam