The automatic balancing mechanism lowers the benefit level bit by bit. The monitoring of the benefit level is, therefore, all the more indispensable for maintaining the adequacy of the social security pension benefits. In this chapter we examine the prospect of the benefit level relative to the expenditure of the elderly household under the modified indexation.
The way to confirm whether the current benefit level is adequate for the life in retirement is not so simple. Daily life expenditure may vary from individual to individual. It depends on the type of the household. Those who are used to slightly fashionable lives might say the amount is not enough while those who are living austere lives might say it is more than enough even if the benefit amount is the same. Furthermore the cost of living depends on where you live. It is very difficult to set a comprehensive question whose answer gives us the proof of the adequacy or inadequacy of pension benefits.
Although the major type of household to which at least one elderly person belongs is changing in Japan, it is still the household where a husband is living with his wife. According to the Basic Survey of National Life in 2005, its share in all types of household
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can be estimated to be at least about 48 %33. So in this chapter we examine the average total amount of the social security pension benefits that can be expected in a household where the husband and the wife are both beneficiaries of old-age pension benefit. We compare it with the average family expenditure obtained by the National Survey of Family Income and Expenditure in 2004 in the case of employee household. We also compare it with the average basic family expenditure in the case of self-employed household.
1.7.1 Benefit level of employee household
When we discuss the average total amount of the social security pension benefits that can be expected in a household where the husband and the wife are both beneficiaries of old-age pension benefit, we consider a household where the husband has been covered by the EPI scheme for 40 years with the average of his revalued monthly pensionable remuneration being equal to the current average monthly remuneration of the active participants and the wife has always been dependent and non-working. The average monthly pensionable remuneration of male employees at the end of FY 2004 was about JPY 360,000, so his gross annual wage can be assumed to be JPY 5,616,000 (= 360,000 x 12 x 1.3) where his bonus is assumed to be equal to 3.6 times monthly pensionable remuneration. Since the adjustment rate for indexing to the per capita disposable income increase for the period from FY 1994 to FY 2004 is 0.98, his average of the revalued pensionable remuneration is JPY 458,640 (= 5,616,000 x 0.98 / 12) in the benefit formula for the EPI earnings-related benefit shown in <Fig.
1-2>. So the monthly amount of his EPI earnings-related benefit is about JPY 101,000. Since the monthly amount of the old-age basic pension that is provided to those who have contributed to the NP scheme for 40 years was about JPY 66,000 in FY 2004, the household receives the total amount of about 233,000 (= 101,000 + 66,000 x 2) every month.
<Table 1-5> shows the average family expenditure of households composed only of a husband aged 65 and over and a wife aged 60 and over based on the National Survey of Family Income and
33 Out of the 14.6 million households where the person representing household is aged 65 or over, 5.3 million are those composed of a husband and a wife and 1.7 million are those composed of a husband and a wife and their non- married children. The number of households of single elderly is 4.1million and its share is about 28%. Many of them may be deemed to be households of surviving wife. In such households many of them may be deemed to be receiving the survivor’s pension.
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Expenditure in 2004 conducted by the Statistics Bureau, the Ministry of Internal Affairs and Communications34.
<Table 1-5> Average family expenditure of households
composed only of a husband aged 65 and over and a wife aged 60 and over in 2004
(monthly amount in JPY)
items Average expenditure
Food 61,313 Housing 19,697 Fuel, light and water charges 16,831
Furniture and household utensils 9,477 Clothes and footwear 10,556
Medical expense 16,342
Cransportation and communicatior 28,148
Education 12 Reading and recreation 32,111
Other living expenditure 66,358
total 260,846
According to the <Table 1-5>, the average family expenditure is greater than the amount of pension benefits. It should, however, be noted that other living expenditure contains allowances for grandchildren, funeral donations, fees for reunions, etc. The average for these expenses is about JPY 34,367 out of JPY 66,358. These may not be supported by the social security pension benefits.
Reading and recreation expense of JPY 32,111 may not be covered by them, either. If we subtract these expenses from the total, the remaining expenses total about JPY 194,000. Therefore the current benefit level of JPY 233,000 can be judged to be adequate for the family expenditure of such households.
The 2004 actuarial valuation assumes that the real wage increase is 1.1%. Since the average rate of the modifier is 0.9%35, the benefit level is to continue to rise relative to the CPI increase by 0.2%. It may, therefore, be said that, even after the modified indexation, the benefits will continue to maintain purchasing power. It should also
34 The survey is carried out every five years.
35 See 4. (2).
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be noted that this is the situation at age 65. After the age 65 the benefits are indexed to the CPI increase if the modified indexation is finished. So it may still be said that the benefits will continue to maintain adequate purchasing power.
We have just seen that the current benefit level is adequate for major households composed of a husband aged 65 and over and a wife aged 60 and over. But we cannot predict what will happen in the future reality. Furthermore there are other types of households like those of single woman. We have to continue to monitor.
1.7.2 The benefit level of the self-employed households The covered people in the first category of the NP scheme like the self-employed people, farmers, etc. are to pay the flat-rate contributions and receive flat-rate basic pension benefits. This is due to the fact that the grasping or even defining of their income is so difficult that we have given up the combination of the flat-rate benefits and the earnings-related benefits to avoid inequity that may happen in the course of income redistributive function. For this reason the benefit level of the self-employed households are usually compared with the basic family expenditure. By the basic family expenditure we mean the sum of the expenses for food, housing, fuel, light and water charges, furniture and household utensils and clothes and footwear. In other words they are expenses listed in the first five items in <Table 1-5>. In a sense the basic pension policy has almost explicitly aimed to provide basic pensions that compensate for the basic family expenditure.
From <Table 1-5>, we see that the average basic family expenditure of households composed only of a husband aged 65 and over and a wife aged 60 and over is about JPY 118, 000. The total amount of old-age basic pensions of such a household is JPY 132,000, and so the benefit level may be said to be adequate enough to compensate for the basic family expenditure. In the same manner as in the case of the employee households, we can say that, even under the modified indexation, the benefit will maintain its purchasing power for the basic family expenditure. At the same time we have to continue to monitor it.