Japan's Pension Problem May Hurt Finances, S&P Says

Bloomberg News 

Japan

June 24, 2004

Delays in drastic pension system reforms are likely to increase the possibility of a negative impact on Japan's finances, economy and sovereign ratings, Standard & Poor's said in a report. 

Lawmakers this month passed the latest pension overhaul, which includes raising state contributions to the basic payout plan. The government needs to find 2.7 trillion yen ($24.9 billion) by 2009 to fund the increase. It says 240 billion yen can be raised this fiscal year, which started April 1. 

``If the government fails to find the revenues to match its increased contribution, the government's direct financial burden will increase, which would negatively affect Japan's sovereign ratings,'' S&P analyst Takahira Ogawa said in the report. 

Japan's sovereign ratings are AA-/Stable/A-1+. 

The nation's population of 127 million will start declining two years from now, with the retired forecast to grow 40 percent to 34 million by 2018, the government estimates. 

Under the system, employee contributions pay for the pensions of current retirees, increasing the burden on the workforce as the population ages. 

S&P's Ogawa said the latest legislation isn't sufficient. 

``The government needs to push through drastic and comprehensive pension reform, as well as a review of population policy to counter declining numbers,'' he said.