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Cash for pensioners: Keeping long-lived Japanese from going broke

With many people living past 100, financial products emerge to ease the journey

Many elderly Japanese face not being able to make ends meet as they grow old.   © Reuters

TOKYO -- Japan's life expectancy ranks near the top in the world, at 81 years for men and 87 for women. By 2045, this is expected to rise two or three more years. The World Health Organization estimates the country's health span -- the number of years people remain healthy -- is 74.9, the world's longest.

With people living so long while the number of younger workers decreases, and with interest rates near zero and Japan's public finances under great strain, the threat of citizens running out of money in old age is becoming critical. Both the public and private sectors are making moves to address this.

The government, for its part, is studying the possibility of raising the starting the age to collect the public pension to over 70, from 65 now. It is also considering allowing older people to borrow against the security of their homes and defer repayments until after death.

In the private sector, financial institutions such as Nomura Securities and Sumitomo Mitsui Banking Corp. are developing new products to cushion the strains of long post-retirement lives.

"We are expecting demand from retirees feeling anxious about drawing into deposits and savings," said an official at Nomura Securities, which has developed a new investment trust that targets an annual yield of around 3%. "We offer it to help them set aside living expenses while taking certain risks."

According to the Central Council for Financial Services Information, citizens aged 60 and above have financial assets averaging 22.02 million yen ($202,000), 58% of which are held in deposits and savings.

More than 60% of the country's financial assets held by individuals are owned by people aged 60 or older, and the Financial Services Agency wants to increase the options they have to manage these assets.

On the assumption that retirees have an average of 35 million yen set aside, Nomura estimates they would run out of money at age 89 if they withdraw 120,000 yen per month at age 65. However, if the new investment trust yields 3% annually, their savings would last until they are 105 at the same rate of spending.

Sumitomo Mitsui Banking Corp., the country's first bank to enter the whole life annuity insurance market, is set to offer the first foreign-currency denominated annuity insurance policy in February.

A whole life annuity makes regular payments for as long a a person lives. Holders benefit if they live beyond a certain age, and incur a loss if they do not. Such policies have become popular in the U.S. as baby boomers reach retirement. Dai-ichi Life Research Institute estimates the U.S. market for annuity insurance was about $2.5 billion at the end of 2015.

Life insurance companies in Japan have been offering whole life annuity insurance since 2016, and the number of contracts totaled about 50,000 at the end of 2017.

With SMBC's foreign currency annuity, a person who takes out the policy at 60 would begin receiving payments in U.S. dollars at 70, and would collect more than they pay by the age of 83 or 84.

SMBC's new product will be managed in U.S. and Australian dollars in cooperation with Mitsui Sumitomo Primary Life Insurance. It is expected to offer higher returns on deposit premiums than yen-denominated policies. The product comes with foreign-exchange risks, however, and if the yen rises, the value of the returns will drop.

The whole life annuity market is expected to grow significantly as banks with nationwide branch networks enter the market. Market leader Nippon Life Insurance says it plans to increase its supply of annuity insurance policies to retail insurance agencies.

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