High hopes for retiring baby boomers

The new year marked a turning point for the nation's social security system, which is staring down the barrel of the so-called 2007 problem. Unfortunately, this problem will not be resolved in one year: On the contrary, 2007 heralds the beginning of a wave that will grow in the years ahead.

Baby boomers--those born in the postwar years 1947-49--will turn 60 years old and retire en masse over the next three years. This lies at the heart of the 2007 problem. About 2.7 million babies were born each year during those years--2.5 times more than the number of babies born each year today. This mass of people in the nation's demographic composition is standing at the entrance to their senior years.

These baby boomers have been supporting the nation's pension and other social security systems. In a few years, however, they will be the ones who need to be supported. The pension programs and the health and nursing care insurance systems could face financial ruin unless measures are taken to reform them.

Many people in the baby-boomer generation remain in good health as they approach the age of 60. The baby boomers have supported the nation's rapid economic growth and played a leading role in creating a new lifestyle since the war. Tapping their energy to assist with child-raising and to reinvigorate local communities could provide an excellent opportunity to build a new mutual assistance system in society.

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Hopes and anxieties

The 2007 problem brings both hopes and anxieties.

As the nation's average life expectancy is approaching 90, senior life can be divided into two periods. People in the first bracket aged up to 75 can be called the "young old," while those in the second period, aged 75 and above, are the "old old."

For some time to come, baby boomers are the "young old." It would be a terrible waste not to make the most of their vitality.

Many baby boomers are keen to work well into their senior years. According to a recent Yomiuri Shimbun survey, almost 50 percent said they would like to keep working until age 65, 15 percent replied "until 70" and 10 percent said "over 70."

If baby boomers all retire once they reach their 60th birthday, handing their experiences and skills on to the next generation will become very difficult. This will be a massive loss for the economy.

The introduction of the law for the stabilization of employment of the aged obligated companies to raise the mandatory retirement age for their employees in a phased manner. Companies should implement this measure steadily.

Baby boomers will be expected to play a leading role in changing society into one where people with the will and ability can keep working, regardless of their age.

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Much to offer society

More than 60 percent of baby boomers also said they would like to contribute to nonprofit or volunteer organizations, according to the survey.

If new retirees can play active roles in society, it will open new horizons for the elderly.

Many young parents, who have nobody to turn to for advice, are struggling to bring up their children. More and more elderly people without any relatives are dying alone.

Our society needs a new social network to replace crumbling neighborly and blood ties. Baby boomers could create a new source of neighborhood unity and be the key actors in introducing and nurturing this unity.

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Clouds on the horizon

More serious problems lie in wait. When baby boomers approach and become the "old old," medical and nursing-care costs will skyrocket almost overnight. The financial foundations of the nation's social security system must be buttressed before then.

In the fiscal 2007 budget, social security costs exceeded 21 trillion yen and accounted for 45 percent of general policy expenditures. Pension, medical and nursing-care benefits now total 90 trillion yen.

The cost of these benefits will snowball to 141 trillion yen in 2025 when the baby boomers have all become 75 or older, according to a Health, Labor and Welfare Ministry estimate.

At that time, the nation's demographic composition will resemble an upside-down pyramid, with smaller numbers of younger people at the bottom. For every senior citizen aged 65 or older, there will be just 1.9 people of the working generation--those aged between 15 and 64--a significant drop from the 3.3 people at present.

If baby boomers work longer, definitions of the "working" generation and the "elderly" will have to revised. Nonetheless, the current social security system, which depends heavily on the working population, cannot sustain the huge elderly population when baby boomers become the "old old."

Finding revenue sources to pay for drastic measures to halt the falling birthrate and other social welfare programs will be extremely difficult, especially after funds earmarked for senior citizens have been set aside.

The only solution is to make every generation share an equal burden in providing money for social welfare programs. Accordingly, an increase in the consumption tax is unavoidable.

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Uncork consumption tax hike

However, Prime Minister Shinzo Abe's administration has kept a lid on discussions on increasing the consumption tax--the only feasible option left as a financial source for social security programs--out of concern that such talks could derail the ruling parties' chances in the House of Councillors election scheduled for this summer.

The opposition Democratic Party of Japan also has shied away from the tough questions and retracted its proposal to introduce an additional consumption tax as a financial source for social security programs.

If the consumption tax rate is set at 15 percent, the minimum rate for similar taxes in European countries, the increase would have to be implement in a phased manner. Political and social agreements on how much and when must be reached before then.

Discussions on the consumption tax must start immediately at the Diet so that the increase is completed while baby boomers are still the "young old." Policymakers should fulfill their duties on this issue.

Will the nation's social security system face a crisis or be reborn as a stronger one with the aging of the baby boomers? Time is running out to find a solution to the 2007 problem.