RUTH SUNDERLAND: Japanese expertise tells us we’d like sturdy protections for aged

The Donald Trump show has mesmerised markets, but it is not the only worrying spectacle on the world stage. Were it not for the US President’s shocking behaviour, Japan would have received far more attention.

When Trump takes time off from attacking his country’s allies, he will this year celebrate his 80th birthday. This gives him something in common with 36m Japanese people: he is old.

Japan’s ageing population is a major factor behind the economic and political woes that sparked its recent bond crisis.

Around a third of the country is aged 65 or more. Yes, I know 65 is the new 45 and all that, but those demographics are a problem.

Other developed economies, including the UK, are in a similar situation. Japan, however, is ahead of the curve, so we might well look there to see what lies ahead if we are not careful.

Sanae Takaichi, who became Japan’s first female prime minister last year, swept to power with sky-high approval ratings and enthusiasm from investors hungry for an alternative to the US as a home for their money.

Planning ahead: As older savers become less willing or able to manage their money, much of that capital is inactive, not invested optimally, vulnerable to fraud or frozen by the banks

Euphoria didn’t last. Takaichi, who has called a snap election for February 8 to push through a huge spending package in a bid to boost growth, is an admirer of Margaret Thatcher.

Markets, however, greeted this development with a rather less flattering comparison: Liz Truss.

Critics say Takaichi’s stimulus package does not address the underlying problems facing Japan, namely the ageing population and that it is the most indebted developed country on the planet. A paradox is that, while the Japanese state groans under a debt mountain, largely due to the costs of caring for the elderly, millions of its senior citizens are sitting on a vast hoard of private wealth.

More than half of the $14 trillion of assets in cash, shares and bonds held by Japanese households are in the hands of people aged over 65, according to Bloomberg. Around $2 trillion of it belongs to individuals with some level of cognitive decline.

As older savers and investors become less willing or able to manage their money, much of that capital is inactive, not invested optimally, vulnerable to fraud or frozen by the banks.

The cost of ageing populations is usually framed in terms of strain on welfare systems. In a country such as Japan, which is struggling to reduce its debt and pump-prime growth, a pile of dormant capital – Bloomberg calls it ‘dementia money’ – is an enormous lost opportunity. The scenario in the UK is not so extreme. Even so, the ageing population is forecast by the Office for Budget Responsibility to push debt, currently at around 100 per cent of national income, to above 270 per cent in the next 50 years without policy action.

The assumption about older people and money – those who have been able to accumulate savings – is that wealth peaks around retirement, then gradually dwindles away.

But, as the furore over inheritance tax on defined contribution pensions shows, many better-off pensioners hold significant assets late into retirement.

The Japanese experience tells us we need strong protections for older individuals against fraud and mismanagement.

There is an ‘advice gap’ needing to be filled for those who struggle to run a defined contribution pension pot by themselves. And UK pension funds have trillions of pounds in their coffers but are failing to deploy it to support the UK economy.

They must be incentivised to do so before we turn Japanese.