Here's the miscalculation: pension benefits are administered by the pension office of the city you live in. Unlike America, everyone is registered at the local town office. When you move between towns, you're supposed to a notification with the old town and the new town. They don't synch their records, which are still kept mostly on paper. Thus, if I were hypothetically an old man who lived with my family in Nagoya, then moved to an old folk's home in Ogaki (establishing a new household there), the pension system would not necessarily catch me drawing pensions in two places. If I subsequently expire in Ogaki, notification of my death will update Ogaki's records, but nobody will call Nagoya to tell them "Hey, this guy who shouldn't be on your books anymore is dead now."
If this strikes you as a mindbogglingly inefficient way to run a national pension system worth trillions, wait until I tell you about the time where they discovered they had just totally lost the records of the existence of several million people.
http://www.usatoday.com/news/nation/2007-03-30-census-role_N...
Maybe those committing fraud believe that if they NEVER disclose something, its pretty much a sure thing that it can never be used against them.
The only way you can prevent the government from misusing information is not to give it to them.
Many people should have to prove they are still alive periodically. How hard can it be to send in a video holding the newspaper of the day?
Then again, I don't know how Japan's census actually works.