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Public pension payments set for hike but rising prices could cut real value

TOKYO -- Public pension payments will rise by 0.1 percent in fiscal 2019, according to welfare ministry figures released on Jan. 18 -- the first increase in four years. However, rising prices, the consumption tax increase in October this year, plus pension system mechanisms designed to adapt benefit amounts to demographic and economic shifts could combine to reduce the real value of those payments, putting pensioners in a financial squeeze.

People registered with the national pension system such as those with self-owned businesses will see their April benefits (to be paid in June) rise 67 yen from the same month last year, to 65,008 yen. Typical two-person households covered by the company employees' pension system will see their monthly payments rise 227 yen to 221,504 yen. If benefits were still being calculated the way they were before 2004, wage fluctuations would have dictated a 0.6 percent rise in payment amounts for fiscal 2019. However, two systematic factors are keeping the increases lower.

The first is the "macroeconomic slide" system, incorporated into the pension system as part of reforms in 2004. The slide holds down increases in pension benefit amounts according to declines in the birthrate and the aging of the population. However, the slide is not implemented during deflationary periods, and has in fact only gone into effect once, in fiscal 2015. Future pensioners will be forced to accept vastly reduced payments if the slide is not applied.

For this reason, the government introduced a "carryover" system in fiscal 2018, designed to transfer the burdens of bad economic years to the next fiscal year or beyond. The system will be implemented only a year after its introduction. However, 71-year-old Keizo Masuko of the some 110,000-member Japan Pensioners' Union, commented, "As prices rise, limiting pension payments will mean less money to spend on daily necessities. That's a big blow to people living on their pensions."

Shungo Koreeda, of the Daiwa Institute of Research Group, predicted that "while pensioners will have less financial leeway, the support payments for low-income pension recipients set to be introduced with the October sales tax hike will mean the impact will be limited." However, Koreeda also noted that standard pension payment amounts will continue to decline. "It's important to create an environment where the elderly can stay in work longer, and to make use of other assets besides pensions," he added.

Furthermore, it is impossible to say if the macroeconomic slide and carryover mechanisms will work in the future, even if they are operating as intended for fiscal 2019. They were helped along not just by economic conditions, but by the fact that the ratio of benefit cuts is small.

The ratio of benefit cuts is dictated by how many people are enrolled in the pension system, both payers and payees. If there are many people paying into the system, the ratio of cuts can be kept small. The ratio is kept small for next fiscal year because the number of employee pension system contributors expanded, as it has allowed Japan's vast pool of part-time workers to join the scheme.

"The economy has been expanding for a long time now, but if you presuppose that the economy moves in cycles, then there will be a downturn at some point. The number of people paying into the system will also drop over the long term," noted The Japan Research Institute's Kazuhiko Nishizawa, suggesting the payment limitation mechanisms may become more difficult to apply over time. "The government should implement one more level of reforms," he said.

(Japanese original by Ai Yokota and Ryosuke Abe, Medical Welfare News Department)

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