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The amount of pension benefits will be raised to cope with the sharp rise in prices, but in consideration of the fiscal condition of the system, the payout increase will be contained. Revising pension benefits feels like walking a tightrope.
The Health, Labor and Welfare Ministry has announced that the pension benefits will rise in fiscal 2023. Pension benefits will be increased by 1.9% from the previous year for people ages 68 and older who are already receiving benefits and by 2.2% for people ages 67 and younger who will start receiving their pensions in fiscal 2023. This is the first upward revision in three years.
The increase was decided in line with rising prices and wages.
However, for the first time in three years, the government imposed the macroeconomic slide mechanism, a measure designed to curb the growth of pension payouts in line with the declining birth rate and aging of society. As a result, the increase was reduced by 0.6 percentage points from the original growth percentage that reflects prices and wages.
The public pension system is dubbed an “allowance from generation to generation.” With the declining birth rate and aging of society, the number of elderly people receiving pension benefits is increasing, while the working-age population paying pension premiums is declining. It is unavoidable to reduce the level of benefits.
Utility bills and food prices continue to rise due to the effects of such factors as the Russian invasion of Ukraine. Under these economic conditions, the loss of value in pension benefits will be a painful blow to the elderly. It is hoped that the government will consider measures to prevent more people from falling into poverty.
The macroeconomic slide mechanism was introduced in the 2004 legislative revision. At the time, the government explained that it expected to apply this mechanism every year and that it would finish curbing benefits in fiscal 2023.
But due to prolonged deflation with prices and wages not rising as expected, the macroeconomic slide mechanism has only been applied four times, including this latest application. The adjustment of benefits in the basic pension system that covers all individuals is expected to continue until fiscal 2047.
The government’s economic outlook and system design may have been insufficient.
If generous benefits continue to be provided to the elderly, the level of pensions that younger generations will receive in the future will decline. The government should steadily curtail benefits and ensure the peace of mind of our children and grandchildren’s generations.
The government has begun a fiscal review of the pension system, a process that is carried out every five years, with plans to announce the results of the review in summer 2024 and to then reform the system.
In order to increase confidence in the pension system, it is necessary to keep it under continual review rather than postponing the task.
The rapid decline in the birth rate will have a major impact on the public pension system in which all citizens participate.
It is important that the entire nation takes action to address the falling birth rate. The government must create an environment in which motivated elderly people can work for a long time.
