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Pension Values to Fall by 14% in 20 years

The Asahi Shimbun, June 4, 2004

photo of man with child

The real value of pension benefits will decline by 13-14 percent in 20 years if the government's pension reform proposals are put into practice, health ministry estimates show. 

A reform bill, which would raise pension premiums while curbing retirement benefits, is expected to pass the Diet today. 

According to the Ministry of Health, Labor and Welfare, monthly benefits for a model household will drop in real terms by 31,000 yen by fiscal 2024 if consumer prices rise at an annual rate of 1 percent. 

The model household comprises a 65-year-old husband who has paid into the employee pension program for 40 years and his wife, a homemaker. 

Their nominal benefits will rise from 233,000 yen a month in fiscal 2004 to 246,000 yen in fiscal 2024. But the 2024 payouts will translate into 202,000 yen in terms of 2004 values, a drop of 31,000 yen, according to the ministry. 

The drop in real terms is a result of the benefit adjustment system tied to fluctuations in the labor force. The system, also called the "macroeconomic slide," will be in force between fiscal 2005 and 2023. 

The government incorporated the system into its reform proposals to curb benefits as the labor force shrinks due to the aging population and the low birthrate. 

Under the current system, the real values of pension benefits are maintained because they are virtually pegged to price increases. Thus, when prices rise by 1 percent a year, pension benefits also increase by 1 percent. 

But when the new legislation takes effect, benefits will be slashed by an average 0.9 percent annually because of the macroeconomic slide starting in fiscal 2005. 

For those who paid into the national pension program for 40 years, the monthly payout will rise from the current 66,000 yen to 69,000 yen in 20 years, which is actually 57,000 yen under current terms, according to the ministry.


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