In the "Macro Economy Slide," pensions will drop by 27% over the next 35 years?! The 30s and 40s will be the hardest hit. Are countermeasures in place?
The Ministry of Health, Labour and Welfareannounced the 2020 fiscal year's pension payment amountshave increased by 0.2% compared to the previous year, which might give a sense of relief just from this figure.
With the "Macro Economic Slide," will pensions decrease by 27% over the next 35 years!? The government’s hidden agenda comes into focus
However, in reality this revisionappears “positive” in nominal terms, but viewed closely it can also be seen as negativein its content. It is described in the following Mainichi Shimbun article.
On the 24th, the Ministry of Health, Labour and Welfare announced that public pension benefits for 2020 would be raised by 0.2% from the previous year. The nominal increase reflecting price and wage rises is 0.3%, but the “Macro Economic Slide” that constrains pension amounts is applied for the second year in a row. As a result, while the payment amount rises slightly, it is restrained below the growth in prices and wages, so the real value will decline.
Mainichi Shimbun, January 24, 2020
In other words, as prices and wages rise due to inflation, the amount by which pensions increase will be held below that rise.If inflation continues, pension amounts will have a nominal increase but a real decrease.
According to Sawakami Asset Management, if inflation stays at 2%,pension amounts will have a real decrease of 27% over 35 years— a substantial reduction equivalent to about 30%.
Here you can glimpse the government’s intention. Since the announcement itself can be framed as a “positive revision,” criticisms may be deflected. If pressed on the Macro Economic Slide, it may be dismissed as an acceptable margin of error (though, as noted above, it accumulates into a large figure).
The real aim behind cutting the real value of pensions is to improve fiscal conditions. Social security costs, including pensions, strain the national finances. With an increasing elderly population, simply letting spending rise would continually worsen the situation without intervention.
Therefore, if by spreading over 30 years the pension is reduced by as much as 30% in real terms,the effect would be in the trillions of yen. When combined with inflation, this would improve both the debt-to-GDP ratio and annual fiscal balance simultaneously.
Of course, the ones who will suffer most are the elderly. Moreover, those who become elderly later will be even harder hit. Yes,the hardest hit will be the current generation in their 30s and 40s.
This generation has fewer people than those aged 65 and over, and their voting turnout tends to be lower. The government can pursue election-friendly policies while quietly laying groundwork for the future. It is a quite well-thought-out mechanism.
What is needed is self-defense. The keys are “secure income sources” and “inflation countermeasures.”
Looking at it this way, one might want to label it as “a government conspiracy,” but that would be unproductive. If social security costs are not reduced, national finances will become increasingly strained and could reach a crisis point (not guaranteed, but risk management-wise it’s important).
Raising one’s voice is important, but what we should do first is“self-defense”. The required measures are（1）secure income sources other than pensions,（2）inflation countermeasures.
From the perspective of securing income sources other than pensions, the first step is“to work”. To work longer, one needs knowledge and skills, and above allto stay healthy, which is important for a higher quality of life.
And of course, investment is indispensable. If you build a system to earn dividends from stocks or real estate income while you are still employed, you can use it as a personal pension for your later life. If you have assets of 100 million yen in stocks and receive a 5% dividend, that yields 4 million yen (after tax) per year, enough to cover basic living costs for now.
Stocks and real estate are assets that withstand inflation. The companies underpinning stocks can raise prices for goods and services when inflation occurs, and real estate prices and rents also rise. Keeping the same amount in cash (deposits) would erode in real terms due to inflation, making it a weak countermeasure for emergencies.
Because of these reasons,I want younger people to learn investing while they are still working. This is not about investing as a hobby of a few but a vital skill for survival now.Please also watch the following video. Beyond returns, investing is essential for life protection.
