Macroeconomic Slide Activated

Ministry of Health, Labor and Welfare announced that it would raise the payment of public pension by 0.9% from this April. Regarding current increase of commodity price and wage, the payment should be rising up to 2.3%. The reason why the payment was oppressed by 1.4 % was activation of macroeconomic slide system, which was introduced in 2004, but has not been activated in deflation economy. This is the beginning of the time when pension premium will not be fully returned to the people.

Pension system of workers for private company consists of three layers: national pension, welfare pension and company pension. National pension and welfare pension are categorized as public pension, which payment is annually reviewed by MHLW.

According to consumers’ commodity price index in 2014, rising by 2.7% from the previous year, and to surplus rate of wage with 2.3% rise, growth of public pension payment would be 2.3%. However, actual payment will grow by 0.9% with macroeconomic slide. An average person in April will receive ¥65,008 for national pension, with rise of ¥608, and ¥221,507 for welfare pension, with rise of ¥2,441.

This means that pension payment will no longer follow commodity price hike. Even though price of rice, shoes, clothes or utility payment rises, people will not receive enough payment for purchasing them. This may cause less consumption for aged people, who mainly live on pension system.

The reason of introducing macroeconomic slide system was demographic facts. With aging of baby boomers born in 1950s and less birth rate of these several decades, balance of Japanese population has been distorted. There will be a great amount of aged people and less young people to support social welfare. It is inevitable for pension system to reduce payment to aged people and premium for young workers. The reduction of payment will continue until the budget of public pension system will be balanced.

Due to ambitious economic policy introduced by Prime Minister Shinzo Abe, commodity price is rising months by month. That triggered dissolution of frozen policy for reducing pension payment. At the introduction of macroeconomic slide in 2004, it was supposed that it would take twenty years to balance the budget. But over ten years passed until the activation. Achievement of the balancing is not perspective right now.

To accelerate the achievement, MHLW is considering application of macroeconomic slide even in the time of deflation. But, it is obvious that further reform of pension system will damage daily life of aged people. Artificial growth is not really working for people’s life as a whole.