Japan Press Weekly

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2016 October 26 - November 1 [POLITICS]

Bill to cut pension benefits in defiance of price rise should be abolished

Akahata editorial

The government led by Prime Minister Abe Shinzo shows its strong intent to begin discussions in the House of Representatives on a bill for public pension reform which many pensioners criticize as a bill to “minimize pension benefits”. Under the bill, the amount of pension benefits will be reduced in accordance with wage declines while prices are high. This will impose hardships on pensioners. The Abe government has increased the use of public pension funds for its stock investments and caused a huge loss in the funds. This has deepened the mistrust and anxieties among the general public. The need is to block the adverse pension reform which will deny the role of the public pension system to provide a pillar of support for elderly people’s livelihoods.

Pension cuts under price increase

Currently, the amount of pension payments is revised each year based on commodity prices and the level of workers’ wages. Specifically, the pension payment calculation reflects a change in the previous year’s Consumer Price Index. Real wage volatility over the previous 2-4 years is also computed to determine the amount of pension payments.

Under this calculation method, the pension payments fall short of catching up with cost of living increases. When the rate of wage increase is lower than that of price increase, the revision of pension benefits follows the wage rate. When the price goes up but wages go down, the amount of pension benefits remains unchanged. However, successive governments have refrained from cutting pensions when overall wages are in decline.

What the government-proposed bill seeks is to ignore changes in commodity prices and reduce pension payments automatically when workers’ wages decrease. This pension reform (which is planned to be implemented in April 2021) means that the less workers earn, the less pensioners receive despite the higher cost of living.

The Abe government’s economic policy “Abenomics” aims to push prices up and promotes excessive monetary easing and a weaker yen. As a result, product prices, especially imported goods prices continue to increase. In addition, the government is intending to increase the consumption tax rate to 10% from the current 8% in October 2019. On the other hand, there is no guarantee that workers’ wages will keep going up. This is becoming clear after the failure of the “Abenomics” economic policies.

Despite such a situation, the government is trying to cut pension benefits mercilessly. With the financial burdens of medical and nursing-care services continuing to become heavier, many elderly can no longer economize. Although pension payments are already at a low level, it is outrageous for the government to further cut the benefits without taking into consideration the livelihoods of the elderly who depend on pension income when prices are on the rise. In addition, the “pension-minimization” bill includes a measure to step up the so-called “macro-economy slide” which holds an increase in pension benefits below an increase of prices.

Cuts in pension benefits will deliver a severe blow not only to the elderly’s livelihoods but also to local economies. In particular, rural areas where the percentages of older consumers are larger than in urban areas will be heavily affected. If pensioners need to spend less, it will have negative impacts on local businesses, employment situations, and workers’ income. The “pension slash” bill should be abolished because it will trigger a vicious downward economic cycle.

What is really needed for healthy public pension program?

The Abe government claims that the enactment of the bill is necessary to ensure the sustainability of the public pension program. Before talking about sustainability, the Abe government should clarify its responsibility for having the Government Pension Investment Fund invest in risky stocks causing a huge loss in the fund. Without that, the general public will not accept the bill.

In order to improve the health of the pension system, the government should take measures to guarantee workers higher wages and stable employment. To cut pension benefits will only undermine public trust in the pension program.

Past related article:
> Abe’s policy to have public pension fund buy more stocks causes huge loss [ July 2, 2016]