The Health, Labor and Welfare Ministry unveiled a plan Friday under which public pension benefits would be cut by an average 0.3 percentage point per year through fiscal 2025, in line with the shrinking labor force.
Ministry sources said the panel will also continue investing public pension money in stocks despite the continued slump on domestic markets.
The benefit-cut plan is intended to help prevent a collapse of pension financing as a result of the nation’s plummeting birthrate, ministry officials said.
It was presented to a subcommittee of the Social Security Council, an advisory panel to the welfare minister.
Currently, pension benefits are calculated based on pensioners’ pay levels when they were working, and are linked to the rate of wage growth for the current workforce.
Under the plan, pension benefits for those who will receive them from now on will be set by subtracting the rate of decline in the labor force from the rate of wage growth.
For those who are already receiving benefits, they will be determined by subtracting the rate of declines in the labor force from the inflation rate, if there is inflation.
Provided that wages increase by 2 percent, pension benefits will be cut by an average 0.3 percentage point a year through fiscal 2025 and by 1.18 points from fiscal 2026 through 2050, according to the ministry’s estimate.
If the birthrate drops further, the scale of benefit reductions will expand.
On the plan to continue investing public pension money in stocks despite the continued domestic stock market slide, the panel stressed the potential long-term gains from stocks. It also pointed to a need to diversify investments after a new pension system is put in place in 2004.
In fiscal 2001, the ministry invested about 40 trillion yen, out of public pension reserves of 150 trillion yen, in Japanese government bonds, Japanese stocks and other investment products through its affiliated fund management corporation.
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