[Grandpa's Preparation] #04: Macroeconomic Slide

Grandpa, a supporter of Generation Z, is currently 64 years old. He has reached his final year before graduating from the company at the mandatory retirement age of 65. In this installment of Grandpa's retirement preparations, the topic is the macroeconomic slide.

For those of us living on a pension starting at 65—a pension that doesn't allow us to earn wages through hard work like we used to—it's natural to wonder: will the pension also increase in a mechanism similar to how wages rise through annual spring labor-management wage negotiations?

I'm sure you've all heard the term "macroeconomic slide," but do you understand how it works?

It is a known future that the population of young workers supporting the pension system will continue to decline.

If the population paying pension premiums decreases while the number of elderly recipients steadily increases, trying to maintain the same level of benefits would require raising premiums without limit.

Therefore, the mechanism of automatically reducing benefits to match contributions instead of raising premiums to balance the books and maintain the pension system's fiscal health is called the macroeconomic slide.

You can learn what the macroeconomic slide is all about through two short videos prepared by the Ministry of Health, Labour and Welfare.

First video

Second video

Watching these two videos should give you a general idea.

The health check of the pension finances for the next 100 years is called the fiscal verification.

In 2004, the fiscal verification system was established as part of the "100-Year Peace of Mind Pension," and it has been conducted every 5 years in 2009, 2014, and 2019, and it was also conducted this year, 2024.

Just as there are high, medium, and low fertility rate projections for the population, simulations are also conducted based on assumptions regarding labor participation rates and economic conditions.

As for economic scenarios, there are
four patterns: (1) High growth realization case, (2) Growth-oriented economic transition/continuation case, (3) Past 30-year projection case (continuation of the past 30 years of a society with no wage growth), and (4) Zero growth per capita case

. Let's compare the

income replacement rate (the percentage of your working-age wages that you receive as a pension) between cases (2) and (3).

If the economy doesn't grow, nothing good will come of it. If we continue in a society where wages don't rise like they have for the past 30 years, the pension, which currently provides 226,000 yen/month with an income replacement rate of 61.2%, will drop to an income replacement rate of 50.4% and 211,000 yen by 2060. In contrast, if the economy grows, an income replacement rate of 58.6% can be maintained, resulting in 338,000 yen.

Silver politics is used as a synonym for those who think maintaining the status quo is best and do not want change, but in reality, we must do the opposite.

We, who can no longer earn as much, must not elect politicians who sit idly on vested interests and create a society with 30 years of zero growth. We must support politicians who will realize economic growth through proactive fiscal policy so that pension amounts also rise in line with wage increases.

The current situation is the result of the public supporting policies over the past 30 years that have lowered the pension income replacement rate. Therefore, I felt that silver politics needs to realize that it must abandon the desire to 'not change' and absolutely choose 'change'.

I truly hope we can achieve economic growth where the income replacement rate holds steady at 57.6% and benefit amounts increase, rather than a future where it falls to 50% and benefit amounts gradually decline.

However, it depends on the results of population projections, so I am a bit anxious.

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