Pension benefit amounts for 2024 releases

[phillev]

On January 19th, 2024, the MHLW released details of the pension benefit amounts for 2024. You can see the press release here. For reference, you can see the previous year’s release here.

For people aged under 68, pension benefits move in line with average wages (minus the macroeconomic slide), which will mean an increase of 2.7%, whereas for those aged over 68 benefits increase in line with inflation minus the macroeconomic slide, which will mean an increase of 2.8%. For reference, the macroeconomic slide includes a -0.1% adjustment for the change in the number of pension benefit recipients, and a -0.3% adjustment for the increase in the average life expectancy.

“But there’s no way to know how much pension payouts will increase by the time I’m old! The government increases and decreases payouts randomly!”

Nope, by law pension payments increase by the rate of wage increases for those under 68 and by inflation for those over 68. You might have noticed the government’s push for increasing wages and sustainable inflation of over 2%.

“But that just means I’ll have to pay more in pension premiums!”

For example Kokumin Nenkin premiums will increase by 460 yen in 2024, yet the payout amounts will increase by 1,750 yen.

“But the pension system is bankrupt! And it’ll be even more bankrupt by the time I’m old!”

Current pension payouts are covered 100% by pension premiums and tax. In the future, it is estimated that 10% of pension payouts will come from the GPIF, the largest pension fund in the world, which invests in Japanese bonds, foreign bonds, Japanese stocks and foreign stocks at a rate of 25% each. From 2001 to 2023 it has had a compound annual growth rate of 3.91% and currently stands at a whopping 126.6 trillion yen and growing. You can see the details here. Even when money starts to be taken from the GPIF, 90% of the payouts will be covered by tax (roughly 20%) and insurance premiums (roughly 70%).

“But the pension system is not insurance! It’s a scam! Pension payments are theft!”

Ok, that’s nice, thank you for your comment. Have a nice day!

 

[padraig2003]

@phillev Thanks for this. I'm curious though, where does the sentiment come from that "by the time we all retire I don't expect we'll receive much"? Your comments seem to suggest that such thinking is wrong.

If the story is much more optimistic, what could the government do to reinforce that?

 

[phillev]

@padraig2003 It’s mostly twisting facts, for example the idea that future payouts will be a lower percentage of average wages which makes it seem like pension payouts will go down while ignoring the fact that average wages are expected to be much higher in the future.

It’s also a self fulfilling prophecy for some people. “I will not pay into the system because I don’t expect to receive much, then when I retire I will actually not receive much because I never paid in”. Which is met with “I knew it!” rather than “this is my own fault”.

Also, the media likes to latch onto negative news, so when stocks are down for the quarter they love to say “the pension fund lost 50 billion yen!” without mentioning the fact that in percentage terms that is like less than 0.1%.

 

[farmer4life]

@padraig2003 Did someone say manga!?!

https://www.mhlw.go.jp/nenkinkenshou/

 

[padraig2003]

@farmer4life Thanks, not quite what I meant I think we both know that's not gonna cut it to reach and change people's image.

P.S. I tried to read the first two but can't handle the format, not manga but this back and forth Q&A style.

 

[farmer4life]

@padraig2003 But there’s a talking cat!

I read one. And learnt the Japanese equivalent of “for the greater good”.

I dread to think about how much they spent on that. Probably has hard copies in each post office..
the on I read had about 84 panels and the information could have been in a simple infographic..

 

[eterna]

@phillev "But I don't want to read all that and change my beliefs, I have always been proud of never paying into this scam, so the cognitive dissonance that I made and continue to make a terrible decision on multiple level is ... anyway let me just insult you."

 

[katty143]

@phillev This is great! Thank you! I wish Japan had a pension predictor like the UK.

 

[phillev]

@katty143 It does, you can see your estimated future pension payouts (based on your contributions so far and presumptions of your future salary, retirement age and what age you will start collecting payouts) by using Nenkin Net here. These figures are before the yearly pension amount adjustment’s so you can think of it as the amount you’ll get “in today’s yen”, with the actual nominal figure being higher.

 

[maryam28]

@phillev What’s the “access key” they mention on there?

 

[phillev]

@maryam28 It’s written on your 定期便 that you get every year. If you don’t have it, maybe you can ask at the pension office. I believe you can also sign up with your MyNumber card.

 

[maryam28]

@phillev Awesome. Thank you!

 

[farmer4life]

@maryam28 https://retirewiki.jp/wiki/Nenkin_Net

Additional info here.

 

[saintnick]

@phillev I'm hoping for the best, but planning for the worst. Laws can change and do. Who knows what Japan will be like in 30+ years by the time I retire.

 

[bigoink]

@phillev Instead of straw-manning, how about listing some more reasonable arguments people might make:

“But by the time I retire Japanese politics might move in a more nativist direction and restrict pension payments to citizens only, or to those residing in Japan”

“But despite these COL adjustments, the value of the pension has fallen substantially over the past 30 years and basic pension is not even nearly enough to live on.”

“The demographics and public debt are so dire that it’s likely future governments will reduce the pension even further.”

 

[phillev]

@bigoink All very popular conspiracy theories which are not based in reality at all. My answer to which is outlined in the last paragraph.

In all earnestly, the first point is ridiculous. It’s not the 1700s. The second point is not true because it moves in line with inflation, so the “value” is exactly the same. The third paragraph, what do you mean by “reduce further”? The payments have not been reduced. There are also clear plans to raise pension payouts as outlined in the 財政検証, of which a new one will be released this year.

 

[bigoink]

@phillev There’s nothing ridiculous about the first conjecture. See the Mainichi from today discussing a court ruling that a man from Ghana was ineligible to receive welfare payments:

“Based on a notice by the former health ministry, there was a time when those of other nationalities were able to broadly receive welfare. However, due to an increase in resident foreigners and other factors, a verbal notice was given in 1990 specifying who can receive the payments. The scope was limited to foreign nationals with a permanent residence status…”

Now you will probably say, pensions aren’t welfare, they’re an earned benefit, etc. Which is fine.

But it’s not at all ridiculous to think it’s possible that a lot will change over the next decades and that Japan will become less accommodating to pension-age foreigners than it is now. The UK for example already imposes restrictions on COL adjustments for many pensioners retiring abroad. Singapore restricts pensions to permanent residents, I believe.

 

[eterna]

@bigoink No sane government would restrict pensions to people living in japan.

That would bring back home a lot of elder japanese that would be a strain on welfare and healthcare system, while not contributing.

From a pure cynical financial perspective, the negative contributors are welcome to stay far away.

And making a rule just for foreigners would make them even less attractive when they are starving for workforce, so I'd say it is unlikely.

 

[bigoink]

“The payments have not been reduced”

FYI the public pension payment was last reduced in 2021 and 2022.

 

[phillev]

@bigoink The payments move in line with inflation, that means if there is deflation then they will go down. The value stays the same. However, the government maintains a stance that they will do everything in their power to cause inflation, which is a sign of a healthy economy. In the 財政検証, they also state that long term economic stagnation or deflation would require serious government intervention, which you might have noticed the BOJ is putting into effect by keeping interest rates low despite market cries to raise interest rates, because they want to make sure that the current inflation we are experiencing is sustainable.