Deliberations on Japan’s pension reform in 2025 are in full swing at a council of the Ministry of Health, Labor and Welfare. The future vision of the country’s public pensions that support people’s lives in their old age is being called into question.

The public pension system consists of a two-tier structure — the national pension and employees’ pension, with the latter covering company workers and others. The national pension is the basic portion that is common to all people, while the employees’ pension is added based on income.

The benefit levels of the national pension are expected to be 30% lower than the current levels in the mid-2040s. This is due to the national pension plan’s weak financial base, which makes it susceptible to the impacts of consumer prices and sluggish wage growth.

The national pension system was designed with primarily self-employed individuals in mind. Yet in reality, part-time and temporary employees and the unemployed comprise 60% of the participants. The focal point of the reform is whether it is possible to stave off the decline in benefit levels.

The government is looking into two proposals. One is to extend the national pension premium payment period by five years to 65 years of age. This will increase the future benefit amount by some 100,000 yen (approx. $640) per year, while raising insurance premiums by a total of 1 million yen (roughly $6,400).

Since the employees’ pension premiums already include the basic pension portion, company employees working beyond the age of 60 would have to bear no additional burden. For this proposal to be adopted, carefully explaining the significance of the payment period extension and gaining public understanding will be a prerequisite.

The second scenario is to divert part of the employees’ pension revenue sources to the basic portion. This will push down the benefit levels of the employees’ pension, but will shore up those of the national pension. The latter effect is more significant for low- and middle-income groups. Yet it is necessary to keep it in mind that the high-income group will receive less benefits.

The welfare ministry estimates that either proposal, if implemented, will work out in averting a substantial decline in national pension benefit levels.

Yet the reform plan raises the need to fork out additional public funds totaling around 3 trillion yen (approx. $19 billion), as half of the revenue sources for the basic pension portion comes from taxpayers’ money. The higher the total benefit amount becomes, the heavier the burden the national treasury will have to bear. Discussions on how to boost pension revenues sources will be inevitable, including a tax hike.

It will also be effective to increase the number of participants in the employees’ pension, which provides generous benefits. Currently, part-time and other short-time employees are only eligible to join this pension plan if they work for companies above a certain size.

Starting this October, this threshold will be relaxed to cover companies with more than 50 employees. Yet it is unfair that there is a gap in the eligibility depending on the scale of employers. The government is urged to consider further expanding the eligibility by seeking understanding from companies, which would face increased burdens in their contributions to the pension plan.

Amid Japan’s aging society with the falling birth rate, the government must present a blueprint for how to establish a sustainable safety net through pension reforms.

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