Discussion on Public Pension System Reform in Japan

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Discussion on Public Pension System Reform in Japan

During a meeting of the pension subcommittee of the Social Security Council on April 16, members engaged in discussions regarding the impending reform of the public pension system in Japan. This reform effort comes in response to the growing pressure on the system due to the country's aging population and decreasing birthrate. The welfare ministry is taking proactive steps to prepare for this crucial reform scheduled for the following year.

As part of the process, the ministry council deliberated on different scenarios that will be examined in a financial verification of the public pension system that is conducted every five years. This verification process, often described as a "health checkup" of the pension system, involves the ministry generating estimates for future benefit and premium levels based on demographic and economic projections. The previous review in 2019 highlighted the potential decline of future benefit levels of the national pension by up to 30% as the population continues to age and decrease.

One key proposal put forth by the ministry during the April 16 meeting was the extension of the contribution period to the national pension by five years, making it a total of 45 years until individuals reach the age of 65. The public pension system in Japan comprises two layers - the national pension, which is the basic pension covering individuals between the ages of 20 and 59, and the employees’ pension that encompasses company employees and public servants. The recent examination in 2019 suggested that extending the pay-in period for the national pension could potentially lead to an improvement in the income replacement rate for pensioners. Discussions also touched upon reforms such as adjustments in benefit payments for elderly individuals working beyond a certain salary threshold and the inclusion of part-time workers in the employees’ pension scheme.

Furthermore, there were talks about possible reforms to address the current system constraints, like the suspension of benefit payments for company employees' pension if their wages surpass a specified level. The ministry's proposals included considerations for covering part-time workers meeting specific criteria under the employees’ pension scheme and revising the ceiling for the standard monthly remuneration used to determine pension premiums for employees.