The Japanese government has put together support measures to deal with the so-called annual income barrier problem, or part-time workers taking home less pay despite earning more money when their income surpasses the threshold for paying into the country’s social insurance system.
The main target of the new measures is “category 3 insured workers,” who are supported by their spouses and do not have to pay premiums. Starting in October, the government will subsidize up to 500,000 yen (approx. $3,360) per employee for firms with 101 or more workers that raise wages and take other measures to prevent their take-home pay from dropping when they top the 1,060,000-yen (about $7,100) annual income threshold.
Also, while under the current system workers earning more than 1.3 million yen per year are disqualified from receiving dependent benefits, they will now remain covered for a period of two years.
The measures are a response to requests from companies seeking to address labor shortages. The recent boost in Japan’s minimum wage and other factors have led to more part-time workers trying to reduce their hours to avoid having to pay social insurance premiums.
The new measures attempt to address this by at least temporarily covering social insurance pay-ins for people over the 1,060,000 yen a year threshold to join the rolls of the national pension system for employed people. These workers will also be eligible for increased benefits in the future because of the subsidy top-up to their pay.
However, this will increase inequity with single- and dual-income households already paying social insurance premiums. At a welfare ministry vetting committee meeting, several members expressed caution about shouldering the premiums.
The government has positioned the support measures as temporary, and plans to review them ahead of revision to the pension system law in 2025. However, as long as the “category 3” status remains, there will be no drastic reforms to eliminate the annual income barrier.
The “category 3” status was introduced with other pension system reforms in 1985. It was intended to make benefits available to everyone, including homemakers whose enrollment was voluntary. The idea was that the husband’s pension would be sufficient to provide for both him and his wife in their retirement years.
However, the working world has changed dramatically since the mid-1990s, with the number of dual-earner households surpassing that of households with a full-time housewife. The core principle of social insurance is to provide benefits commensurate with the premium burden borne, and a review of this system is essential.
However, there are cases where people cannot work even if they want to because they have to nurse an elderly relative or take care of children. Measures must be considered to ensure that these people are not left behind.
The social security issue is a major one for Japan, with its shrinking birth rate and quickly aging society. The government must work to create a sustainable system while enhancing fairness.
