Japan is proposing various increases to contribution limits for both employer-sponsored defined contribution (DC) pension plans and individual defined contribution pension plans (iDeCo). These proposed changes aim to enhance retirement income security for participants and enable more individuals to contribute meaningfully to their pension savings.
Background
The Ministry of Finance included these changes as part of its proposed tax reforms for 2025. At this stage, the changes are still pending consideration and have yet to take effect. If finalized, the changes could potentially be implemented as soon as 2026.
Japan previously implemented reforms to DC plans on 1 December 2024 by relaxing iDeCo participation requirements so that employees cannot be restricted from participating in iDeCo plans and raising the employer-sponsored DC contribution sub-limits (see previous Lockton article here (opens a new window) for more details).
Key details
Increases in contribution limits for employer-sponsored DC plans
Employer-sponsored (i.e., corporate) DC plans are voluntary plans contracted by the employer through a vendor, with investments and contribution rates chosen by the employer and participation offered to the entire group of their employees.
The maximum contribution amounts for an employer-sponsored DC plan would increase as follows:
Employee not enrolled in an employer-sponsored defined benefit (DB) plan: JPY 62,000 per month (currently: JPY 55,000 per month)
Employee also enrolled in an employer-sponsored DB plan: JPY 62,000 per month (currently: JPY 55,000 per month) minus the equivalent contribution for each employer-sponsored DB plan. As DB contributions are not fixed, a hypothetical “equivalent” contribution must be calculated – see more information on the Ministry of Health, Labour and Welfare’s website
Increases in contribution limits for iDeCo plans
iDeCo plans are individual voluntary tax-advantaged private pension plans contracted by the employee with a pension institution. While only individuals make contributions and employers do not make contributions to iDeCo plans, the maximum amounts that an employee can contribute depend on whether the employee is enrolled in employer-sponsored pension plans.
The maximum contribution amounts for iDeCo plans would increase as follows:
Current iDeCo contribution limit (per month) | Proposed iDeCo contribution limit (per month) | |
Self-employed individuals, students | JPY 68,000 | JPY 75,000 |
Employee not enrolled in an employer-sponsored plan | JPY 23,000 | JPY 62,000 |
Employee enrolled in employer-sponsored DC plan only | JPY 20,000 OR JPY 55,000 minus employer’s contribution to employer-sponsored DC plan, whichever is less | JPY 62,000 minus employer’s contribution to employer-sponsored DC plan |
Employee enrolled in both employer-sponsored DC plan and employer-sponsored DB plan | JPY 20,000 OR JPY 55,000 minus employer’s contribution to employer-sponsored DC plan and equivalent contribution to employer-sponsored DB plan, whichever is less | JPY 62,000 minus employer’s contribution to employer-sponsored DC plan and equivalent contribution to employer-sponsored DB plan |
Employee enrolled in employer-sponsored DB plan only | JPY 20,000 OR JPY 55,000 minus equivalent contribution to employer-sponsored DB plan, whichever is less | JPY 62,000 minus equivalent contribution to employer-sponsored DB plan |
The proposed changes aim to equalize the iDeCo contribution limits for all employees, regardless of enrollment in employer-sponsored plans.
Abolition of restriction on employee contributions to employer-sponsored DC plans
Currently, if an employer-sponsored DC plan permits voluntary contributions by employees, any such voluntary contributions cannot exceed contributions made by the employer.
The tax reforms propose abolishing this rule so that employees are no longer subject to such restriction and can choose to contribute more than their employers. This would be particularly relevant where the amount contributed by the employer is low and the employee wishes to supplement that amount.
However, the total amount of employee and employer contributions will still be subject to the contribution limits for employer-sponsored DC plans (see above).
Employer action: PREPARE TO ACT
As the proposed changes are not yet finalized, they remain subject to further amendments. Employers should continue to monitor the progress of these reforms and start evaluating any potential impact on their occupational pension plans.
If the proposed changes are materially amended or finalized, the Lockton Global People Solutions Compliance Practice will update this article accordingly.
Further Information
Reiwa 7 (2025) Tax Reforms Outline | Ministry of Finance (opens a new window)
