As part of its agenda for fiscal year 2025 (which began on April 1, 2025), the Ministry of Finance has proposed several changes that would impact contributions to corporate defined contribution (DC) pension plans, including increasing the tax-effective monthly ceiling on contributions to an employee’s DC account and removing the requirement that employee voluntary DC contributions not exceed employer contributions.
The proposal comes on the heels of changes that took effect on December 1, 2024, making the DC contribution ceiling variable for companies with both a DC and a defined benefit (DB) plan, calculated as 55,000 Japanese yen minus the value of the employee’s DB accrual. Previously, in these instances the DC monthly contribution ceiling was a fixed ¥27,500 (half of the ¥55,000 ceiling that applies in the case where there is no DB plan, an approach that had not changed since DC plans were first introduced in Japan in 2001).
Employers with DC plans should monitor the proposed reform’s progress and consider the potential impact on their plans. The changes are expected to take effect in fiscal year 2026 if approved. The higher tax-effective limit on DC contributions is the latest attempt to try to maximize voluntary savings opportunities for employees. According to the Statistics Bureau of Japan, almost 30% of the population is currently age 65 (normal retirement age under state programs) or older (April 2025 data).
