The Health, Labor and Welfare Ministry's latest report on the long-term estimate of the nation's public pension finances highlights the need for pension plan reform, including possible extension of the period for paying premiums, so that pension benefits for future retirees will be maintained at levels that can support their livelihood.

Under Japan's public pension system, payouts for today's retirees are being covered by premiums paid by the current working population. As the elderly account for a growing portion of the population and the number of working-age people dwindles amid the low fertility rate, cuts to the level of pension payouts for retirees will become unavoidable unless premium payments by workers are allowed to keep rising. The question is how can the cuts to payouts be minimized.

The 2004 reform of the public pension system set an upper limit on future increases in premium levels, and the actual payout levels will be automatically adjusted within the limit according to demographic conditions. The government pledged that monthly pension payouts for future generations will be kept at 50 percent or more of the average after-tax income of the working population, and required the health ministry to compile estimates every five years of the fiscal condition of the pension program over the next 100 years to see when reforms of the schemes become necessary.