Dismantling the '1.06 Million Yen Wall' — The Social Insurance Turning Point Facing 2 Million Workers

What is Happening

In October 2026, Japan's social insurance system will undergo a major transformation. The "1.06 million yen wall" for part-time and short-hour workers' enrollment in employees' pension and health insurance—the institutional threshold where social insurance premiums kick in when annual income exceeds approximately 1.06 million yen (monthly wages of 88,000 yen or more), causing a reversal in take-home pay—will be abolished.

The legal basis for this reform is the Pension System Reform Act ("Act to Partially Revise the National Pension Act and Other Laws for Strengthening the Functions of the Pension System in Response to Social and Economic Changes") enacted during the 2025 ordinary Diet session. According to Ministry of Health, Labour and Welfare estimates, the elimination of wage requirements will make approximately 2 million people newly eligible for employees' pension coverage.

To understand what the figure of 2 million means, let's examine the context. Currently, there are approximately 21.26 million non-regular employees (Ministry of Internal Affairs and Communications "Labour Force Survey" 2024 average). Among them, a considerable number of short-hour workers are not enrolled in employees' pension. The 2 million people affected this time represent about 10% of all non-regular employees.

The core issue is not simple. While abolishing the "wall" will eliminate work hour restrictions and increase future pension benefits, it also means a short-term reduction in take-home income. This dual nature highlights the structural challenges in institutional design.

Background and Context

Why Were the "Walls" Created?

The 1.06 million yen wall is an institutional threshold that was effectively "visualized" through the 2016 coverage expansion.

Employee insurance (employees' pension and health insurance) coverage criteria have traditionally included the requirement that "weekly scheduled working hours must be three-quarters or more of regular workers." In October 2016, coverage was expanded to short-hour workers in companies with 501 or more employees who work 20 hours or more per week and earn 88,000 yen or more per month. This 88,000 yen × 12 months = approximately 1.06 million yen became recognized as the "wall."

The power of walls to distort behavior is strong. When a worker earning 1.05 million yen annually reaches 1.06 million yen, annual social insurance premiums of about 150,000 yen kick in, causing take-home pay to "reverse" to approximately 910,000 yen. To avoid this reversal, many part-time workers have intentionally restricted their working hours. This is the structural cause of so-called "work restraint."

According to Ministry of Health, Labour and Welfare surveys, about 40% of part-time workers engage in work hour adjustments. In the midst of serious labor shortages, there's a contradiction where the system suppresses labor supply. This is the primary background for moving ahead with abolishment.

A Decade of Coverage Expansion — The Merits and Demerits of a Gradual Approach

Over the 10 years from 2016 to 2026, social insurance coverage expansion has proceeded gradually. Company size requirements have been lowered from 501+ employees → 101+ employees → 51+ employees, with each stage creating new enrollees in the hundreds of thousands.

The gradual approach has its rationale. It avoids sudden cost burdens on companies while accumulating operational know-how as coverage expands. However, this incrementalism also created policy inertia of "not moving until the next stage."

The elimination of wage requirements in October 2026 represents a qualitative turning point in this gradual expansion. While lowering company size requirements was a reform that expanded "target companies," eliminating wage requirements changes the definition of "target workers" themselves. It's a shift toward the principle that anyone working 20 hours or more per week enrolls in employee insurance, regardless of income level.

Impact on 2 Million People — The Reality of Trade-offs

For the approximately 2 million people who will become newly eligible, the impact is two-sided.

Short-term pain. For a standard monthly remuneration of 88,000 yen (annual income of approximately 1.06 million yen), employees' pension premiums are about 8,100 yen per month, and health insurance premiums are about 4,300 yen per month (in the case of Japan Health Insurance Association Tokyo branch). The total new burden is about 12,000 yen per month, or about 150,000 yen annually. Take-home pay decreases by 13-15%.

Long-term gains. With 20 years of employees' pension enrollment, future pension benefits increase by about 9,700 yen per month. Additionally, new income protections become applicable: sickness and injury allowance (2/3 of standard daily remuneration for up to 1 year and 6 months) and maternity allowance (2/3 for pre- and post-natal periods). These are protections not available with National Pension alone.

As a transitional measure, premium reduction of up to 50% of the individual's burden is provided for a limited three years. Eligibility is limited to those who meet both criteria: "new enrollees with standard monthly remuneration of 126,000 yen or less" and "short-hour workers at companies with 50 or fewer employees." Starting in April 2026, "proxy payment" where employers pay part of premiums on behalf of workers will also be possible.

However, the reduction measures end after three years. There is currently no systematic answer for how to address the "second take-home pay reduction" after the measures end.

Remaining Walls — Structural Constraints of the 1.3 and 1.5 Million Yen Thresholds

Even with the elimination of the 1.06 million yen wall, "walls" in the social insurance system remain.

The "1.3 million yen wall" for dependent recognition changed its assessment criteria to "anticipated annual income based on employment contracts" starting in April 2026, but the threshold itself remains. When annual income exceeds 1.3 million yen, dependent status is lost, requiring enrollment in National Health Insurance and National Pension rather than being covered by a spouse's health insurance.

There's also the "spousal special deduction wall" from 1.5 to 2.01 million yen. Even when one wall is dismantled, the next wall constrains workers' behavior—this "chain of walls" is a structural problem that cannot be fully resolved through individual institutional reforms.

Reading the Structure

The abolishment of the 1.06 million yen wall doesn't simply mean changing coverage requirements. It illuminates three structural challenges inherent in Japan's social security system.

First structure — Partial integration of "fragmented protection." Japan's employee insurance was designed with regular employees in mind. Non-regular employees have long been placed "outside" the system, covered by thinner protections of National Pension and National Health Insurance. This coverage expansion partially resolves this fragmentation. However, note that it's "partial." Workers with less than 20 hours per week and employees at businesses with fewer than 5 people working under individual proprietors remain outside coverage.

Second structure — "Regressive take-home pay reduction." The flat-rate burden of social insurance premiums has a greater impact on take-home pay for lower-income groups. For a worker earning 1.06 million yen annually, 150,000 yen represents 14% of disposable income. The three-year reduction measures ease this steep gradient, but the design creates a new cliff when measures end. The return of increased future pensions is 20-30 years away, creating temporal asymmetry between "today's take-home pay reduction" and "future benefit increases."

Third structure — The institutional paradox of "wall chains." Even eliminating the 1.06 million yen wall, as long as the 1.3 and 1.5 million yen walls remain, work adjustment behavior may simply shift "wall positions" rather than disappear. From an institutional design perspective, rather than a whack-a-mole approach of crushing individual walls, the logical conclusion is redesigning the dependent system itself—transitioning to individual-based social insurance. However, this would mean abolishing the Category 3 insured system affecting about 9 million people, with extremely high political costs.

This reform is both the culmination of a decade of gradual expansion and an entry point to the next structural question. The 2 million new enrollees will face reduced take-home pay in the short term but gain old-age income security and sickness/maternity protection during employment in the long term. For the system as a whole, sustainability increases with more employee insurance contributors.

But the question we should ask is what comes next. Can incrementalism that dismantles walls one by one truly resolve protection disparities based on employment type? Or should we take the plunge into fundamental redesign toward individual-based, income-proportional social insurance? October 2026 is when this question will be literally inscribed on the pay stubs of 2 million people.

• Structural Transformation in the Era of 21 Million Non-Regular Employees — Has "Equal Pay for Equal Work" Reduced Disparities?
• Intergenerational Pension Inequality — How "Loss-Making Generations" Are Structurally Created
• Introduction to EBPM — What is Evidence-Based Policy Making?

References

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年金制度改革に係る厚生労働省案2025が成立！改正法の全体像を詳しく解説

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2026年度予算案 — 社会保障費は過去最大の39.1兆円

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