Japan's population of 128 million will shrink by a third, and over-65s will account for 40% of people by 2060, placing an ever-increasing burden on the working-age population to support the country's social security and tax systems.

The new figures, released on Monday by the health and welfare ministry, also showed that the national workforce of people between the ages of 15 and 65 will shrink to about half of the total population.

The estimated fertility rate, or the expected number of children born per woman over their lifetime, is put at 1.35 for 2060, down from 1.39 in 2010 and – well below the level needed to keep the country's population from declining.

At the same time, Japanese people will live longer. The average life expectancy for 2060 is estimated at 90.93 for women, up from 86.39 in 2010, and 84.19 for men, up from 79.64.

The Japanese prime minister, Yoshihiko Noda, has pledged to push for social security and tax reforms this year. A bill he promised to submit by the end of March would raise the country's 5% sales tax in two stages – to 8% in 2014 and 10% by 2015, but opposition both in parliament and among the public is significant.

The national institute of population and social security research, which produced the estimates, said Japan was the world's fastest-ageing country, and with its birthrate among the lowest, its population decline would be among the steepest globally in the coming decades.

Experts say that Japan's population will drop by a million every year and that the country urgently needs to overhaul its social security and tax system to reflect the demographic shift.

"Pension programmes, employment and labour policy and the social security system in this country are not designed to reflect such rapidly progressing population decline," Noriko Tsuya, a demography expert at Keio University, said on public broadcaster NHK.

"The government needs to urgently revise the system and implement new measures based on the estimate."