Japan's National Pension System
What Is the Japan National Pension System and How Does It Work?
While Japan offers many protections for working residents, often times the rules are confusing and circular; and with much of the paperwork in complex Japanese, it can be difficult for expats to understand.
Whether deducted from your monthly salary or bills in your mailbox, it is important, as always, to understand where your money is going and what it will do.
The National Pension System, or nenkin, can sometimes be a surprise when it suddenly appears, but no need to panic! Armed with enough information, the entire process can be easier than you think.
Am I Required to Enroll, or Can I Opt Out?
Many expats believe that they are not required to pay into nenkin, but that is not the case. All residents of Japan from the ages of 20-59 are required to be enrolled in some form of pension plan. If you are outside of these ages, or are a Japanese citizen who is living overseas (and covered by that country’s system), coverage is voluntary.
In addition, if you were hired outside of Japan by one of the 18 countries currently in agreement with the Japanese government on a temporary basis (under five years), you are eligible to be exempt under the elimination of dual coverage clause, as you are currently paying into the system of your home country.
If you qualify for this exemption, you must obtain a “certificate of coverage” from your home social security office, and then submit that paperwork to a Japan Service branch office. Failure to do so will result in delinquency of payment.
If you have just returned to Japan, or fear a reduced pension amount due to lack of payments, you can also make retroactive payments to get up to speed. How you pay, however, is divided into two separate categories: kosei-nenkin (employee pension system) and kokumin-nenkin (public pension system)
How Much Do I Have to Pay?
Private-sector/government workers are often part of kosei-nenkin, or the Employee Pension Insurance system. In this system, your monthly pension payments are comprised of 15.704% of your monthly income.
However, you are only responsible for 50% of the payments, as your employer covers the other 50%. This is usually taken directly out of your paycheck. For those who have this type of pension plan, other personal payments are not required but can be added in order to increase the amount received after retirement.
The dependent spouses of those in kosei-nenkin can also receive benefits under this system, though it will be far lower than the working spouse.
While technically all private Japanese businesses with more than five (full-time) employees are legally required to offer this service, many prefer to simply enroll employees in the public pension system and keep the expense on the policyholder.
If you are eligible for kosei-nenkin, your employer needs to enroll you—so if you’re currently unsure of your status, the sooner you can check and make sure you’re not missing any payments, the better.
The public pension system is called kokumin-nenkin, and is open enrollment. Self-employed operators, small business owners, and students who are otherwise not covered under their employers are covered under this system.
Kokumin-nenkin has a flat monthly payment rate of ¥16,340 per month (as of 2018). This payment does not get automatically taken out of your monthly income.
Most receive several month’s worth of bills in the mail post-dated until the point at which the next year’s contributions begin, which can be paid at most convenience stores, banks, or post offices.
It is best, if possible, to enroll in auto withdrawal from your bank account each month, as these systems often offer a discount. You can also pay advance contributions in lump sum form.
What Benefits Come from The Japanese Pension System?
Nenkin’s pension benefits vary depending on your intent and living situation in Japan. If you are from one of the 18 nations currently in agreement with the Japanese government, you can apply to have the sum of your nenkin payments transferred to your home country’s pension system, called totalization.
Also, for those who have been in Japan less than three years, you are eligible for a lump sum withdrawal, or everything you paid into the system over the past three years, regardless of whether you’re in the kokumin nenkin or kosei-nenkin, though there is a cap as to how much you can withdraw.
Those working and paying for more than three years (but less than nine) are only eligible to receive payments made in the last three years as a lump sum withdrawal, though those in the aforementioned country agreements can totalize their contributions without penalty.
If you have contributed for more than 10 years, however, you cannot receive the lump sum benefits. Your only options are to either totalize, if that is available to you, or to simply wait until you reach pension age (65).
How Do I Collect My Pension Payment?
The Japanese pension system doesn’t only cover old age. It also covers Disability pension, if you become ill or injured and can no longer work. There is also Survivors’ basic pension, where the family of a currently contributing policyholder can receive benefits after their death.
There are also several smaller benefits dealing with the death of a loved one: The lump-sum death benefit (for those ineligible for Survivor’s) and the Widow’s pension (for the wives of those contributing at least 25 years).
It was former policy that if contributions were even a month behind 25 years, you would be unable to receive old-age pension benefits (though exemptions for low-income policyholders apply). There is some good news regarding the basic old age pension, however.
As of 2017, the minimum contributing years reduced from 25 to 10—a huge boon for many expats who were from countries other than those listed above and were left required to pay something they had much difficulty receiving.
These policies change often, and so while of course all information is relevant and accurate at the time of this article’s publication, we recommend checking the Japanese National Pension website every year or so to ensure you don’t miss any important information.
No Need to Be Confused
Japan’s national pension system can be a maze of information, and while it may be frustrating, just a little patience and time now can secure a big payoff later. We hope we have been able to clear up just a little, so you can start off the new year armed with the power to make the most effective financial decisions.