Not the most stimulating topic, but if you are staying and paying in Japan you should probably know what you are going to get out of the system when retirement comes.
The pension system in Japan is a three-tier system. The below gives an overview of each: how the system works, required level of contributions, and expected level of pay-outs.
Tier 1: National Pension
This is the basic state pension. It is called kokumin-nenkin (国民年金) in Japanese. Those aged between 20 and 60 years who reside in Japan are obliged to pay into the national pension scheme (with some exception, e.g. for students). Monthly payments amount have changed slightly over time and figures for 2015-2019 are given below (Japan Pension Service).
- 2015: ¥15,590
- 2016: ¥16,260
- 2017: ¥16,490
- 2018: ¥16,340
- 2019: ¥16,410
They’re a bit up and down but long-term the amount has been increasing at about 0.6% per year. The problem for many foreigners is that you need to have paid your state pension contributions for ten years before you are eligible to receive the state pension when you retire (the 10 year was effective from April 2017; it used to be 25 years). This somewhat harsh requirement is partially mitigated by a rule permitting a lump sum withdrawal for foreigners returning to their home country. To be eligible, you need to:
- be a non-Japanese national;
- have contributed to the pension system for at least 6 months but less than 10 years;
- make the claim within two years of ending your residence in Japan.
The lump sum calculation only considers up to three years of contributions so there is still a 7-year dead-zone before you reach the 10-year requirement. As of 2019, the maximum possible pay-out is just under ¥300,000 meaning that if you paid in for exactly three years you would get about half your money back (see here for the details).
Japan also has bilateral agreements with certain countries (as of 2014: Germany, US, UK, Belgium, France, Canada, Australia, Netherlands, Czech, Spain, Ireland, Brazil, Switzerland and Hungary; negotiations with other countries underway) which let you add your qualifying years back home to your period of contribution in Japan, helping tip you over the required 10-year minimum and allowing you to claim the state pension.
How much do I get if I’m eligible?
Although the requirement to pay contributions stops at 60, you cannot claim the pension until you turn 65. As of 2019, the maximum annual payment is limited to ¥780,100 (approximately ¥65,000 per month), which assumes that you have contributed to the system for the full 40 years (Japan Pension Service).
The calculations is as follows:
¥780,100 x (total months of contributions) / 480
Tier 2: Employee and Mutual Pension
There are two different types of employee and mutual pensions:
- kōsei-nenkin (厚生年金) for company employees
- kyōsai-nenkin (共済年金) for public sector workers
The latter is less likely to be of relevance for foreigners so I’ll explain the former.
Unlike the national pension where contributions and payments are fixed regardless of your level of income, employee and mutual pensions are calculated based on salary. As of 2015 this stands at approximately 18% of your income, which is split 50/50 between you and your employer meaning that you pay about 9%. This total percentage increases by 0.25% every year. Your national pension contribution is included in this premium so if demand letters arrive you should go to your municipal office and explain the amount is already being deducted from your salary.
How much do I get at retirement?
The calculation for final annual pension payments is more complicated than that for the national pension because your salary changes with job moves and promotions, but the back-of-the-envelope calculation is:
0.55% x (total lifetime wages)
OR
0.55% x (average annual salary) x (no. of years in employment)
So if you worked for 40 years with an average salary of ¥6 million…
| Pension Type | Calculation | Annual Amount |
|---|---|---|
| National | ¥20,000 x 40 years | ¥0.8MM |
| Employee | 0.55% x 40 years x ¥6MM | ¥1.32MM |
| Total | ¥2.12MM |
Tier 3: Other Pensions
Many larger employers offer their own pension benefits in the form of Defined Contribution Plans or Defined Benefit Plans. By providing such benefits employers can opt out of the employee pension system so long as they provide benefits that are over 50% better (essentially, your contributions wouldn’t change but your employer’s burden would increase).
