Pensions
National pension overview
Japan has a mandatory National Pensions system.
It has three independent layer, the base one being the National Pension, then Employees and Independents contribute to two different additional pensions.
A basic, easy to grasp overview can be found in this presentation by the MOJ.
Overview of the pension system, 2010, by MHLW has more detailed information and figures. See also this 2008 document.
National Pension Service's website. It is recommended to log in to the nenkin website to check your past contributions have been properly recorded, and also for a simulation of how much you would receive once you retire.
Note that there might be discrepancies between your name translation leading to receiving wrong notices.
Contributions and leaving japan
Contributions are mandatory and skipping can lead to your bank account being sized.
Persons who have paid contributions for at least 10 years are eligible to receive the Old-age Basic Pension when the insured attains 65 years of age, even if they are not living in Japan.
People who have contributed at least 6 months can request a limited, partial refund when they leave, but give up corresponding pension rights.
Solvency of the National Pensions
Despite the planned drastic decline in population, the pensions system has large assets that can cover its payment obligation for the foreseeable future, and regularly publishes reports on its assets.
Employees' pension
MHLW data on the receipt of public pensions
Survivor's pensions
Discussed in this comment.
Private pensions
Outline of DB/DC pension scheme.
Defined-benefit
Defined-contribution
Taxation of DC pension distributions
Useful Threads
How Pensions are calculated : a detailed example
Information is based on January 2022 figures/calculations, and kindly wrote up by u/Karlbert86
Japan has 3 levels or “Category” of Pension levels.
Category 1: National pension.
National Pension premiums are fixed at (as of 2022-01-16) 16,610 JPY per month. The current Standard maximum National Pension annuity is 780,900 JPY per year and that is based on 40 years (480 month) of contributions record.
The calculation to calculate your annuity for National Pension in retirement is as follows:
780,900 JPY/480 months x (Number of Months Contributed)
For example: Bob is in Japan for 25 years (300 months). He is a good resident, and follows Japanese law and thus contributes to the pension system.
Bob’s National Pension Annuity will be: 780,900/480 x 300 = 488,062 JPY per year
(worth noting that those enrolled on Category 1 ONLY, can increase their National Pension annuity by paying in Fuka Nenkin and Nenkin Kikin, ReitreJapan did a post on them here: https://www.retirejapan.com/blog/overpaying-kokumin-nenkin/)
That is not much right? This is where we lead onto the next Category….
Category 2: Employee’s Pension Insurance System (EPI).
Those who are enrolled in Shakai Hoken with their employer will be enrolled in and contribute to EPI.
This is where things get a bit trickier because unlike the fixed figures of National Pension, EPI premiums and annuity are bit more variable and complex to calculate.
EPI Premiums:
Premiums are based on your Standard Monthly Remuneration (SMR) and your bonuses, Standard Bonus Amount (SBA).
- Your SMR will include (Salary+Allowances), such as Transport.
- Bonuses are only considered SBA is is they are paid at intervals of more than 3 months.
Your SMR is calculated and assessed every August, based on an average of your salary+allowances over a 3 month period (April, May, and June). There are a few other variables which affect this calculation and they are outlined here: https://www.nenkin.go.jp/service/kounen/hokenryo/hoshu/20121017.html There are a few other occasions when your SMR will change before August. These are outlined here: https://www.nenkin.go.jp/service/kounen/hokenryo/hoshu/20150515-02.html
You can also see your SMR bracket for each month contributed to EPI on Nenkin Net: https://www.nenkin.go.jp/n_net/
Once you know your SMR bracket you can check the deductions table to see how much your monthly premiums will be. You as the employee will want to check the 折 半 額 9.150% column because both you and employer will be paying 9.150% to make the total 18.300% figure.
The most recent deduction table (October 2020) is here: https://www.nenkin.go.jp/service/kounen/hokenryo/ryogaku/ryogakuhyo/20200825.files/01.pdf
You can find older versions here: https://www.nenkin.go.jp/service/kounen/hokenryo/ryogaku/ryogakuhyo/index.html
Now as you can see on the October 2020 deductions table the highest maximum SMR bracket is 650,000 JPY, which is for an average Salary+Allowances of 635,000 or more per month.
This means if say for example, you earn 800,000 JPY per month, then your SMR will still be 650,000 JPY and your EPI premiums will be 59,475 JPY.
However, this also means the maximum possible ASR (Average Standard Remuneration) is 650,000 JPY.
ASR is very important because this is what is used to calculate Annuity in retirement (or lump-sum withdraw should you leave Japan and wish to lump-sum withdraw)…
Calculating your ASR:
Calculating your ASR will require you to find your SMR for every month contributed to EPI. Once you know all your SMRs you add them together and then divide by the number of months contributed to EPI.
For example… let’s go back to our friend Bob.
As you know Bob lived and worked in Japan for 25 years (300 months). All 300 of those months he contributed to EPI. However, his salary was not the same all 300 months. He changed jobs for a few years, took a pay cut for more free time to find himself a bit etc etc. He then came back from finding himself with a vengeance on a nice 10 million JPY a year salary for 15 years! GO BOB! Bob had:
- 5 years (60 months) with a SMR of 500,000 JPY
- 5 years (60 months) with a SMR of 200,000 JPY
- 15 years (180 months) with a SMR of 650,000 JPY
Bob’s ASR is 530,000 JPY: (500,000 x 60) + (200,000 x 60) + (650,000 x 180) / 300 = 530,000 JPY
Annuity: Firstly, we need to establish your multiplier for benefits calculation.
This is based on your Date of Birth. See this document here: https://www.nenkin.go.jp/international/japanese-system/employeespension/employee.files/0000026924gBiokR09V4.pdf Note: This document uses a “.” For the figure but for the calculation you need to use “,” i.e 1.000 = 1,000
As you can see for those born April 2nd 1946 or later is 1,000 (I think this will apply to the majority of readers, so I will use this in the example/explanation).
Once you know your multiplier we need the following calculation: Multiplier = 1,000
A) ASR x (7.125/multiplier) x (Number of your EPI months March 2003 and earlier) B) ASR x (5.481/multiplier) x (Number of your EPI months April 2003 and later)
So, let’s go back to Bob again…. Bob was born after April 2nd 1946 and moved to Japan after April 2003… As mentioned above Bob’s ASR is 530,000 JPY and contributed 300 months to EPI.
Bob’s EPI annuity in retirement is: 530,000 JPY x (5.481/1,000) x 300 = 871,479 JPY per year
Again, that is not much either. However, EPI premiums also include National Pension contributions. So by paying into EPI for 300 months, Bob has also been paying into National Pension for 300 months too!
This means Bob’s final annual annuity is: 488,062 JPY (National Pension) + 871,479 JPY (EPI) = 1,359,541 JPY per year
(there are a few other benefits for dependent family, Disability Employees' Pension and Disability Allowance and Survivors' Employees' Pension etc. Read up on them here: https://www.nenkin.go.jp/international/japanese-system/employeespension/employee.html)
Again… that is also not much. However, that secures Bob an income until the day he dies.
However, Bob is a smart guy and utilized the knowledge, and wisdom shared in r/JapanFinance and ReitreJapan. As a result has used his working life to secure a house, and pay off the loan. He also utilized his iDeCo allowance for 25 years, and a mixture of NISA/Tsumitate NISA/Taxable investments. He also made Voluntary NIC payments to his UK state pension to secure his 35 years contributions record (Bob’s UK State Pension alone, provides him with an additional approx. annuity of 1.4 million JPY!... so he actually gets approx. 2.7 million JPY per year from his combined Japanese Pension + UK State Pension)
Happy Retirement Bob!
Category 3: Dependent Spouses of Category 2
Those who are registered and approved as Dependent Spouses of Category 2, will have their National Pension contributions paid for them.