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Tuesday, Aug. 10, 2004
THE ZEIT GIST
Your golden handshake
In the first of two articles on Japan's ailing pension system, Barry Brophy, outlines the way it works and explains the one way to cash in while the going is still good
By BARRY BROPHY
What is the Japanese pension system?
There are two types of pension system.
National Pension System
Temporary and part-time workers and the self-employed are required to pay into the national pension system, or "kokumin nenkin."
There are cases whereby those who can argue that they are unable to benefit from the scheme can be exempt from payment.
Many foreign nationals teaching English in Japan are enrolled in this system or none at all since they are not classed as full-time salaried workers by their companies, which are also keen to avoid having to match their employees' contributions to the Employees' Pension System.
Employees' Pension System
All full-time workers between the ages of 20 and 60 years of age with an address in Japan must join the Employees' Pension System, regardless of nationality. Since full-time workers, in theory, receive regular payment from their companies, they are expected to join the system. Full-time workers are liable for premiums of around 13 percent of their average annual pay, which is shared between company and employee.
How much do I pay into the system?
Those who are part of the National Pension Plan currently pay a maximum of 13,300 yen a month. Under the new pension bill passed in June, that figure will rise to 16,900 yen by 2017.
Those who pay into the Employees' Pension System currently pay around 13 percent into the system each month (the amount is shared between company and employee and differs slightly from company to company). That figure will rise to over 18 percent by 2017, though the government has suggested it would eventually like to see a figure of 20 percent being paid.
How do I qualify for a pension and how much would I get?
Though you must pay in for 25 years to be eligible for a pension, payments are obligatory up until age 65, meaning you could, in theory, be paying into the pension system (in its current guise) for 45 years.
At present, those eligible for pensions receive roughly 60 percent of their average basic pay each month. The government has promised that in future, pension benefits will not fall below 50 percent of a worker's average salary, though with Japan's birthrate falling, and population rapidly aging, at this point there can be no guarantees made on likely payouts in the future.
I won't be here for 25 years, so can I get a refund of the money I have paid?
Yes, and no. If foreigners who have contributed to the pension system for 6 months or longer leave Japan permanently before they have paid into the system for 25 years, they are entitled to a partial refund, known as a Lump-sum Withdrawal Payment.
The amount returned is based on the length of time spent paying into the system, and must be applied for within two years of leaving Japan.
Of course, you can leave Japan, claim the money and then return to work here, though if you do this, the amount of time you're registered as having paid into the pension system returns to zero, and you are not allowed to apply for another refund when you leave the country a second time.
How do I go about getting this refund?
Once applied for, the pension refund usually arrives within a couple of months, and is deposited into a designated bank account.
An application form for the Lump Sum Withdrawal Payment can be picked up at your nearest Social Insurance Office or ward office.
Applicants must then provide a pension book (which they receive from their employers when they leave), a copy of their passport, and a bank certificate confirming details of the account where the cash is to be deposited.
These documents, plus a completed application form should be mailed to the Social Insurance Agency in Tokyo. The address is: 5-24, Takaido-Nishi 3-chome, Suginami-ku, Tokyo 168-8505
The Social Insurance Agency can be reached at (03) 3334-3131.
Why do I only get back contributions based on a maximum of three years of payments? Even if I'm paying in for 10 years?
The government argues that since over 90 percent of foreigners with visas leave after three years, the decision was originally made to set the lump sum repayment at this rate. It's also possible that, with such a large number of foreign residents taking part in the JET Program, which has a maximum term of three years, the scheme was instituted largely to benefit them and, thus, no longer period than three years was applicable.
It's also possible, however, that the Japanese government was simply looking for a way to encourage foreign residents to remain in Japan for no more than three years -- essentially by paying them to leave.
Can contributions made in Japan be counted toward pension plans in my home country?
At present, Japan has agreements with two countries -- Germany and the U.K. -- regarding pension benefits, which are intended to deal with the issue of dual payment. For example, British nationals working for British companies in Japan do not have to pay into both the British and Japanese pension systems at the same time.
A similar agreement has just been reached with the U.S., though final approval of the terms and scope of the deal has yet to be given by Congress in the U.S.
In general, Japan has been extremely slow in finalizing agreements with other countries over pension benefits -- with obvious benefits. At present, Japan collects more than 100 billion yen a year in revenue in the form of pension payments from foreign residents, many of whom are unlikely to pay in long enough to be eligible for a pension, and their employers.
Offering pension deals to foreign nationals would increase the Japanese government's financial obligations under the already creaking pension system.
What are the benefits of enrolling in the pension system even if I don't stay here for 25 years?
Well, there are a couple. As long as you're paying into the system, you are eligible to receive a Disability Basic Pension and a Survivors' Basic Pension.
A Disability Pension is paid to contributors to the pension system if they are enrolled at the time of the first diagnosis of disability due to disease or injury. Payments range from around 800,000 yen to 1 million yen a year.
A bereavement pension is paid to support the family members of a deceased contributor to the pension system. The pension is paid to the wife or husband. If neither parent is live, then the pension will be paid to the child(ren).
How much will you get back?
National Pension System: Based on the number of months paying into the system, your refund will be: 6-12 months: 39,900 yen 12-18 months: 79,800 yen 18-24 months: 119,700 24-30 months: 159,600 yen 30-36 months: 199,500 yen 36 months and over: 239 yen,400
There is no tax deducted from this payment.
Employees' Pension System: In order to calculate how much you stand to receive, multiply your average monthly base pay (before tax) according to the rates below: 6-12 months: 0.4 12-18 months: 0.8 18-24 months: 1.2 24-30 months: 1.6 30-36 months: 2.0 36 months or longer: 2.4 As of April 1, 2003, the maximum amount to be returned was cut from 3 months' pay to 2.4.
Those who paid part or all of their premiums into the pension system before the new rate was introduced, however, will be compensated for the reduced rate.
To work out the refund for those people in this category, average base pay should be multiplied by 1.3 for the period they paid into the system before April 1, 2003; added to their base pay multiplied by the number of months paid in after April 2003 (up to a maximum of 36 months for both); and divided by the total number of months (up to 36).
For example: Coverage period before April 1, 2003 = July 2001-March 2003 (21 months) Coverage Period after April 1, 2003 = April 2003-August 2004 (15 months) Total months: 36 Average Monthly Pay = 300,000 yen To calculate: Add: 300,000 yen x 21 x 1.3 = 8,190,000 yen (pre-April 2003) To: 300,000 yen x 15 = 4,500,000 (post-April 2003) Total = 12,690,000 yen; Divided by 36 (months) = 352,500 yen Refunded amount = 352,000 yen x 2.4 = 846 yen,000
The refund is taxed at a rate of 20 percent.
What do you think about the Japanese pension system? Send your comments to email@example.com and we will publish as many as possible. Next Week: What if I'm a longterm resident? How are benefits calculated for retirees? Do I have other options?