Japan Pension System for Foreigners

Japan Pension System for Foreigners

If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or WhatsApp (+44-7393-450-837).

This article is here for general informational purposes only, and the facts might have changed since we wrote it.

Introduction

Let’s explore Japan pension system for foreigners.

True, it can be difficult for people who live outside of their home country to understand the intricacies of the pension schemes of the nations in which they reside. The same rule applies for expats in Japan.

Japan Pension System for Foreigners: Types of Pension Schemes

The pension system in Japan may be broken down into two distinct parts: The National Pension Scheme and the Employees’ Pension Insurance System. The two of them are known as the Public Pension System.

The National Pension Scheme

The National Pension Scheme is a required premium that must be paid by all individuals who are between the ages of 20 and 59 and are considered as residents in Japan, irrespective of their nationality. Contributions to the national pension program from April 2022 to March 2023 has been set at 16,590 yen per month, or $121.47 (as of the time of writing).

It is essential that you are aware that you have the ability to submit a request for an exemption in the event that it would be impossible for you to contribute the required amount for a given time period due to financial constraints.

Having said that, in order for an exemption petition to be approved, several conditions must first be satisfied. An expat may be exempt from paying the mandatory national pension contribution if they meet certain criteria, such as being an international student, getting paid a small wage, or being unemployed, among other things.

There are three distinct groups of individuals who are eligible for the National Pension Scheme, and these groups are as follows:

Those who are self-employed, as well as students, fall into the first category. People who are registered residents who are self-employed and are in the age range of 20 to 59 are considered to fall into this category.

Agriculture, fishery company operators, and students working in other related fields are common examples of self-employed.

On the other hand, people who have held jobs within the private sector are considered to fall into the second category individuals. They, along with their employers, will have made payments into their pension plan, with the typical contribution ratio being 50 percent employee and 50 percent company payments.

Included in this group are people who work for the government and those who are enrolled in the Employees’ Pension Insurance (EPI) System.

The last category is reserved for insured individuals’ dependent spouses who are between the ages of 20 and 59. In order to be eligible for category 3 classification, you must be a resident of Japan.

Nevertheless, the following are a few caveats to this regulation that may apply to you in certain circumstances, such as when you are unable to give an address for your residence in Japan:

  • You are a student who is studying in a foreign nation
  • You are escorting a person from the second category who is being sent to work overseas
  • You are living in a foreign country for reasons other than employment, such as pleasure or tourism.
japan pension yen
The yen, Japan’s currency. Image from remitly

Japan Pension System for Foreigners: The Employees’ Pension Insurance System

If you work for an employer full time, there is a good chance that you are registered in the Employees’ Pension Insurance System.

Both the employer and the employee are responsible for contributing half of the total amount to the pension plan under this arrangement. The amount of the contribution is not predetermined; rather, it is calculated relative to the employee’s annual wage. Therefore, the bigger your earnings are, the greater the contributions that both your company and you will be required to contribute.

As a result of the employees’ pension insurance system, expats working in Japanese companies are required, in accordance with the mandatory EPI regulations, to contribute to both the national and the employee pension insurance premiums. This is an obligation that is placed on them by the employee’s pension insurance system.

Eligibility Requirements for Participation in the Japan Pension System for Foreigners

To be eligible for a pension in Japan, a person must be at least 65 years old and have contributed to the Japanese national pension for a minimum of a decade before they may apply for a pension. If these conditions are not satisfied, the pension money will not be disbursed to the beneficiaries.

It is important to note that one needs to have contributed to their pension for a total of 40 years in order to receive their full basic pension payment. On the other hand, if you have paid into the national pension system for at least 10 years, your pension benefits will be recalculated to take into account the whole amount of time that you have contributed to the system.

The fact of the matter is that a good number of expats may already be contributing to pension plans in their home countries, which can make the payment of additional premiums a significant strain on their financial resources. In most cases, it is difficult for them to complete the requirements necessary to get their pensions because they are living overseas.

In addition, it’s possible that they’ll quit before reaching the 10-year mark, which is the bare minimum of years that must have been contributed before a person may start collecting their pension.

The Japanese government has put in place two different systems, i.e., the social security arrangement and the lump-sum withdrawal method, to ensure that retired foreign nationals now living outside of the Asian country do not end up losing their pension benefits. 

The social security agreement is a joint deal between the government of Japan and the government of the expat’s country of origin that allows the expat to consolidate the payment of the pension plan of his home country with that of Japan. This allows the expat to receive a higher pension from both countries. This system is for an expat whose stay in Japan will be less than a period of 10 years.

When departing from Japan, an expat who is enrolled in the Japanese public pension plan has the option of taking a lump-sum withdrawal of a portion of the pension premium paid. This option is available under the system known as the lump-sum withdrawal system. In the event that an expat wishes to make an application for a lump-sum withdrawal, they are required to submit the appropriate form within two years of the date that they registered to leave Japan.

Enrollment into the Japan Pension System for Foreigners

It is in your best interest to discuss your pension options with your employer, as they are the ones who can enlist you in either the government-sponsored pension program or the pension plan offered by private businesses.

If you are currently living in Japan during the month of April, you should get a letter in the mail that contains your deductions. These payments will be broken down into monthly or quarterly installments, each of which can be made at the post office, a retailer, or a bank.

Alternately, you would see deductions tagged under social security on your pay slip. A deduction for medical insurance, long-term care insurance, work insurance, and welfare insurance should also be included here, along with the others.

Workers in Japan should be aware that some businesses have been detected illegally dividing their wages and depositing them in other bank accounts. Because of this, the tax responsibility will now fall on your shoulders rather than on theirs.

It is against the law for an employer in Japan to propose that an employee open multiple bank accounts so that the employee’s salary can be paid out in installments, and the employer should be reported for breaking the law.

japan pension expat workers
Expat workers in Japan. Image by nippon.com

What are the Options Accessible to You Within the Japan Pension System for Foreigners?

In addition to guaranteeing a certain amount of money to retirees, the Japan pension system for foreigners also offers the following two advantages to its participants:

1. A disability pension, under which the expat is entitled to a predetermined sum of money in the event that they become disabled.

2. The survivor’s pension, which provides a specific amount of money to the deceased expat’s family in the event that the expat passes away.

The Japanese pension system is open to participation from everyone living in the country between the ages of 20 and 59.

Japan Pension System for Foreigners: Contribution Amount 

Everyone, no matter their income, is required to make the same monthly contribution to the National Pension Scheme, which is 16,590 yen. Everyone receives the same pension payout, which is now set at 781,700 yen per annum, as of 2022. This, of course, is based on the assumption that you have been contributing to this system for the past four decades.

When it comes to Employee Pension Insurance, on the other hand, the amount that you and your employer will contribute is determined by how much money you bring in each month. Because of this, the amount of money that you will receive once you have reached retirement age will differ from person to person.

When you take into account factors such as retiring early, retiring late, childcare, unemployment, or self-employment, estimating the amount of money you will get following retirement can be quite a challenging process.

So How Much Would You Get Back From the Scheme?

One of the major questions that remains is regarding the amount of money that those individuals who will reach retirement age within the next 20 to 30 years would collect.

While there is no exact answer to such query, do consider that the people of Japan, both those born in the country and those who were born outside of it, are of the opinion that the Japanese pension system would still be able to maintain its financial stability over the next decades.

The Japanese pension system operates in a hierarchical fashion, similar to that of other national pension programs. The premium that is paid by the total workforce is then paid to the retired community, from which one can draw the conclusion that the Japanese pension system functions as sort of a financial multi-generational safety net.

When we take into consideration the fact that the Japanese population has already reached its highest point and is now declining on a consistent basis, whilst at the same time the percentage of retired and elderly people is continuing to expand, it is clear that the Japanese pension system will likely confront numerous difficulties in the years to come and will probably come to blows just to sustain the perks that it currently provides.

It is highly probable that future retirees who are currently making contributions to the system will not enjoy the same advantages that their older contemporaries are currently receiving. The solutions that are most commonly proposed for this issue are to increase the already substantial burden placed on those who contribute, to postpone retirement age, to trim the benefits, or to print more money.

If you trust that the national pension system will take care of your needs once you reach retirement age, you should probably re-evaluate that belief. To achieve a good retirement, you must conduct some personal retirement preparation to augment the pension benefits from the government.

Japan Pension System for Foreigners: Payouts

The Step-by-Step Guide to Collecting Your Pension Benefits

Pension payments can be claimed beginning at the same age by both Japanese nationals and foreign nationals who have lived outside of Japan. Before you reach the age at which you are eligible to receive pension benefits, you will not be permitted to pay out your pension in the form of a lump sum.

People who are staying in Japan for merely a year or less can make contributions to their pension funds while they are working in the country, and subsequently they can have those contributions recognized in their home country. This is something that will be determined by the treaties that your home nation currently has in place with Japan.

Employees also have the option of withdrawing their pension payments in one lump sum, with a maximum draw period of thirty-six months. If you only want to remain here for a maximum of three years, selecting this option would be the most suitable one for you. Anything that is contributed after this period cannot be withdrawn, so make sure that your plans take this into account.

It is common practice for workers from other countries to maintain the stubs that are attached to their pay slips. These stubs represent the amount of money that has been donated to the workers’ pension plans.

japan pension payout
Japanese pension payouts. Image by Bloomberg via Getty Images

What Obligations Must Be Satisfied Before Pension Benefits Can Be Received

You must be able to provide the following to relevant authorities in order to claim your pension in Japan:

  • a genuine document that verifies your identity, sex, date of birth, and existence, and that was either dated and confirmed by a notary public or by a public institution (with the exception of churches, temples, and other places of worship) within the past six months is required.
  • a duplicate of the membership certificate for the employee’s pension fund that you belonged to; a copy of the certificate that you received for your old-age welfare pension;
  • photocopies of the sections in your passport that detail the date you left Japan, your current residency status, and your identity
  • your official pension book that was issued by the government, as well as an official document that displays your pension number.
  • a document that has been rubber-stamped by your bank and displays your account name and number, in addition to the bank’s address and any branch contact information that may be relevant.

If you are unable to supply the basic pension number or a file of the membership certificate of an employees’ pension fund, you must explain why you are unable to provide this information in the margin of the request for claim form. You must also include the name of your employer (company name) during the time that you were a member of the employees’ pension fund, the location of the business, and the amount of time that you worked for the company.

After the government received your request for the claim form, the pension claim form will be mailed to you somewhere between 10 days and two weeks later.

Is There Stability in the Japanese Pension System for Foreigners?

Everyone, including non-citizens, who contributes to the system is eligible to receive a pension at some point in their lives. On the other hand, due to the fact that Japan’s population is getting older, the country’s pension system is currently in a bit of a chaotic state. The government of Japan has committed to ensuring that the country’s pensions would never be worth less than half of the typical wage.

Is It Possible to Opt Out From the Japan Pension System for Foreigners?

No, you will be required to participate in the Japanese government’s pension system. Everyone in Japan, even people from other countries who are living there, is required to make contributions to the system.

On the other hand, if you are unable to work or disabled, you may submit an application to have your contribution payments lowered. Pay a visit to the office of the local municipality to submit your application each year.

Japan Pension System for Foreigners: Conclusion

The national pension systems in Japan have allowed the government to construct a robust social safety net, which has been of great assistance to the country’s rising population and has benefited the country’s population well.

However, with a population that is getting older and smaller at the same time, it is possible that such initiatives will face some tough situations in the years to come. This indicates that individuals really ought to take on a greater level of responsibility for fending for themselves during their retirement years.

Expat professionals who intend to live and work in a variety of countries throughout the course of their careers are typically not in a position to benefit from the national pension systems of those countries in which they work. Moving from one nation to another every few years makes it extremely difficult to be eligible for any pension benefits in any territory. Higher wages are typically offered to mobile workers as a form of compensation to help mitigate the effects of the aforementioned drawbacks.

Whether you wish to remain in Japan for a period that’s enough to savor the financial advantages of the Japanese pension scheme or you fully intend to move around a lot, the truth of the matter is that no pension system in any country is likely to cover all of your retirement requirements and allow you to have a comfortable, fulfilling life after you stop working.

Pensions provided by governments now can at most guarantee that retirees will not be completely impoverished in their later years. While you shouldn’t count on the pension system of any country to provide you with an extravagant lifestyle that does not mean that paying into the Japan pension system for foreigners will not benefit you in the future.

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Adam is an internationally recognised author on financial matters, with over 543.4 million answers views on Quora.com and a widely sold book on Amazon and a contributor on Forbes.

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