Friday, December 06, 2013

Everything you never wanted to know about Japanese pensions and never thought to ask.

So, this is going to be a long and boring post which delves into one of the reasons why we wanted to keep up our permanent residency (though not the only one). But I’ll start with the tl;dr summary for any Japanese residents who might have found this post in a google search, which is that the forthcoming change to a 10y qualifying period (from the previous 25y) for the Japanese national pension scheme should help to cut down on one of the particularly unfair ways in which foreigners have long been treated in Japan. Now for the longer version...

I had never really looked into the pension system here in any detail, not because I was one of these silly people who preferred to stick their heads into the sand, but rather because I knew there was nothing I could do about it anyway, and we had made our choices to stay here even on the assumption that we wouldn't get a pension out of it. A common complaint about the Japanese national pension scheme is that is rips off foreigners who stay for between 3 and 25 years. The basic problem is that, in order to get any pension at all, you have to pay in to the system for 25 years. 24 years 11 months gets you nothing. Foreigners who join the scheme for between 6 months and 3 years can get a reasonable lump sum payout when they leave (at least a large proportion of what they paid in, though not all). However, the lump sum is capped at the level of the 3y payout, so anyone who leaves after say 10y, or even 24y, gets very little back in proportion to what they contributed. Obviously this is grossly unfair, but the number of people affected is small, and they can't vote anyway, so who cares. At least, I assume this is the logic behind the JGovt's policy.

However, throughout our time here, we'd not only got statements from the national pension scheme, but also a JAMSTEC-related scheme (it seems to be called the Science and Technology Pension Fund, so presumably has a broader remit than just JAMSTEC). These leaflets had always been in Japanese, and no-one had ever volunteered any information about how it all worked, so I'd never gone looking for answers. So I basically knew nothing. That all changed a couple of weeks ago, when suddenly someone from admin came along to explain my options prior to us leaving. She was encouraging me to take the minuscule lump sums, but I think I managed to persuade her it was not a great move in our case.

It turns out we have been paying in to no fewer than 3 pension schemes. First (and least) there is the Japanese national pension scheme (kokumin nenkin), roughly equivalent to the UK state pension. It's not a lot of money - a little under ¥20,000 per year, for every year you have contributed, up to a max of 40y contributions (making ~¥770,000 max per year). Contributions are a flat rate of about ¥14,000 per month. But if you don't pay in for 25y, you get nothing. We are also participating in the national employees' pension scheme, kousei nenkin. This is perhaps comparable to the UK SERPS - however in the UK, it is common to be "contracted out" of this, as we were when we lived and worked there. Contributions, and resulting pension, are earnings-related, but it has the same 25y threshold below which you get nothing. Based on the lump sum refund we were offered, this could potentially be rather a lot more money than the state pension (maybe 5x or so?), but I don't know how the payout is calculated and don't have a clear figure. Finally, the Japanese Science and Technology Pension Fund. This is already going to give us a pension, even based on 12y of contributions, and has no 25y qualifying period! So that was a nice surprise. The amount is projected to be rather less than the modest amount I am due based on 7y as a NERC employee. But still better than a slap in the face with a bit of sashimi.

Now, on to the (mildly) interesting bit. One reason I'd been interested in getting and keeping PR, is a few articles that I'd read about kara kikan (empty record) which were written by Steve van Dresser [1, 2, 3]. The term relates to a scheme whereby "missing" years in the pension record could possibly be included towards the 25y threshold, specifically (in my case) years prior to my even coming to Japan. Sounds silly, but that was apparently what happened in Steve's case. The underlying logic is to not exclude people (primarily Japanese of course) who fail to pay in under circumstances where they are not supposed to pay in, e.g. through living abroad, or due to various other things. It turns out that this is probably not possible, at least not for me. The only place I could find PR mentioned on the web site was on this page here, which specifically says that PR holders can claim years up to 1981, but also that only years between the ages of 20-65 count. I wasn't old enough in 1981 for this to help me (but maybe Steve was, which could explain his positive outcome. Or possibly the rules changed, or something else).

So, that looked a bit sad.

Until...I found this page, which says something interesting about an impending reduction in the nenkin qualifying threshold from 25y to 10y! This proposal seems to be linked to recent plans for increases in consumption tax, and I think the law is basically in place, though perhaps not quite formally approved or implemented. It is expected to come into effect in October 2015. At that point, our 12y of contributions will qualify us for the kokumin nenkin (albeit only 30% of the full amount) - and hopefully the rather larger kousei nenkin, since they are both Govt-run and seem to use the same rules.

So this is why I want to keep the PR, because while I retain PR, I will be considered temporarily absent, rather than having fully left the schemes. If it all goes according to plan, in a couple of year's I'll qualify with no further contributions.

(Incidentally, one thing that does seem clear is that there is no difficulty in either keeping, or getting paid, the pension while living in the UK, even if we have lost PR in the meantime, so long as we qualify for the pension first.) Whether the Yen will be worth anything in 20 years is anyone's guess, of course.


EliRabett said...

Get a lawyer. JINAL don't work with this stuff. There are probably magic boxes to check

James Annan said...

Hooray, Debito reports that this is now scheduled to take place in Aug 2017 and here's an official japanese gov leaflet about it.