After those who leave Japan, hand in their gaijin cards and apply for their 2.4 month refund, the remaining millions of yen they’ve paid into the system stay in Japan, where the money is used to pay pension payments for those they left behind.
The Japanese pension system is essentially run on the basis that what you contribute now is not necessarily what you receive in the future.
An inability to benefit doesn’t remove your obligation under the system. Rather, successive generations are expected to provide for those that came before. What this means is that temporary foreign residents and working-age Japanese are essentially paying for the pensions of older Japanese.
Those who stay in Japan to collect a pension will receive the pension payments of the generation behind them.
Does somebody who pays into the system for 40 years receive more than somebody who pays in for the minimum 25 years?
Yes. The amount is in proportion to the length of time paying into the system.
If a nonpermanent resident pays into the system for 20 years in Japan, then leaves Japan, can they pay in from abroad for 5 years in order to qualify for a pension?
No. Under the National Pension System, only residents in Japan are covered by the pension system. With regard to the Employees Pension System, nonresident foreigners can be covered if they maintain some kind of employment relationship with a Japanese company even after they’ve left the country.
If a nonpermanent resident works in Japan for 10 years, then leaves without claiming a refund, can they return to Japan later and start paying again without losing their first 10 years of payment?
Yes. You can resume paying into the system without having to make up for the years missed in between. However, the time spent outside the country cannot be counted toward calculating your pension benefits (unless you’re a permanent resident). (see “karakikan”)
What are the penalties for not paying into the pension system?
With regard to the Employees’ Pension System, only employers are subject to penalties. These punishments can include cash penalties and seizure of assets.
Could I be left with no pension at all, either here or in my home country?
Yes. If you do not complete 25 years’ worth of payments in Japan, you’re not eligible to receive a pension from the Japanese government. By the same token, if, having lived and worked in Japan for a substantial amount of time, you may find yourself with not enough time to fulfill eligibility requirements for a pension in your own country. For this reason, negotiation of pension agreements with foreign governments is especially important, though these agreements will not, in all likelihood, cover foreign nationals working for Japanese companies. However, contribution records of foreign residents who pay into the pension system are recorded on the database of the Social Insurance Agency. If Japan concludes a pension agreement with their country in the future, their records may be used to determine pension eligibility/payments in their home country, depending on the terms of the deal.
Can I collect a Japanese pension even if I don’t live in Japan?
Yes. If you have qualified for a Japanese pension by paying into the system for a minimum of 25 years, you can provide details of a bank account abroad where you’d like your pension payments to be deposited. Many retired Japanese live abroad and have their pension cash deposited abroad every month.
The “karakikan” system
The karakikan system allows those covered by it to include time spent abroad in the total eligibility period for a pension. However, time spent abroad will not be counted when calculating the amount of benefit to be paid.
For those who hold Japanese nationality, any period of residence in a foreign country that occurred after April 1961 while between the ages of 20 and 59-years-old are counted as “karakikan.” Foreigners who have received Japanese nationality or qualified for permanent residency are also covered under the karakikan system under the following terms;
Periods of residence, when between the ages of 20 and 59, in Japan or a foreign country after April 1, 1961, and up to the day before Japanese nationality or permanent residency was granted will be counted as karakikan and included in the total eligibility period for a pension.
A more detailed explanation of the karakikan system can be obtained from the Social Insurance Agency, though this information is in Japanese only.
What is permanent residency?
Permanent residency is a special status conferred upon applicants who have lived in Japan for a certain amount of time and/or have a Japanese spouse. They are able to enjoy the benefits of the karakikan system, will find it easier to obtain credit and loans in Japan, get a mortgage and even start a company. Foreigners without permanent residency are usually viewed as a credit risk.
Moreover, permanent residents do not need to work in order to maintain their visa status and stay in Japan. They are also entitled to vote in some areas.
Permanent residency has no implications for citizenship in your home country, and permanent residents must always have a valid passport from their home country. Permanent residents are also able to dispense with the hassles of renewing their visas, getting re-entry permits, etc.
How can I become a permanent resident?
If you want to become a permanent resident, you generally need to have stayed in Japan for 10 years, or been married to a Japanese for five, though conditions vary from area to area. You must also be able to demonstrate that you’ve been able to hold down a job here, and the authorities will comb through your records to make sure you’re of good character.
For further queries related to the pension system, contact the Social Insurance Agency; your nearest Social Insurance Office, or your local ward office. Documents relating to the Lump Sum Withdrawal Payment are available in English, though beyond that there is little information readily available for foreign residents who don’t speak Japanese — and officials may be unwilling to volunteer information unless asked the right questions. Good resources can be found at: www.issho.org or www.debito.org
How pension benefits are calculated
For those paying into the National Pension System, the basic pension is a fixed-sum amount. It is calculated (as of 2004), as follows;
780,900 yen X Revised Ratio (which takes into account factors such as inflation) X the number of months paying into the system (divided by 480).
Under the Employees Pension System, benefits are based on “Average Monthly Standard Renumeration” (AMSR) and the number of months paying into the system. AMSR is calculated by averaging wages paid in April, May and June each year and multiplying that by a prescribed figure designed to keep benefits in line with rises in wage levels, inflation, etc. Bonus payments have been taken into account when calculating average pay since April 2004.
The formula for calculating the Old Age Employees Pension as of 2004 is;
AMSR X 5.481/1000 X number of months paying into the system X Indexation Ratio (as with the basic pension, this figure is designed to keep pace with inflation, wage rises etc.) + additional pension amount (Basic Pension, Spousal Pension, etc.)
It’s hard to generalize about the amount of pension benefits recipients will receive in the future. The average benefit for retirees, at the moment, is somewhere around 60 percent of average monthly pay.
The same system will be used under the new pension bill passed in June, according to the Social Insurance Agency. However, the AMSR, which is the key component in determining how much pension money you receive, will in future take into account the number of people paying into the pension system and “demographical changes.” Fewer people are expected to pay into the system in future as Japan’s elderly population is increasing and its birthrate is extremely low. This suggests that AMSR, and consequently pension benefits, will be calculated at a reduced rate as fewer people contribute pension money for more retirees. The government has promised that pension benefits will not fall below 50 percent of average monthly pay.
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