If you have been living and working in Japan for more than a year, you might start to ask yourself about the future. Specifically: what happens to all that money I’ve been contributing to the Japanese government every month and will I ever see it again?
In “Understanding the Japanese Pension System Part 1,” we covered what the pension system is and how you pay into it. In “Understanding the Japanese Pension System Part 2,” we explained how much comes off your paycheck every month in order to contribute to the scheme. In our third and final post in the series, we’re going to tell you, as straightforwardly as possible, the options available for collecting that money and more importantly — how to receive it.
How to receive a pension in Japan
First off, you must be 65 years old to receive your full Japanese pension payouts — whether you are residing here or not (Japanese monthly pension payments can be paid anywhere in the world). Assuming you contributed to the scheme for more than 10 years and didn’t opt for a lump-sum payout when leaving Japan (more on that later), upon reaching retirement age you will simply report to your local Japanese pension service office and apply to receive payment.
You will need a “Claim for National Pension/ Employees’ Pension Insurance (For Old Age/ Disability Pension)” form. If you live overseas, you can get a copy of this posted to you by applying from the social security office of your home country or where ever you decide to retire.
Now, you can apply to start receiving your pension early (from age 60), but we would recommend not doing that until you are 65 as starting pension payments early will reduce the benefit payments by 0.5 percent for each month you take early. This means your pension will be reduced by 30 percent if you take it at 60 years old, but only 24 percent if you take it at age 61 and so on until you reach 65 after which there will be no reductions.
Those who paid into the employee pension plan, or kosei nenkin (厚生年金), will receive, on average, 50 percent* of the wage they earned while working. For example, if you were receiving ¥300,000 per month while working, you will receive benefits totalling ¥150,000 per month.
Those who paid into the kokumin nenkin (国民年金), or national pension, will receive benefits totalling ¥779,300 per year. It’s not as much, but people on the national pension plan pay less into the system while they are working, so they receive less when they retire.
First off, you must be 65 years old to receive your full Japanese pension payouts — whether you are residing here or not
Regardless, all people who pay into the nenkin scheme can claim their benefits early if they are unable to work due to injury or disability. The money can also be withdrawn by your surviving spouse or children under the age of 18 should you have accrued pension funds when you die. You can find out more about that on the English page of the National Pension Service guide to the system.
*Note: These percentages may vary depending on individual circumstances.
How to claim a lump-sum pension payment
For those who don’t want to spend the rest of their lives in Japan, there is an option to withdraw last three years of your Japanese pension plan contributions as a lump sum and have this paid into a foreign bank account. Unfortunately, three years is the maximum disbursement amount for this option and thing you contributed to the plan older than three years can’t be withdrawn.
We explain more about these lump-sum payments in “Understanding the Japanese Pension System Part 2.” Note that in order to receive this payment, you will need to jump through quite a few hoops.
To claim a lump sum payout of your pension, you will need to pick up an “Application for the Lump-sum Withdrawal Payments” form from your local social insurance office or download it from the Japan Pension Service online (see p. 13). Make sure to get your bank to stamp this form.
You will also need to name someone you trust as your tax representative. This could be your Japanese employer, but it would be much better to use a trusted Japanese friend and resident, if possible (for obvious reasons). Your tax representative will then have to fill out a “Declaration Naming a Person to Administer Taxpayer’s Tax Affairs.” This can be found at the social insurance office or the National Tax Agency online.
Now, you will need to return to your home country and post your “Application for the Lump-sum Withdrawal Payments” from there.
You can also apply in person at your local ward office beforehand if you have an account abroad to transfer the money into, but the money won’t be paid until after you have left Japan. It’s much easier — though takes longer to receive payment — if you take of this step once you get home.
You should bring along the documents below to make the application as smooth as possible. It’s important to have on hand and be able to submit:
- Details of your bank account in your home country
- Your Japanese pension book
- Your passport.
- Something that shows your date of departure from Japan, such as a plane ticket.
If you are applying from abroad you will need to post your documents to the Japanese pension service. They will need:
- A document stamped by your bank that shows the bank’s address and branch contact details as well as your account name and number.
- Photocopies of the pages in your passport that show the date you left Japan, your residence status and your identity.
- Your pension book and a document that shows your pension number.
A postage label with the destination address can be found at the Japan Pension Service online (at the bottom of the document). Note that you must post this within two years or the money will be forfeit.
How to receive your lump-sum pension payment
The lump sum will be paid into your home bank account after review by the Japan Pension Service. There is no specified time for how long this will take, but it shouldn’t be more than a few months. The Japanese government will withhold 20 percent of the payment as income tax. Since, at this point, you will no longer be a resident of Japan and are not subject to income tax here (you will need to check with the tax office in your home country about claiming this income there), you can now send the receipt of this tax payment to the tax representative you nominated in Japan and they can claim the tax refund for you. This disbursement will also be deposited directly into your home account.
Reasons your lump-sum payment might be different
Your pension is calculated using your average monthly income. For example, if you earn ¥200,000 per month for two years and ¥300,000 per month in your final year in Japan, then your lump-sum payment will be less than our example above because it is based on your total monthly average income for all years.
You cannot claim a lump-sum payment of your pension while you still reside in Japan. This includes leaving Japan and then returning to work here less than a year later.
Retirees in Japan don’t have to pay tax on their pension payments if it is their only source of income or if they are working a part-time job to support themselves for less than six hours a day and less than 20 days a month.
If you are still unsure of how to claim back your pension, please visit your local social insurance office and talk with the people there. Many offices have designated times where English speaking staff are on hand and allow translators to come with you to discuss your personal finances. They also have a wealth of English information on their website, but it is a bit harder to digest than this piece.
You cannot claim a lump-sum payment of your pension while you still reside in Japan.
Some final thoughts
I definitely suggest that you consider what type of pension system you will be enrolled in with a potential employer when looking for or accepting a job in Japan. The employee’s pension insurance plan is more lucrative than the national pension scheme in the long run due to the larger amounts you pay in with the help of your employer.
If you stay in Japan until your senior years, it will mean a more comfortable retirement here. If you leave after three years, it will mean a bigger lump-sum payout. If you stay for more than three years, it can seem a bit daunting that you may never get that money back, but ultimately the pension system is designed for people who live and are going to retire in Japan.
You should also encourage your family members to work for or with companies that pay into the employee pension system, if possible. Not only does this mean a more financially stable future, but the pension system also provides more support for them if they become disabled and are no longer able to work. These pensions also give a bigger payout to surviving spouses and could provide much needed support to your family if the unthinkable happens.
Definitely find out if your country is one of the 18 on the list of those that have signed agreements with Japan that allow you to transfer credit of pension contributions paid in Japan to your national pension back home.
In this three-part guide to understanding the Japanese pension system, we’ve done our best to compile most of the information on pensions out there that the average person living in Japan would need to know. If you have any questions or concerns, feel free to ask us in the comments below. You can also head down to you local pension office and ask the staff there who should be able to answer any questions you may have and give you any paperwork you need.
Thanks to Ben Tanaka of the Retire Japan website for his help with this article. Retire Japan aims to help foreign residents learn about personal finance, investing and money issues that will impact their life in Japan.
Thanks also to Yumiko Kamioka, a labor and social security attorney (USCPA), for her invaluable help advising us — in practical terms — on the information provided by the Japanese Pension Service. Ms. Kamioka is president and managing partner of MASHR, a consulting company in Yokohama offering document preparation and guidance in English for foreign companies navigating Japanese employment regulations. She can be contacted via the MASHR company website or by email.
Jeff W. Richards contributed to this article.