Housewife/self-employed
Today we have another riveting nenkin case study for you. This time it is an example of someone who has mainly paid into kokumin nenkin (the basic pension) rather than kosei nenkin (the ‘salaryman’ pension).
The person kindly shared their nenkin annual statement (年金定期便) with me, so we’ll just go through the numbers and what they mean.
First of all we can see total contributions below. 1.6 million yen contributed to kokumin nenkin, and 25,529 yen to kosei nenkin. I don’t understand how that second one can be so low. Perhaps they should check out their pension account online to see the breakdown.
Next we can see a more detailed breakdown. A total of 396 months contributed to kokumin nenkin, of which 235 were free from being a dependent spouse. The other 161 months were paid.
They also have seven months of payments into kosei nenkin for a total of 403 months contributed. You get a full pension after 480 months of contributions (40 full years), so hopefully this person will get close to full contributions in the end.
Finally at the bottom we can see projected pension from age 65. This number is based on contributions so far and continuing to pay in until age 60. It is broken down into the basic old age pension (717,502 yen) and kosei nenkin (just over 13,000 yen). These numbers are the annual pension, so only around 60,000 yen a month.
I recommend deferring pensions in order to get a larger amount if you are financially able to do so. Not taking the pension until the age of 70 increases it by 42%, and deferring it to 75 will increase it by 84%. If you can afford to do so, this is generally a good idea as a regular payment from the government becomes more valuable if you become unable to manage your finances.
As a return on investment, nenkin is a good deal. Having paid in 1.6 million so far, and possibly another 1.2m or so by age 60, our contributor will get 730,000 yen+ per year as long as they are alive. Those contributions were also tax-deductible.
That is a yield of over 25%. It is just not possible to buy this kind of annuity from a company and a good reason to make sure you and your family are paying into nenkin and any other pensions you are eligible for.
You can also see my latest pension statement here for what a kosei nenkin heavy pension record looks like.
(of course, a lot of the cheapness comes from the in my opinion unfair treatment dependent spouses receive, as they get full kokumin nenkin enrolment without paying for it)
How about you? Are you aware of your projected nenkin numbers?
Can you please confirm this is correct. I have doubt with this numbers:
“As a return on investment, nenkin is a good deal. Having paid in 1.6 million so far, and possibly another 1.2m or so by age 60, our contributor will get 730,000 yen+ per year as long as they are alive. Those contributions were also tax-deductible.”
Thank you for your time with this.
P.S. Please re-post it anywhere else you see fit for more eyeballs. Also advise me where that would be for future reference.
Those numbers are taken from the annual nenkin statement in this post, so I am not sure what you are doubting here?
I agree with your calculations (except for a couple of points needing correction), but the claim needs a major asterisk next to it.
As you noted at the end of the article, the major benefit to the subject of the article arises due to them being the dependent spouse of a salaried employee for the majority of their working-age life. If they were single or self-employed throughout their life, their contributions to date would be about 4 million yen.
Also, their maximum entitlement if they continue paying until age 60 is 717,502. Given that the maximum amount is 780,900 for 480 months of contributions, my understanding is their total possible contribution period is 441 months (717502 / 780900 * 480). They have already been enrolled for 403 months (you missed 7 months of Kosei Nenkin from your number of 396), so by my calculation they only have 38 months left until reaching age 60.
At the current rate of 16,610 per month, their total contributions will be 2.25 million, so the yield rate will in fact be even higher than you mentioned. This is great for the average housewife of a salaryman (and could be a factor in the low divorce rate in this country).
But if the subject had not qualified for dependent spouse status at any time, their total contributions would be about 4.6 million yen, making the yield rate lower at about 16%. That still sounds good, but it comes with the catch of not having access to the principal.
A negative way of looking at it is they must receive the pension for six years just to get their initial investment back (without the benefit of 37 years of compounding interest). On the other hand, contributing 10,000 yen per month for 37 years into a private pension that earned 4% interest would result in a nest egg of 10 million yen.
As a final note, the subject could opt to make voluntary contributions for five years after reaching age 60, in order to reach the full 480 months of contributions. They would have to weigh the cost-benefit of paying an extra 950,000 over five years in order to receive an extra 63,000 per year in their pension. In other words, they would have to receive the pension for 15 years just to recoup that investment (without interest).
I was worried there, but looking back 396 is only given as the kokumin nenkin total amount. 403 months is correctly stated in the post 😉
I must say I am slighty confused by the projection number, as the person has another 6 years to pay until age 60. This will get them very close to the full 480 months. Perhaps there is some other factor I am missing here.
I mainly see state pensions as a form of diversification and insurance against living longer than you expected. It’s quite likely that people will live into their 80s and even 90s (or 100s). At that point, a regular payment from the government is going to be much more valuable than an extra x yen in your investment account (assuming that someone actually invested it and left it to grow over time, which is a big ask in my experience).
I know that the minimum to receive any pension amount has been lowered to 10 years. But the 40-year requirement to receive maximum pension amount has been out of sync with real life for several decades. Since many companies still have 60 as the mandatory retirement age, you have to have started paying the full pension, which usually means working full time, at age 20. Currently, many people are still in university at age 20, but are expected to pay the pension without any income. That is, their parents are expected to pay the pension until the student starts working. The salary for a part-time job is not enough to live on and the pension payment is not made by many people because they need the money to live on.
The system needs to be revised for current working conditions. Most people are office workers now starting at age 22/23, not factory workers starting at age 16 (not going to senior HS).
Stay at home spouses/parents are working (doing work that benefits the family, and society in general), they just don’t get a salary. Taking two pensions from one salary is not going to help a family, especially if the salary is low. Doing that may or may not encourage the stay at home spouse/parent to go out and find paid work (that is a huge topic by itself).
Actually, university students are supposed to start paying nenkin from age 20, but can receive an exemption due to being in full time education. This exempt period still counts towards their eligibility, so the issue you brought up is not really a problem.
My beef with the dependent spouse free pension is that it is only for the relatively well-off middle-class dependent spouse of a kosei nenkin payer. It is not means tested, nor is there any need to be parent or caregiver. On the other hand, single mothers, the working poor, and people taking care of relatives do not get a free pension. I do think it is a barrier to spouses working, as they lose their free pension for ‘working too much’. Some kind of structural reform to make it fairer and eliminate that barrier would be desirable I think.
Hi Ben,
I am just seeking a quick clarification, comparing the present post with your latest projection which you cite above as (‘my latest pension statement’). For the present pension projection you say that the recipient will receive the quoted amount from age 65 if they ‘continuing to pay in until age 60’, whereas when analysing your own projection you stated that you would ‘stand to receive 958,000 yen a year as a pension if I stopped paying in now’. Why is it that this lady has to continue to pay until aged 60 to get her quoted amount, whereas you would receive your quoted amount without paying in another yen ? How can we distinguish which case we fall into when looking at our own pension forecasts ?
Many thanks!
Sure. The difference is how far from retirement you are. The person in today’s post is closer to retirement age, so they receive this format of annual statement: showing the pension that will be paid at that age. You can see the Japanese 「見込み額」 or ‘projected amount’. This type of statement has the ‘pension from age~’ format.
In my case, I am more than 20 years away from pensionable age so they do not provide projections on my statement. Instead they show 「これまでの加入実績に応じた年金額」 ‘pension amount based on current contributions’.
If you get even closer to pension age, the statement will start to show your pension at various ages to show the effect of deferring. Hope that helps!
Hi Ben,
Thanks for this useful clarification. I think I had better go and check which type of figure is being quoted on my forecast!
Now if someone can just tell me what the hell my blank nenkin booklet is used for…
I think it is to hold your pension number 😉
In the past I believe it provided a record of your contributions, as it would be hanko’d each month. Now of course, all the records are computerised and available online, so the paper book is a bit of a relic.
“As a return on investment, nenkin is a good deal. Having paid in 1.6 million so far, and possibly another 1.2m or so by age 60, our contributor will get 730,000 yen+ per year as long as they are alive. Those contributions were also tax-deductible.
That is a yield of over 25%. It is just not possible to buy this kind of annuity from a company and a good reason to make sure you and your family are paying into nenkin and any other pensions you are eligible for. ”
This indeed looks like a good deal, but there’s an underlying assumption here -that current system will stay the way it is, which I highly doubt, due to shoushi koureika. The trends in most if not all developed countries are that there’s more and more people receiving their pension while the workforce (people paying their premiums) is shrinking, and Japan is perhaps one of the most acute examples…
A boss at a former baito of mine was always saying “I don’t think pensions in Japan will turn out to be a total scam, but by the time I retire, it’s more likely to become a barter kind of deal” (e.g. 30kg of rice per month and that kind of stuff) lol
I can understand the cynicism (I too am very cynical), but if it puts people off paying their pension I think it can be very harmful.
The Japanese nenkin fund is enormous, and I can’t see the Japanese government messing with pensions enough to annoy older voters. If necessary, they would just borrow/print money to fund it.
Not having a government pension in retirement is to put yourself in a very precarious situation. That minimal income floor each month is worth much more than the equvalent amount of investments/yield because it will last as long as you live, and you don’t have to manage it.
Of course we also need to save and invest for ourselves on top of that, but a state pension is a good way to diversify. You would have to pay a huge amount of money to get an equivalent annuity from a private company…
Hi Ben! Thanks for these great posts!
If we pay 120 times (10 years) and then leave Japan, are we still able to receive the government pension payouts? My understanding is yes.
I guess we have to come back to Japan to sort out that paperwork and claim it when we are 65 (or whichever age we decide to claim it)?
My pleasure! Yes, once you vest (pay 120 months) you will be able to claim a pension in retirement (from 60-75, 65 is normal, younger is smaller pension, older is larger pension). You don’t need to come back to Japan to claim, and the pension can be paid into a foreign bank account. You will need to keep your pension number and details (best to make an online account at nenkin net): https://www.nenkin.go.jp/international/japanese-system/nationalpension/nationalpension.html
Hi Ben,
Are you aware of any online ‘pension calculator’ or downloadable worksheet for the Japanese pension system.
I have recently moved to Japan as a retiree (not sure I’ll stay retired though).
I am paying into the pension system, but am considering requesting a waiver.
If payments end at age 60, I will only have paid into the system for 7 years.
Which I think will mean I receive no benefit…unless they allow make-up payments or allow payments beyond age 60.
Assuming there’s a way for me to reach the 10 year threshold…I have no idea what the benefit will be worth.
Appreciate your advice/thoughts on this scenario.
Thank you.
Depends on what kind of pension you are paying, but if you are not working I guess you are paying kokumin nenkin? That one is easy to calculate, each month paid gets you (full kokumin nenkin pension of 65,075 a month / 480). As you note, you need to pay 120 months in order to vest.
If your income is low enough you can get an exemption and stop paying, in which case you will continue accumulating pension eligibility at 0.5x the regular amount, so for each month you get one month of eligibility, but only half a month of pension amount.
If you do not have 480 months accumulated when you reach the age of 60 you can continue paying in on a voluntary basis up to the age of 65: https://www.nenkin.go.jp/service/pamphlet/seido-shikumi.files/LN06.pdf
Thanks Ben. Yes, it’s kokumin nenkin. Based on the info you provided, the full benefit after 10 years of payments would only be 16,269 yen/month…do I have that right?
My current monthly payment is 16,610.
It seems I would be better off leaving the money invested where it is…unless I’m missing something.
Well, there is a diversification benefit. A government backed income is more valuable than it might seem for its stability.
Depends on what the rest of your finances look like I guess 🙂
In an additional Question, if a person has not paid into the pension system, can the spouse be elegible for pension (the spouse has not worked and has been a house-husband/house-wife)
If so, how should the go about it.
Dependent spouses get free kokumin nenkin if their working spouse is paying into kosei nenkin.
Hi Ben,
I’m bit confused by the kokumin and kosei nenkin. You do not get to pay both at the same time right? Only one or the other, right? I’m asking since they sum the number of months from both and paying both simultaneously would allow you to get pension in a half time.
Thanks
It might be helpful to think about it this way. Kosei nenkin contains kokumin nenkin.
So people enrolled in kokumin nenkin are only paying kokumin nenkin, but people enrolled in kosei nenkin are paying kokumin nenkin, plus extra.
Either one only gives you one month of eligibility per month of payment.
I see, thanks a lot.