Nenkin Calculations

Show me the money

We had a lot of follow-up questions to last week’s nenkin post. One of the most common ones was ‘how much nenkin am I going to get?’. It’s a tough question to answer, so we’ll try to give some more information here.

Kokumin Nenkin

Basic kokumin nenkin is extremely easy to calculate. I actually wrote about calculating and backpaying nenkin before, when I was thinking about backpaying the months when I had a partial exemption after losing my job.

Basically, the current full kokumin nenkin pension is 64,941 yen. This is 480 months’ worth., so each monthly payment creates approximately 135 yen a month in pension income.

You can get your pension early (from 60) which will reduce your payments by up to 30%, or take it late (up to 70) which will increase your payments by up to 42%. The former tends to be a bad idea, and the latter – if you can afford it – a good one.

Overpaying Kokumin Nenkin

There are two options to increase your kokumin nenkin pension: fuka nenkin, and kokumin nenkin kikin. Be careful though, as both of these use the same allowance as iDeCo -if you use the allowance for one, you won’t be able to use it for another.

Fuka nenkin is pretty easy to understand: you pay an extra 400 yen a month on top of your kokumin nenkin payment, and you receive an extra 200 yen a year in retirement. Unfortunately the amounts are small, but the rate of return is pretty good: after the first two years you are ‘in the black’ and receiving an annual 50% return. I wish I could put a couple of 万 a month into this system 🙂

Kokumin nenkin kikin is a lot more complicated. You can basically buy different ‘units’ of future pension. Some are time-limited (x amount for ten years) and some are unlimited (like the basic pension). If you decide to pay into kikin, I definitely recommend doing some research by talking to the pension office and getting them to run scenarios for you, and possibly even consulting an independent financial planner.

Is it worth overpaying Kokumin Nenkin?

That is going to depend on your situation, goals, and psychology. You can basically think of iDeCo, fuka nenkin, and kokumin nenkin kikin as being in the same tax-reducing bucket. Paying into any of them is going to reduce your income taxes, but they all use the same allowance so are mutually exclusive.

The higher your income, and the more income tax you pay, the more attractive these options are.

Personally, especially if you are younger, I think iDeCo is the best option. It allows you to invest your money and enjoy tax-free gains. However, iDeCo may not be a good fit for some people. People who are nervous about investing or lacking in confidence to manage their investments, or US citizens/green card holders may find the two nenkin options better.

Fuka nenkin is great and I think makes sense for a lot of people. You pay a small amount and get a tiny increase to your pension, but the maths works.

Paying into kokumin nenkin kikin is probably better than not taking advantage of the tax savings, at least for higher rate income tax payers.

US Citizens and Green Card Holders

Because of US tax laws and reporting requirements, it is difficult for US citizens to invest in Japan. We tend to recommend they do so in the US, using existing accounts or expat-friendly brokers like Interactive Brokers.

However, paying into fuka nenkin and/or kokumin nenkin kikin might be a great option for US citizens. They allow you to reduce your income taxes, and shouldn’t require reporting to the IRS as they are not investments in your name.

Kosei Nenkin

Kosei nenkin is much harder to calculate, because it scales with your income and so your eventual payout is going to depend on how much you paid in.

Kosei nenkin also includes kokumin nenkin. And if you have a non-working spouse (or one whose income is under the limit), they also get kokumin nenkin for free based on your kosei nenkin payments (this is called 第3号被保険者).

I found a kosei nenkin simulator here, which shows projected annual payouts based on monthly salary. It seems roughly the same as the projections in my annual pension statement.

The easiest/quickest/most reliable way to figure out your eventual kosei nenkin pension is to look at your annual statement (that arrives around your birthday) or to make an account at Nenkin Net.

It is also a good idea to check these to make sure your pension record is accurate. The government may have made a mistake with your records and it is best to find and correct it now rather than in a couple of decades’ time!

Overall

Many people are sceptical about the Japanese state pension. They claim it will go bust, or payouts will be reduced or restricted in the future. That is possible, but I believe anyone paying into the system will receive something close to what they were promised.

Pensions are not investments, but rather insurance against outliving your savings and/or competence, and as such are a form of diversification.

By all means save and invest for your future, but don’t discount the value of a state-backed annuity (pension).

Any questions? Anything we missed or got wrong? How is your experience of the Japanese pension system? Share information or ask for advice on the RetireJapan Forum.

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31 Responses

  1. Great service you are doing for us with these Nenkin posts; I still find the system confusing.
    My (US citizen and Japan PR holder) wife, who has lived with me in Japan for 22 years but almost never had an income over the limit for dependents, recently got her Nenkin postcard and I noticed that it also seemed to project payments to her even though she has no income that is paying into the system. Do I understand you correctly that basically she will get these payments in the future even while I also get the payments projected on my Nenkin postcard? Does she also get that boost in payments from waiting until 70?

    1. If you are paying kosei nenkin and your wife is a dependent with no income or income less than the cutoff (I think it is about 1.3m a year) she will get her kokumin nenkin paid for free.

      Whether or not she defers her pension will be her decision (her pension is separate from yours). The catch is that if you die before her she would only have her pension going forwards -this is why we see the occasional news story of people hiding their deceased relatives in a cupboard so that they can continue receiving their pensions…

  2. “….you pay an extra 400 yen a month on top of your kokumin nenkin payment, and you receive an extra 200 yen a year….”

    should that be “…an extra 200 yen per month…”?

    1. Heh, sadly no. 200 yen a year. But each monthly 400 yen adds 200 yen a year, so after two years you get all your monthly payments back, and after that it is gravy.

      Like I said in the article, the amounts are tiny so don’t make much difference, but the maths works…

      1. sorry if i’m being dense:
        I pay:
        JAN 400yen
        FEB 400yen
        MAR 400yen
        …
        DEC 400yen

        Then I get back:
        2030 200yen
        2031 200yen
        2032 200yen

        ?

        At that rate I have to hope inflation stays low and preferably deflation.

        1. No, this threw me at first too.

          Let’s say you pay 400 yen a month for a year (just to keep things simple). You pay a total of 4,800 yen.

          Your annual pension is increased by 2,400 yen.

          In year one, you get an extra 2,400 yen.
          In year two, you get an extra 2,400 yen.
          In year three, you get an extra 2,400 yen.
          In year four, you get an extra 2,400 yen.
          …
          until you die 🙂

          1. Hi, Ben, thank you for the info on pension. I’m only going to get about 22 years in before retirement, I think. I started my job at a national university in 2013. I’ll be 65 in 2035. Roughly, using the information that you provided above, my kokumin nenkin pension will be about ￥35,640 a month (￥135 x 264 months). Does that sound correct?

            Regarding the Fuka nenkin scheme, if I start putting in ￥400 per-month, for the next 22 years (￥2,400 x 22 years), that means that I will then receive an extra ￥52,800 per-year when I retire. Is that correct?

            Finally, do you know if we can back pay into the Fuka nenkin plan? I started my job in 2013, so that’s 6 years ago. I might just make back payments to cover that period also if they allow it.

            Thanks.

          2. Hi John

            Unfortunately fuka nenkin (and kokumin nenkin kikin) are only for kokumin nenkin enrolees. The two supplementary sytems are designed to boost the (low) kokumin nenkin basic pension. You are presumably paying into kosei nenkin through your employer. I’m guessing you are also in a kyosai, which will have a separate supplementary pension for you (you should be getting a postcard about this once a year).

            You could also use iDeCo/NISA to save and invest for retirement.

          3. Bean, Thanks. I’m a teacher at a national university, but I get kokumin and kosei nenkin confused all the time. Yeah, I think I do pay into something like “kyosai”, but I don’t read Japanese well, I’m single, and no one at work has ever explained it to me. That’s why your post interested me. I get bits and pieces of information once in a while on the forums about Japanese pension, and have Googled it a few times, but it’s still pretty hazy. I think I can make an appointment to talk to the people at accounting at the university. Or I can visit the local pension office. Maybe they can help.

          4. Hi John

            I think your situation will be very similar to mine. Here is my latest pension update (see the previous one for more detail): https://www.retirejapan.com/blog/japan-pension-update-2018/

            The public servant pension used to be kyosai nenkin and was more valuable than kosei nenkin. It was eliminated a few years back and everyone was rolled into kosei nenkin, but the kyosai still maintains a separate fund to provide additional benefits. I get a postcard once a year with the details of that (it’s not much but better than nothing I guess).

          5. Ben, thank you. I appreciate the information. I’ll have a look at that link. Also, we will receive the “Taishokukiin” money when we retire, right? But I don’t know how to calculate that, either. I guess there must be a formula that they will use to figure it out. I still have another 16 years until retirement. So we might see even more changes to the system between now and then. Thanks again.

          6. Indeed! You may receive taishokukin (depends on your contract). At my uni some of us had regular contracts (with taishokukin and bonuses) and some of us had special contacts (with higher salaries but not taishokukin or bonus). Assuming you are due to get it, there will be a formula somewhere that shows how much you should get.

            Just FYI, I think mine would be about 30 months base monthly salary after 22 years. Your office should be able to give you the exact numbers 🙂

          7. Ben, Interesting. That gives me a rough figure. Good to know. Thanks. Yeah, 22 years is what I’ll have, I think when I’m finished. Not much. But I’ve been investing in ETFs for the last 5 years in my overseas account, and I’ll continue with that as I have been doing.

  3. “Kosei nenkin also includes kokumin nenkin”. I guess that means that as a full time worker, I still can overpay the kokumin nenkin?
    I came to Japan quite late and won’t complete 480 months of contribution before reaching 60 years old.
    Could overpaying kokumin nenkin be a way of recovering, at least partially, the time that I didn’t contribute?

    1. Unfortunately fuka nenkin and kokumin nenkin kikin appear to be available to kokumin nenkin payers only -they are a way of increasing the value of the pension, something that kosei nenkin payers don’t need to do.

      I recommend using iDeCo and NISA to invest extra funds towards retirement.

  4. What ever you get, it is too small to think that you can live in Japan on it.
    I know, I collect it and now they take out your national health insurance and kaigohoken, directly out of your bank account.

    1. Yes, we very much recommend saving and investing for retirement as well as paying Nenkin 🙂

  5. Thanks for all this information, its very interesting.
    Yes, I think its pretty much a necessary thing to work (part time) up to 70 (if you can) and you really need some savings for the extras no matter what country you live in

    1. That is going to depend on your lifestyle and saving/investing 🙂

      But if you can afford to defer taking your nenkin, that can provide a large boost to the eventual payouts.

  6. As others have said, thanks so much for covering this – very useful.

    Just want to clarify (and sorry if it’s a silly question) – when you say “… the current full kokumin nenkin pension is 64,941 yen”, for what time period is that?

    1. Yes, that is the monthly pension (although pensions are paid every two months, so you would receive twice that every second month).

      1. Ah, I wasn’t sure as the UK one is shown as weekly on the gov site (as you know). Didn’t know it was paid every two months though – thanks.

    2. Interesting! Wasn’t aware of any age based bonus though -do you have any more details? 🙂

  7. Please excuse me if you’ve answered what I am about to talk about. I’m going to put my situation in simplest terms I can (sorry if not too brief).
    I’m a U.S. citizen. I can retire in full with U.S. Social Security in 3 years at age 66 and am planning to do so. I cannot afford to retire sooner. At that time, however, I will have paid into the Japanese pension system through my employer (who told me they contribute half, and I pay in half) for only 9 years; not ten.

    Reading the U.S./ Japan work agreement, the wording is such that if I have paid in full ten years to Japan, it may (or may not) reduce my Soc. Security pmt. That is not my big qustion here. The wording is such that it says “… if you do not need to include your U.S. social security to the Japanese pension to meet the Japanese pension requirements, then it may reduce your Soc. Security payment.” I and others are tentatively interpreting that wording to mean: if I DO need my years worked in U.S. paying Soc. Security in order to add that onto the Japanese pension to make the required ten years that Japan requires, then my U.S. Soc. Security pmt will not be reduced. It reads that I am allowed to put my years worked/Soc. Security paid in the U.S. to meet the ten years required by Japan.

    My biggest concern is that I do receive my Japanese pension for life. My question is not really, at this time, whether or not my U.S. Soc. Security pmt will be reduced but my questions are:

    1) May I get my full Japanese pension, for life, having personally contributed only 9 years into the system but using my years worked in America (35) to help make up the difference?

    If I retire and am told I do not qualify for the Japanese pension, I will be incredibly upset (to put it mildly). Especially if they say because I only contributed for 9 years.

    I think I could still do the option of last 3 years of payments refunded, but with 9 years of me paying approximately 25,000 yen a month (it varies a little) I want my full Japanese pension (never mind if it slightly reduces my Soc. Security pmt; though I need that answered thru Soc. Security admin. at some point),

    I am now thinking I possibly must work for 4 more years. I hope not. In 3 years I will be 66. For me to have a good fulltlime teaching position in Japan, at my age, is something I do not take for granted at all. My current 5 year contract is up. I am in my 7th year now with employer (large company) who has paid into my pension plan.

    2nd main question is: May I pay into my pension on my own, without my employer contributing? It may be a different rule for Americans; I hope not, because I think I can pay on my own if need be. I would do so if my next fulltime job is one where my employer does not contribute to my pension plan.

    3rd and final question: May I make a year of “back” payments? Not that I can at all easily afford to do so, but if it would spare me having to work another full year, I would try my best. I have lived and worked fulltime in Japan since 2009, but in pension plan only since July 2013.

    Thanks for any and all guidance on my situation.

    1. Hi JR

      Thanks for dropping by. Those are great questions, and I must admit I am not 100% sure of the answers. I would recommend going to talk to your local pension office (not the desk in city hall/ward office). If possible phone them up and give them a heads-up that you will be going in and have questions about how your US social security works with nenkin.

      I’m sorry I can’t be of more help. Do let me know how you get on though so I can help others in the future 🙂

      1. Thanks. I didn’t think you would be likely to have answers handy. I appreciate you telling me where to ask my questions locally. I was also hoping perhaps some other American reading this had gone through this particular scenario or researched it.

        I don’t speak Japanese well at all, so I’ll have to enlist a Japanese friend to help me. What is the local pension office called? In Japanese, I mean … I’ll copy it if you can write it here, then get a friend to assist me. I’m here 3 more years, but obviously I want to work to get ahead of this and would like to do my research this year. Thanks again.

        1. By the way, I’ve been reading your forum and newsletter for years now – always helpful. Thank you.