Ch ch ch ch changes
Over the last few weeks we’ve seen announcements about new rules for NISA and iDeCo, a new option to take nenkin even later, and a promising expansion of kosei nenkin eligibility.
NISA
We wrote about the changes coming to NISA a couple of months ago. I saw a pamphlet issued by the tax office recently that included this graphic, which seems to imply that the new ordinary NISA will be the last, and after R10 the only option will be tsumitate NISA.
However, the option of rolling over a 200,000 yen allowance into a 400,000 yen allowance seems pretty poor. I guess hoping for more than that was a bit much though.
Still, I would have preferred them to have made the new ordinary NISA limits slightly differently to allow us to use a full tsumitate NISA sized allocation (ie 820,000 for shares and 400,000 for mutual funds, rather than the 1.02m for shares and 200,000 for mutual funds that they went with).
I guess there is still time for the government to tinker with this and other investing options over the next few years.
iDeCo
According to this flyer from the iDeCo public website, there are a couple of changes that will kick in from 2022.
The first is that you will be able to further delay taking your iDeCo funds if you want to. Right now you can cash out your iDeCo account at any time from the age of 60 to the age of 70. The new rule will change the deadline from age 70 to 75. It’s a nice option to allow your investments to continue compounding tax-free if you don’t need them immediately.
The second change is that as long as you are paying into nenkin you can continue paying into iDeCo until the age of 65. For kosei nenkin payers, this appears to be automatic, while for kokumin nenkin, you would have to be paying on a voluntary basis (possibly to make up for previous unpaid contributions).
Nothing groundbreaking (no raise in the contribution limits unfortunately!) but both positive changes giving people more flexibility.
Nenkin Changes
There are three main changes to nenkin. The first is that part-time workers will be enrolled in kosei nenkin rather than expected to enrol in kokumin nenkin by themselves.
I haven’t seen the details for this yet, and we’ll see if the government actually forces companies to do this (nominally ones with over 50 employees will be liable) rather than let them ignore it as some companies do now even with full-time employees.
Potentially it could be an improvement as it will increase people’s pensions in retirement.
However, at the moment part-timers paying kokumin nenkin are able to put up to 68,000 yen a month into iDeCo, which would be reduced to 23,000 yen a month if they join kosei nenkin -one possible drawback of this change.
The second change is that people will have the option of delaying their pension for up to an additional five years -starting at 75 rather than the current 70. The government will boost the amount received for people that do this. As we’ve written before, if you can afford to do this it might be a good idea.
And the third change addresses something I wasn’t really aware of: reducing the penalty for pensioners who choose to continue working. Apparently at the moment if you are working from the age of 60-64 and your monthly wage is more than 280,000 yen your benefits will be reduced. From the age of 65, the threshhold for that reduction rises to 470,000 yen. The new rule will just be that if you continue working after the age of 60 and have a monthly wage of more than 470,000 yen your pension will be reduced.
Seems like a good change, and it would be a nice problem to have (my current monthly wage is nowhere near 470,000 yen)!
Thank you for the update Ben! Interesting stuff.
I am concerned about losing my 68,000 monthly allocation to iDeco if one of my universities adds me to kosei-nenkin. Does anyone know the breakdown as to what would be better in the long run?
I don’t really know how this is going to work. Normally kosei nenkin is a proportion of your salary, so for a part-timer it might result in less eventual pension than kokumin nenkin.
As for the iDeCo stuff, the most important factor is probably your marginal tax rate (the highest tax rate you hit with your income). That is where your big savings come from. After that, how well your investments do.
So it is really hard to tell which would be better. I also don’t know if you would have a choice in the matter. Need more information!
So with the ordinary NISA ending in 2028, do you think we’ll be allowed to roll the money saved into a tsumitate NISA or up to the tsumitate limit and a taxable account?
From the picture in the post, it looks like we’ll be able to roll the tsumitate portion of the new ordinary NISA (200,000) into a tsumitate NISA account (400,000).
I am guessing the rest of the investments will move into your taxable account.
Thank you for writing about these changes, Ben!
However some details are not quite clear to me. Could you kindly explain these:
1.) One can only roll over 200,000 yen into the new Nisa account? Does that mean of the total amount I will have in my old Nisa account? That would be just a tiny fraction. What happens with the remainder, that will end up in the regular taxable broker account?
2.) Those new NISA splits for Shares and Mutual Funds: Does this mean one can only buy 200,000 yen of mutual funds per year?
I wasn’t even aware there is a restriction like this for the current NISA account. I only every bought mutual funds, never individual shares and there was never any issue.
Heh, and NISA is supposed to encourage people to get over their fear of investing and take the plunge…
Current ordinary NISA can be rolled into new ordinary NISA in full.
It looks like from new ordinary NISA, only the tsumitate portion (200,000) will be able to be rolled over into a tsumitate NISA account.
The new ordinary NISA is split into two levels: 1,020,000 that you can use freely to buy anything (like the current ordinary NISA accounts) and 200,000 that can only be used for tsumitate NISA products. I believe you could choose to buy mutual funds with the general allowance, but you can only buy mutual funds with the 200,000 bit.