Pension Insurance

Somewhat redundant, like hot lava


I got a pamphlet from an insurance company in my mailbox at work yesterday. The content was surprising, so I thought it would make a good post. Enjoy!

​In Japan, investing in the stock market has a terrible reputation. It is popularly seen as complex and dangerous, and many people are afraid to put their money at risk. Popular entertainment like Loan Shark Ushijima or Kurosagi have numerous episodes involving conning people through investment opportunities, and this is a reflection of common attitudes.

However, the best rate currently available for a savings account with a bank is 0.1%. Some people go for this, others keep money in a safe at home. News reports about ridiculous sums of cash being stolen from homes are fairly common.

The government believes that 43 trillion yen in cash is floating around.

​The pamphlet I received is for public servants only, presumably negotiated by the union and possibly featuring better deals than are available to the general public. It contained medical, life, accident, and pension insurance. The last one was new to me, so I’ll focus on it in this post.

So what is pension insurance? It’s a product sold by insurance companies (solid, safe) that allows you to ‘invest’ for a better return than bank accounts or cash give you. There are also limited tax advantages.


It appears there are two types: personal pension type (個人年金保険) and normal life insurance type (一般の生命保険) with different tax treatment. If you are more than ten years from the mandatory retirement age, you can join the former, if more than two years from retirement the latter. It appears you can deduct up to 50,000 yen for personal pension and up to 40,000 for normal life insurance from your taxable income.


You can decide how much your monthly payment is, from 2,000 minimum. Not sure if there is a maximum, but you get the full tax allowance (控除) of 50,000 yen when you spend 100,000, which would be 9,000+ yen a month.

They are predicting a 1.25% return, but the small print says this could change.


Everyone seems to use these numbers, I am not really sure why. A normal couple in kosei nenkin with a dependent spouse should expect to get about 220,000 yen a month from their pension, but in order to have a (relaxed? fulfilling?) life you need 349,000 yen a month.

Fortunately this pension insurance can provide you with the missing amount 😉

Of course in practice the amount of money you will need in retirement is going to depend on your particular lifestyle, so the best way to calculate it is to track your spending over time and see how much you need. You may find it is more or less than the mythical 349,000 yen a month…


And here is the payout. If you invest 10,000 yen a month for 40 years, you will pay in 4.8 million yen and receive… 5.938 million yen back, for a 130.1% return. On top of this you will also have annual tax savings of about 6,000 yen for a normal wage earner.

The example repayment is as a pension over ten years, so presumably you can also choose to take it in other ways.

Needless to say, this looks pretty poor to me and far inferior to iDeCo.

Assuming a conservative 5% return on a portfolio of stock and bond mutual funds in an iDeCo account, paying in 10,000 yen a month for forty years would result in a final sum of over 15 million yen (based on this calculator). The tax advantages are also greater for iDeCo, as you can deduct the full amount of the contribution from your taxable income.

Even if your iDeCo is maxed out or you can’t contribute to it for some reason, investing in a NISA or even an ordinary broker account would also leave the pension insurance in the dust over the long term.

What do you think? Am I missing something here? Why would anyone pay into something like this?
​

10 Responses

  1. I believe this is the kind of scheme my wife made me subscribe to when our first kid was born. So, the kind of people who would subscribe to this: stupid gaijins like me who have gone to the bank, saw that the best ROI one could get was 0.1%, and asked their wife for advice on good investments in this country.

    1. Ha, ha. That sounds like a much better response than spending several hours writing a blog post about it 😉

  3. I’ve used the Iris Plan for years for supplemental accident insurance. About ¥5000/year covers my wife and I, plus kids at one point. Two years ago I had an accident, and the payout was far more than I’d ever put in. It was just me that time–I didn’t injure anyone–but it would cover someone who I or my kid might hit with a bicycle, or someone falling on our stairs.
    As an alternative to that, this one comes recommended. The better version (“best”) includes representation.
    ***
    Ben: This post is pension insurance, how about some info/exploration or review of some supplemental accident policies, such as Iris and the above?

    1. Ben,
      What’s going on with the forum software?
      I added a simple link to one type of supplemental accident insurance, and it doesn’t even appear there in my post.
      Why is that getting elided/deleted???
      It seems like the most useful tidbit of accident insurance information that I could offer, and then, inspire of your approval of my post, that link that I posted does not get included in my post.
      I’d like to think that presenting a link of two would be informative, and that those links might direct people to something useful, but apparently I cannot even present a link or two.
      Why?
      ***
      Over there in the forum, I was critical, and you were nice about it, and then someone complained about my post as being asinine. It was, but now we’re here, and while I would like to contribute, and think I have some useful information, whatever it is that’s going on with the forum/blog software, whereby someone like myself apparently cannot post a URL/link to something they find useful…
      It’s just beyond my comprehension that some system in this day and age would not allow a link/URL to be posted as a simple bit of text in a comment like this.
      Please, if it’s not impossible, please post a FAQ about how to do that. I’d like to say, “Here’s a useful link,” and then provide the URL for others to see and click on.
      How do I do that? (apparently impossible)

    1. For anyone interested in accident insurance, this thread on the TokyoCycle website is good reading: https://www.tokyocycle.com/bbs/threads/accidents-insurance.831/
      That started in 2008, and if you go thru it to page 8, it’s still active these days. Cyclists have a particular interest in this type of thing, but I’d offer that you don’t have to be a cycling enthusiast to be on a mama-chari when you get involved with a car or pedestrian, and being a pedestrian you can get involved with either one. As the OP says there, representation is important.
      If something happens to be my fault, or there is shared responsibility, I consider a policy like the au-sonpo one to be a wealth preservation strategy.

  5. I think your instinct is correct. Reminded me of something called Whole Life Insurance in the US, which is designed to provide some returns for a lot more money than it would cost for Term Life Insurance.
    Anything from an insurance company is designed to: 1) provide profits for the insurance company; 2) provide insurance coverage for you.