Supplementary payments for Japanese pension - worth it?

[KyushuMatt]

Hi guys,

I was exempted from paying the J pension (kokumin nenkin) for approximately 2 years when I was an exchange student here.
I recently received a notice explaining that I can pay these periods retroactively (国民年金保険料追納).
The exemption spanned 3 years and the total amount is about 350,000 yen.
My question is, is this worth paying back or is this unlikely to change my final pension enough to warrant the payment?

A few points about my situation as I know this is key -
- I live in Japan on a spouse visa and intend to stay long term.
- I have paid into the pension through my company in Japan for 6 years.
- I have enough cash to make these payments if necessary.
- I am 34 years old so still have 30 + years to continue paying into the pension system.

If anyone has any experience on this, please get in touch! Thanks a lot!

[Beaglehound]

It’s a judgment call but considering you plan to stay and work here, accruing pension, you are already going to have racked up a large number of years by retirement. Each full year you pay would give you roughly 19k annually on your pension in today’s terms. Obviously these terms may change, more likely for the worse. In your position I would stick the cash in a good mutual fund instead, but I don’t think it’s a bad move backpaying the pension either.

[RetireJapan]

I had this option a few years ago: https://www.retirejapan.com/blog/backpa ... in-nenkin/

[Moneymatters]

I had this option a few years ago: https://www.retirejapan.com/blog/backpa ... in-nenkin/

Back paying will get you to the 10 year threshold quicker. Whilst currently plan to stay here long term things can change and maybe that extra peace of mind is worth something to you.

The maths of whether to back pay or self invest is relatively simple. If you aim to live past 80 I’d say go with the pension as you don’t seem to be able to hit 40 years even paying up to 64.

[KyushuMatt]

Thanks guys.

So, 40 years of payments gets the full pension? In that respect, these additional 2 years of payments will get me closer to that.

According to the simple pension calculator on nenkin net, I will get an additional 37,418 yen per pension year if I make the voluntary contribution.
I also understand the contributed amount can be deducted from your taxable earnings at the end of the year.

I guess the conclusion is that the investment is highly likely to pay for itself, but returns are comparatively low when compared to investing elsewhere. Definitely food for thought and less of a no brainer than I originally thought it might be!

[kuma]

Another angle.

The exempted years still give you pension benefits. Half of the full payout from 2009, and one-third if the full payout before then. (So adjust the extra benefit you calculated on nenkin net, as you DO already have some benefits from these exempted years… provided you hit the 10yr wualifying period.)

https://www.nenkin.go.jp/international/ ... nsion.html

These exempted years count towards the 10 years of coverage ordinarily required to qualify for pension benefits. More good news!

https://www.nenkin.go.jp/international/ ... nsion.html

You are racking up pension contributions through a company, which are far more valuable in terms of money in:money out than kokumin nenkin (particularly as the company contributes), so I’d be inclined to take the ‘free’ payout from the exempted years and explore other investment opportunities. If you haven’t maxed iDeCo, in my opinion, that would be a better option.

Though it is a personal call and I can see the merits of maximizing your entitlement to the state pension too.