Employer pension scheme

[Deep Blue]

So, I’m converting to become a salaryman here and forgoing my expatriate package that, amongst other things has let me build up a a DC pension balance in the UK that I can access when I’m 60.

I’m now trying to understand the employer pension here and I’m pretty underwhelmed. Firstly, seems “pensionable salary” is maxxed out at 1,666,667 yen a month - is this a Government limit or just a corporate one? Then they will pay in 8% of that (10% after three years).

These contributions go into two pots, about 25,000 yen a month goes into a DC scheme where I can pick the funds it’s invested in. So far, so good.

But it’s the second scheme that is riling me. The balance (so actually the majority, a bit more than 100,000 yen a month) goes into something called a Cash Balance. And that’s exactly what it sounds like. It’s left as cash! Forever! Not in the last few years of the scheme, for all 40 years if you join at 20, or 15 years if you join as I’m doing at 45.

What is this madness? Surely this is not normal practice here, committing the vast majority of pension funds to cash and just investing a small sliver in funds? It’s possible my HR person was simply wrong, but I wanted to check if any not then experts on here had heard of this type of scheme?

[TokyoWart]

Cash balance plans have a payment credit and interest credit which is applied each year so this is not the same thing as just having that money sit for the next 10+ years. An explanation is here:

http://www.jscpa.or.jp/aniv/pbss/pdf/pr ... igePPT.pdf

[Teflon]

The system you described sounds correct to me. The firm where I work also contributes a certain amount to a Corporate DC plan and the rest goes into the "Cash Balance" plan which is actually just JGBs sitting around earning a tiny bit of interest. The firm's monthly total contribution for both plans cannot exceed 10% of the employee's salary up to an annual salary of 20,000,000 yen which would equate to 10% of 1,666,667 per month.

I don't think this hard limit is government mandated but it's practical for a firm trying to provide benefits to the majority of their employees who probably make far less than the upper limit anyway. The employees making 20,000,000 yen or more per year can probably afford to invest part of their salary into a standard brokerage account and take whatever tax hit that comes with it.

As your firm is only contributing 25,000/month to your DC plan then hopefully you have elected to deduct 30,000 from your monthly salary to max that out to the 55,000 yen monthly limit.

[Deep Blue]

Thank you for your replies. I consider myself reasonably financially literate but I can't make head nor tail of the PDF on first reading. It appears to be in English but my brain just can't process it. I will look again tomorrow morning after a big coffee.

I also just found out I will be enrolled in EPI (kosei nenkin hoken) which looks like another layer of complexity on top, but might actually be a defined benefit scheme since it seems to target a percentage of salary on pay out? I've only just discovered this and trying to understand so I might be way off base.

Quite possibly I'll end up enrolled four schemes - kokumin nenkin (as I am currently), kosei nenkin (starting from my localisation), and the employer add-on DC and CB schemes too.

You mentioned adding in 30k a month to max out the DC plan - I did ask but seems voluntary contributions are not possible. Maybe this varies by employer scheme?

[Beaglehound]

As I understand it, Kosei nenkin will replace kokumin nenkin, you won’t pay into both.

[Deep Blue]

Yes, I have also just read that. The good news is that the years paying into kokumin nenkin will count towards the years required for a payout from kosei nenkin.

So I have five years of kokumin nenkin payments under my belt, and only require another five in kosei nenkin to reach the ten years required for payout, based on the wiki here

"A minimum period of 10 years of contributions, exemptions or deferments is ordinarily required to receive benefits. This qualification period includes both the Basic Pension and Employees’ Pension Insurance; you ordinarily need 10+ years in total, and these years can be a combination of the two schemes."

But then, what kind of payout would it be? A standard kosei nenkin payout? Or half and half? This is the next question I am burrowing into.

[Moneymatters]

Yes, I have also just read that. The good news is that the years paying into kokumin nenkin will count towards the years required for a payout from kosei nenkin.

So I have five years of kokumin nenkin payments under my belt, and only require another five in kosei nenkin to reach the ten years required for payout, based on the wiki here

"A minimum period of 10 years of contributions, exemptions or deferments is ordinarily required to receive benefits. This qualification period includes both the Basic Pension and Employees’ Pension Insurance; you ordinarily need 10+ years in total, and these years can be a combination of the two schemes."

But then, what kind of payout would it be? A standard kosei nenkin payout? Or half and half? This is the next question I am burrowing into.

Let's say you'll have 10 years.
5 kokumin 5 Kousei (with kokumin emdedded).
So that's 10 years kokumin. so a quarter or 25% of the 40 years target enrolment period. or 25% of the 780,000 per annum pension amount.

Your pure kousei amount will be 5 years.
And based on your, "underwhelmed" comment I'll assume you are maxed out on the salary limit (it's about 650,000 monthly salary cap more details here: https://retirewiki.jp/wiki/Japanese_pen ... sei_Nenkin

The simple calculation on what you receive is: 「平均標準報酬月額✕5.769／1,000✕加入月数（480か月）」
questions?
let's say you are maxed at average of 650,000 * 5.769 / 1000 * the number of months in the system. (5 years is 60.)
so 5 years results in a 224,991 pension, 40 years is 1.79mil.
And remember the kokumin nenkin would be added to the top of that.

if you've had some bonus payments handled within kousei up to their limits this also bumps up the amount you'll receive.
Remember if you retire early you can contribute to kokumin nenkin to age 65 if you don't already have 40 years of contributions. contributing to kokumin also opens up ideco which has good incentives to invest into even in early retirement.

[Deep Blue]

Thank you - this is starting to make a lot more sense. I deeply appreciate the help!!!

Where did your co-efficient of 5.769 come from?

I seem to see different figures quoted around the place. On the offical Nenkin page I see a figure of 5.481 quoted.

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

if I am doing the sums right, looks like I will need to live to about 81 to get back around what I paid in (monthly payout then is 56,248), almost matching the 59,475 I will pay each month for the next 15 years. Not bad given I could live to 100 but not exactly a fantastic deal?

Especially as my employer will contribute the same so the real payback age would be 97? This can't be right can it?

[beanhead]

if I am doing the sums right, looks like I will need to live to about 81 to get back around what I paid in (monthly payout then is 56,248), almost matching the 59,475 I will pay each month for the next 15 years. Not bad given I could live to 100 but not exactly a fantastic deal?

Especially as my employer will contribute the same so the real payback age would be 97? This can't be right can it?

Mine is 11 years to 'break even' on what I have paid in. Kosei nenkin the whole time, so the total contributions, as you said, are greater than that.
This includes my wife, though, as we have the typical salaryman set-up where she receives pension contributions based on my payments. So that will skew it.
It is longevity insurance. Don't think too much about it. Pay it, and stay healthy enough to screw the system by living a long time!

[Moneymatters]

Thank you - this is starting to make a lot more sense. I deeply appreciate the help!!!

Where did your co-efficient of 5.769 come from?

I seem to see different figures quoted around the place. On the offical Nenkin page I see a figure of 5.481 quoted.

….
Especially as my employer will contribute the same so the real payback age would be 97? This can't be right can it?

I made it up. Ha ha. I jest of course. The drugs I’d need aren’t legally available here.
https://www.nenkinbox.com/archives/2328
I just kept it simple in your case.
https://www.nenkin.go.jp/service/jukyu/ ... /hirei.pdf

As for the returns. I sense the pension fund isn’t all tracking the S&P500. Without inside knowledge I’m getting strong Scrooge McDuck’s Money Bin vibes…
You’ll notice the calc doesn’t care when you made the contributions. Year one or year 40 contributions are treated equally.. so. If you are trying to sell yourself be happy you are starting later in life.