Backpaying kokumin nenkin

[RetireJapan]

Has anyone done this? Tell us about it (I have about nine months I think I can backpay from when I was on 3/4 reduction)

[anroy]

Around 2013 or so I back-paid a big lump sum of almost 10 years worth of payments. It set me back over 1.8 million yen. It was the maximum allowed.

In my early years in Japan, in the early-to-mid '90s, I was in a company that participated in Kosei Nenkin. Then I was in a series of small companies followed by 8 years of freelancing. The proper thing during such periods is to join the Kokumin Nenkin program yourself, but I didn't.

Since 2013 I have been working as a company employee with Kosei Nenkin again, which is a crazy-ass amount per month. I guess I thought that if I'm going to be sacrificing so much to be in the Japanese pension program I might as well go whole-hog on it. My contribution is something like 16 years now, will have to check.

I don't know if it was the optimal decision, or if I should have done something else with that 1.8 million yen.

[RetireJapan]

I've been lucky (maybe?) and have been in kosei nenkin almost the whole time I've been in Japan. I have nine months of 3/4 exempt payments that I am thinking about topping up. I guess I should go into the pension office and ask them to do the sums for me.

I'll check my nenkin teiki bin next month and see how things are looking

[Tony]

I tried to pay back the first 2 or so years I was in Japan before my company put it's employees on shakai hokken. We're talking 12 years ago now, dude at the ward office told me I can't pay it now, as the limitation on it had expired or something. *shrug*

[RetireJapan]

I believe you can pay the last ten years only

[Greenhakka]

I believe we can backpay up to 5 years. They have made recent changes though. I backpaid 2 years worth quite easily at the nenkin office last year, but anything more than that and I have to go through a different process. I do these kinds of things on my own with my grade 2 vocabulary and conversation skills.

[goodandbadjapan]

If they are changing the rules so that you can qualify for pension payments after paying in for 10 years as opposed to the 25 it has been up till now, and you can backpay for ten years, is there anything to stop someone just backpaying 10 years the month or so before they retire and getting the benefits? Seems odd that you could kind of wait till the last moment and see at that point whether it is worth it or not!

[RetireJapan]

If they are changing the rules so that you can qualify for pension payments after paying in for 10 years as opposed to the 25 it has been up till now, and you can backpay for ten years, is there anything to stop someone just backpaying 10 years the month or so before they retire and getting the benefits? Seems odd that you could kind of wait till the last moment and see at that point whether it is worth it or not!

That's a really interesting point. I wonder if the rules will change much going forward?

You'd have to pay about 2 million yen to backpay 10 years. This would get you about 16000 yen a month for life, but starting 5 years later. It would take you 15-20 years to 'break even', although the payments would continue until you died (and life expectancy at 60 in Japan is about 25 years).

Not sure I'd take this deal. I'd be tempted to invest the 2 million myself and draw it down as necessary.

For me the reasons to pay nenkin would include:

1. it's the law, and I prefer to comply
2. it includes disability benefits
3. it gives access to iDeCo
4. it's a government backed annuity

Not paying in and doing a lump-sum deprives you of the first three of these.

[captainspoke]

You'd have to pay about 2 million yen to backpay 10 years. This would get you about 16000 yen a month for life, but starting 5 years later. It would take you 15-20 years to 'break even', although the payments would continue until you died (and life expectancy at 60 in Japan is about 25 years).

Not sure I'd take this deal. I'd be tempted to invest the 2 million myself and draw it down as necessary.

Could you explain or offer some details? The reason I ask is that I get numbers that say backpaying and getting ¥16k is better.

E.g., a typical income investment might be PGX, which yields about 5.6%. Figure 20% tax on the income for a final yield of 4.48%, so 2M times that for five years, compounded monthly, produces about 2.5M. That times the same post-tax interest rate, divided by 12, seems to produce about ¥9300/month--quite a bit less than 16k.

Is this right? If not, what am I doing wrong here? Is it that I'm assuming it'll be put in a taxed dividend (income-producing) fund, rather than going for growth/appreciation and then capital gains taxes later?

I do realize that with the nenkin option, it stops when you die, and that by investing (and seemingly taking less monthly) that 2.5M (more or less) would be there for a spouse or child to inherit, to continue collecting on or to do something else with that money.

Educate me, please...!

[RetireJapan]

Hi CS

Thanks for joining us

I'm not really in a position to educate anyone, as I barely know what I am talking about. The saving grace of RetireJapan is that very clever people occasionally pop in and comment here.

In the meantime, here are my thoughts...

1. State pension schemes tend to be better than private versions (like annuities).
   I do pay into kosei nenkin (have 17 years of payments) and will continue and end up with (hopefully) about forty years. I see this as diversification.
   Having said that, I have some reservations about the example posted (paying ten years when you are 59 to get the minimum pension).
   If you pay 2m yen when you are 59, you will start receiving a pension when you are 65 (probably 67 at some point)
   Your pension will be about 16,000 yen a month.
   That is almost a 20% yield.
   However, you have to wait five years to start claiming.
   Pensions don't seem to be index-linked.
   The pension may be reduced in the future.
   If you assume a 3% yield, and modest capital gains, you have a chance of giving the ending total amount a run for its money.

Now, this really depends on your situation. If you have no other sources of income then the pension would probably be a better choice. If you are comfortable the lump sum invested might be better.

Of course, I could be completely wrong about this