Farmers Pension should I stay or go to IDeCo?

[Wilbur]

Hi everyone, newbie here, recently found this site through my quest to know more about my invests. Looks like there is so much to learn from here.

Here's my situation. Me and my wife are farmers here in Japan. We have both been contributing to the farmers pension plan (nougyoushanenkin) for the last few years.

What I have been thinking is stopping the farmers pension and starting an IDeCo. I don't think I can do both at the same time. If this is true it seems unfair that a company worker can both participate in an IDeCo and a kouseinenkin but a farmer can't do a Famers pension and a IDeCo. Could this rule soon be changed?

I need help to decide how to calculate which would be the best investment?

Here is a quick breakdown of the 2, to my current knowledge.

Farmers Pension
Pros
Contributions can be used to lower your income tax
Government puts in 6000 yen max if you contribute 14000yen per month
Can get funds until I die

Cons
Interest rate? What is a realistic interest rate for this?
If I die after 65 betwee
If I over contribute, I don't get any contributions from government

IDeCo
Pros
Contributions can be used to lower your income tax
Better interest. How do I calculate a realistic interest rate for this?
I'm in control

Cons
Higher risk?
No government contributions

Can anyone help me with advice on how to compare these two investment options?

Other notes, we currently don't have any kind of NIISA but would also like to start one of the 2 or wait for the new one in 2024.

We also have a private pension plan that gives us 1percent. Which I really want to get out of but my wife says if we stop it we only get 90 percent of what we put in to it. Any advice on this to would be great.

Thanks for everyones time,

[RetireJapan]

Hi Wilbur

Welcome to the forum! Thanks for the question, I wasn't familiar with the farmers' pension before. From this write up it sounds very similar to kokumin nenkin kikin: https://ashitaba-mirai.jp/15102020/6326.html

Which one is a better fit for you probably depends on your age, your willingness to take risk by investing in the stock market, and your interest in investing.

The younger you are the more likely it is that iDeCo will be more beneficial.

Also maxing out your tax deduction by using the full 67,000 (farmers due to also including fuka nenkin I'm guessing) or 68,000 yen a month contribution is likely to be helpful.

Anyone else?

[Tkydon]

Consult an(y) iDECO provider such as Aeon Bank, or any other.
Ask them how much you would be able to contribute based on what you are contributing at the moment.
They will contact the National Pension Office and confirm what you could contribute if you a) keep paying into the Farmers' Plan, or b) if you were to (if possible) switch from the Farmers' Plan.

You don't need to go with that provider, but it will give you an idea...

Govt Pension Plans are based on Number of years of contributions and Defined Benefits until you die, with a residual benefit for your surviving spouse.
iDECO Plans are based on Defined Contributions, and you have to choose investments withing the iDECO to try to maximize your End Nest-Egg at retirement, and then the distributions will depend on how much you managed to accumulate, with any residual going to your heirs...

It depends how long you have to go until retirement, but a combination of the two may be most beneficial / least risk...

Also, if combined with NISA or Tsumitate NISA, would give you the maximum Tax Advantaged Retirement Investment Portfolio.

Pension and iDECO - You pay in Pre-Tax Income and get taxed on distributions in retirement
NISA and T-NISA - You pay in Post Tax Income, but the gains are Tax Free when you take the distributions, and you don't have to wait until retirement...

If you want to invest more, you can then do so through a Tokutei Account at a Broker.
Tokutei Account - You pay in Post Tax Income, and get taxed on gains when you sell...

[ClearAsMud]

What I have been thinking is stopping the farmers pension and starting an IDeCo. I don't think I can do both at the same time. If this is true it seems unfair that a company worker can both participate in an IDeCo and a kouseinenkin but a farmer can't do a Famers pension and a IDeCo. Could this rule soon be changed?

When you realize that this is the same as asking when we can expect the government to introduce a new mandatory pension tier for non-employees, I think you'll understand that the odds of that happening anytime soon are approximately ... zero. Employees don't choose to contribute to Kōsei Nenkin -- they have to. They can then choose to invest a further (limited) amount in an iDeCo account. The National (Basic) Pension applies to everyone, but the government isn't about to try to squeeze blood from a turnip by forcing those without stable incomes to contribute to a new mandatory tier, regardless of the theoretical benefit.

The voluntary tax-advantaged private pensions available only to Category 1 workers -- Kokumin Nenkin Kikin and the farmers' pension -- were in fact set up to address the problem of the low level of National Pension benefits available to them. The former pension is essentially a defined-benefits scheme with lifelong benefits, although DC elements are involved. The farmers' pension is a wholly low-risk DC scheme with lifelong benefits meant to meet farmers' needs in particular, and which additionally provides government subsidies to those who qualify. Both schemes leave fund management up to quasi-government organizations; an individual is allowed to participate in only one of the two systems (i.e., farmers who do not contribute to the farmers' pension can, if they choose, contribute to Kokumin Nenkin Kikin instead or switch over completely to iDeCo). Kokumin Nenkin Kikin aims at an annual return of 1.5%; the farmers' pension aims at an annual return of just under 3% (currently the estimated rate is down to 0.3%). Contributions to the former scheme can be split with iDeCo; no such option is available with the farmers' pension.

Regarding the farmers' pension, here's a bullet list of some of the information I gathered from a quick look at the main website, which offers a bewildering number of pamphlets and leaflets to confuse people.

• At the minimum contribution level of 20,000 yen a month (maximum 67,000 yen), it looks like the pension can be expected to pay out a little more than the full National Pension for a man and about the same as the National Pension for a woman. Once you start receiving the pension at age 65, the scheme also undertakes to compensate for any loss to the corresponding sum of premiums that have been paid in.
• The government will pay a portion of your premiums for a maximum of 20 years (conditions apply -- the intention appears to be to help those who would otherwise have trouble making the minimum payment) The subsidy varies in most cases between 6,000 and 10,000 yen with respect to a standard 20,000 yen monthly premium, depending on age (you're required to start by the age of 39 so that you can hope to get in 20 years of premiums). The basic chart provided in the main pamphlet shows that over the entire possible 40-year contribution period and assuming a basic monthly premium of 20,000 yen, the government would end up contributing 2.16 million yen as opposed to personal payments of 7.44 million yen for a total investment nest egg of 9.6 million yen plus capital gains. In other words, the government would be paying for over a quarter of your nest egg. I don't know what other strings might be attached, but one can see the appeal there. The two tiers function separately for the purpose of pension calculations.
• You can raise your monthly contribution to 67,000 yen at any time (restrictions in place when the government is paying part of the premiums); you can also lower your payment to the minimum at any time.
• You can leave and reenter the system at will, although your contributions remain inside until retirement.
• It's a lifelong pension, with a guaranteed lump-sum benefit if the insured dies before the age of 80. The lump-sum benefit, however, may not necessarily equal the remaining sum of premiums paid in.
• Unlike iDeCo, premiums qualify directly for the social-insurance deduction, meaning that an entire household's premiums can be used to reduce taxable income instead of having to deal with taxes separately.

There also appear to be some spousal considerations involved, although I didn't look into those -- you'll have to go down the rabbit hole a bit to get a grasp on all the details. Otherwise I don't have any specific advice to offer other than what RJ has already said -- consider your own situation and options as carefully as possible before deciding what's best for you.

[edit to fix a small typo]

[beanhead]

The answer to this will depend on your age and amount of time until retirement, and also your attitude to risk.
Since you don't have NISA, why not keep your farmers' pension for a while and invest in NISA for a year or two? If you decide that you can deal with the risks of investing in something that is not guaranteed, then perhaps revisit switching the pension portion to iDeCo.

[Wilbur]

Hi Wilbur

Welcome to the forum! Thanks for the question, I wasn't familiar with the farmers' pension before. From this write up it sounds very similar to kokumin nenkin kikin: https://ashitaba-mirai.jp/15102020/6326.html

Which one is a better fit for you probably depends on your age, your willingness to take risk by investing in the stock market, and your interest in investing.

The younger you are the more likely it is that iDeCo will be more beneficial.

Also maxing out your tax deduction by using the full 67,000 (farmers due to also including fuka nenkin I'm guessing) or 68,000 yen a month contribution is likely to be helpful.

Anyone else?

Thanks for the welcome, reply and link. Me and my wife are starting to get an idea of what we will choose to do.

Btw, thanks to the Retire Japan YouTube videos I was able to easily understand lots of the investment options here in Japan.

Consult an(y) iDECO provider such as Aeon Bank, or any other.
Ask them how much you would be able to contribute based on what you are contributing at the moment.
They will contact the National Pension Office and confirm what you could contribute if you a) keep paying into the Farmers' Plan, or b) if you were to (if possible) switch from the Farmers' Plan.

You don't need to go with that provider, but it will give you an idea...

Govt Pension Plans are based on Number of years of contributions and Defined Benefits until you die, with a residual benefit for your surviving spouse.
iDECO Plans are based on Defined Contributions, and you have to choose investments withing the iDECO to try to maximize your End Nest-Egg at retirement, and then the distributions will depend on how much you managed to accumulate, with any residual going to your heirs...

It depends how long you have to go until retirement, but a combination of the two may be most beneficial / least risk...

Also, if combined with NISA or Tsumitate NISA, would give you the maximum Tax Advantaged Retirement Investment Portfolio.

Pension and iDECO - You pay in Pre-Tax Income and get taxed on distributions in retirement
NISA and T-NISA - You pay in Post Tax Income, but the gains are Tax Free when you take the distributions, and you don't have to wait until retirement...

If you want to invest more, you can then do so through a Tokutei Account at a Broker.
Tokutei Account - You pay in Post Tax Income, and get taxed on gains when you sell...

Thanks Tkydon, for the detailed reply. We have a nearby post office that is currently advertising about NIISA and IDeCo, so this might be the nearest place to get more information. Probably won't go with them because I am sure they have higher fees compared to something online.

My wife talked to someone at the Farmers Pension plan on Friday. So, she got a pretty good explanation of things, which is better than me explaining to her what I learnt here because I am sure something would get lost translation.

What I have been thinking is stopping the farmers pension and starting an IDeCo. I don't think I can do both at the same time. If this is true it seems unfair that a company worker can both participate in an IDeCo and a kouseinenkin but a farmer can't do a Famers pension and a IDeCo. Could this rule soon be changed?

When you realize that this is the same as asking when we can expect the government to introduce a new mandatory pension tier for non-employees, I think you'll understand that the odds of that happening anytime soon are approximately ... zero. Employees don't choose to contribute to Kōsei Nenkin -- they have to. They can then choose to invest a further (limited) amount in an iDeCo account. The National (Basic) Pension applies to everyone, but the government isn't about to try to squeeze blood from a turnip by forcing those without stable incomes to contribute to a new mandatory tier, regardless of the theoretical benefit.

The voluntary tax-advantaged private pensions available only to Category 1 workers -- Kokumin Nenkin Kikin and the farmers' pension -- were in fact set up to address the problem of the low level of National Pension benefits available to them. The former pension is essentially a defined-benefits scheme with lifelong benefits, although DC elements are involved. The farmers' pension is a wholly low-risk DC scheme with lifelong benefits meant to meet farmers' needs in particular, and which additionally provides government subsidies to those who qualify. Both schemes leave fund management up to quasi-government organizations; an individual is allowed to participate in only one of the two systems (i.e., farmers who do not contribute to the farmers' pension can, if they choose, contribute to Kokumin Nenkin Kikin instead or switch over completely to iDeCo). Kokumin Nenkin Kikin aims at an annual return of 1.5%; the farmers' pension aims at an annual return of just under 3% (currently the estimated rate is down to 0.3%). Contributions to the former scheme can be split with iDeCo; no such option is available with the farmers' pension.

Regarding the farmers' pension, here's a bullet list of some of the information I gathered from a quick look at the main website, which offers a bewildering number of pamphlets and leaflets to confuse people.

• At the minimum contribution level of 20,000 yen a month (maximum 67,000 yen), it looks like the pension can be expected to pay out a little more than the full National Pension for a man and about the same as the National Pension for a woman. Once you start receiving the pension at age 65, the scheme also undertakes to compensate for any loss to the corresponding sum of premiums that have been paid in.
• The government will pay a portion of your premiums for a maximum of 20 years (conditions apply -- the intention appears to be to help those who would otherwise have trouble making the minimum payment) The subsidy varies in most cases between 6,000 and 10,000 yen with respect to a standard 20,000 yen monthly premium, depending on age (you're required to start by the age of 39 so that you can hope to get in 20 years of premiums). The basic chart provided in the main pamphlet shows that over the entire possible 40-year contribution period and assuming a basic monthly premium of 20,000 yen, the government would end up contributing 2.16 million yen as opposed to personal payments of 7.44 million yen for a total investment nest egg of 9.6 million yen plus capital gains. In other words, the government would be paying for over a quarter of your nest egg. I don't know what other strings might be attached, but one can see the appeal there. The two tiers function separately for the purpose of pension calculations.
• You can raise your monthly contribution to 67,000 yen at any time (restrictions in place when the government is paying part of the premiums); you can also lower your payment to the minimum at any time.
• You can leave and reenter the system at will, although your contributions remain inside until retirement.
• It's a lifelong pension, with a guaranteed lump-sum benefit if the insured dies before the age of 80. The lump-sum benefit, however, may not necessarily equal the remaining sum of premiums paid in.
• Unlike iDeCo, premiums qualify directly for the social-insurance deduction, meaning that an entire household's premiums can be used to reduce taxable income instead of having to deal with taxes separately.

There also appear to be some spousal considerations involved, although I didn't look into those -- you'll have to go down the rabbit hole a bit to get a grasp on all the details. Otherwise I don't have any specific advice to offer other than what RJ has already said -- consider your own situation and options as carefully as possible before deciding what's best for you.

[edit to fix a small typo]

Clearasmud, thanks for the detailed reply. Sounds like change in the area of pensions isn't happening anytime soon. I appreciate the break down of the farmers plan. I'm starting to feel I can make an educated guess of what I will do.

[*]It's a lifelong pension, with a guaranteed lump-sum benefit if the insured dies before the age of 80. The lump-sum benefit, however, may not necessarily equal the remaining sum of premiums paid in.

This point here is where I feel uncomfortable about the farmers pension plan. My contributions are only insured from 65 to 80. I will explain by an example as in your example

let's say 40yrs at 20000yen/month. 20000yen is if actually me paying 14000 and the government paying 6000. For totals of me 6.72mil and gov 2.88mil. Let's for simplicity not add any interest. So, when I'm 65yrs old, this calculation occurs to decide my payments. 86yrs is now the live expected age for men. So, 86 minus 65, gives us the number of years to be used for dividing my pension yearly payment. And the contributions are split. Me, 6.72mil divided by (86-65) equals 320000yen yr (26666yen month). Now gov, 2.88 divided by (86-65) is 137142.9/yr (11428.6 month)

So, I want to now how many years it takes for me to get my money I put in back. So, 1yrs worth is 320000 +137142 equals 457142.9 and then my total contributions 6.72mil divided by 457142.9 equals 13.56 yrs or when I'm 78yrs. Just to break even. And if I die before that my family only gets (80 minus year of my death) of only my contributions not any of the government s.

Another kicker is if I die from 60-64.9yrs my family would only receive 4.8mil yen even though I paid 6.72mil!

So, as a quick recap, I need to live until 78yrs old just to get my money back. Over 86 yrs then it was a good choice. And just as another example if I put it into a IDeCo at zero percent interest same contributions I would have 6.72mil at 60yrs and this amount would always go to my family.

[Tkydon]

As the amount accrues interest over the time of the accumulation phase and the distribution phase, you cannot just multiply it by the number of months of contributions and then divide it by the number of months of distributions.

They should be able to give you a current valuation for your fund, and expected monthly payment, similar to the projection you can request for the Kokumin Nenkin Basic and Kosei Nenkin from Nenkin.Net.

I haven't checked, but I think you will find that the projected fund value of your fund at 65 will be considerably higher than the sum of the contributions...

They will then calculate an Annuity payment that would plan to draw down and exhaust that total fund value at whatever age (say 80) in the future.

Hence, if you die before the fund is completely exhausted, they will pay the remainder of the un-drawn-down funds to your estate / heirs.

On the other hand, if you live past that date, they are then paying you from their coffers, as the fund value would have been completely exhausted...

You can use an Anuity Calculator, such as this to get a rough idea:

Start from zero and add the contributions every month (ignore the $ signs... It's in Yen! )

https://www.calculator.net/annuity-calc ... ity-result

then transfer the final value to the initial value and minus the monthly distribution...

https://www.calculator.net/annuity-calc ... ity-result

[Wilbur]

The answer to this will depend on your age and amount of time until retirement, and also your attitude to risk.
Since you don't have NISA, why not keep your farmers' pension for a while and invest in NISA for a year or two? If you decide that you can deal with the risks of investing in something that is not guaranteed, then perhaps revisit switching the pension portion to iDeCo.

I'm 43 now and ok with medium risk. My Dad, who is now 75yrs, said the best thing he did was retire at 62 because he was healthy and could enjoy his retirement. He could have worked longer and made more money but that would have costed him more of his good years. Knowing this, I would probably want to retire around that age too.

Trying out NIISA sounds like a good place to get our feet wet. I do have experience with mutual funds as RRSP in Canada before I moved to Japan but my wife who is Japanese is pretty scared of investing out side of no risk investments.

As the amount accrues interest over the time of the accumulation phase and the distribution phase, you cannot just multiply it by the number of months of contributions and then divide it by the number of months of distributions.

They should be able to give you a current valuation for your fund, and expected monthly payment, similar to the projection you can request for the Kokumin Nenkin Basic and Kosei Nenkin from Nenkin.Net.

They will then calculate an Annuity payment that would plan to draw down and exhaust that total fund value at whatever age (say 80) in the future.

Thanks for pointing this out. I was simplifying things too much. I was surprised how better the whole pension looks now with that much more interest. Thanks for those calculations links.

So, now another question? If I want to retire at 62. I have 19 years left of investing. How do I calculate how much I will need at the start of retirement saved? I think I can do a pretty good guess of say living cost but what should I use for an inflation number?

[Tkydon]

So, now another question? If I want to retire at 62. I have 19 years left of investing. How do I calculate how much I will need at the start of retirement saved? I think I can do a pretty good guess of say living cost but what should I use for an inflation number?

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