Delaying pension

[RetireJapan]

I'm sure it will get easier to do this as the online filing becomes more streamlined and the tax agency includes AI bots to help.

[beanhead]

I have wondered about this too. Not sure about the exact numbers but it is true that there will be a certain level of pension income that will be optimal in terms of eliminating national and local income tax, as well as reducing health insurance. With new NISA being 'reusable', there is an argument that cash one has earmarked for nenkin from 60 to 65 would be better invested tax free in NISA if the pension income it would generate would be subject to the government claw. Of course it all depends on how long you live, which is a bit of an unknown

The additional kokumin nenkin payments would be about 1 million yen over those 5 years. The additional received is, I believe, just less than 100,000 per year.
Keeping the amount paid to the taxman down as much as possible makes sense, but we are talking about 20,000yen a year, or perhaps 400,000yen if you receive it for 20 years. Not a huge amount.
As Ben always says, government-backed pensions are insurance against old age. So the 'security' of getting this larger pension amount probably makes sense for most people in most situations.

[Wales4rugbyWC23]

I'm sure it will get easier to do this as the online filing becomes more streamlined and the tax agency includes AI bots to help.

Just thinking if I will need to employ an accountant when I retire or not.

[captainspoke]

Rather than do it online, I go to the tax office. And whereas that was once a big time suck, that seems to be over and done with.

From the pandemic on there has been a reservation system (via LINE) where I can pick a 30 minute slot to begin the process. Once there for that, it has taken about an hour. (Not sure of the exact number but there might be 25-30 people per half hour slot.) This time-slot based system works great, even the parking lot has spaces available (in the years before it could take an hour just to get into the lot). Also, there's an early filing week available to 'the elderly'--the week before Feb 15th is open to serve folks like me.

There is a 'gensen' (源泉徴収票) issued for each pension, to submit/attach in the same way as if you were employed. I do 1-2 days of work each year, judging a HS drama/speech contest, and they send along the same slip. Now done with those times, but in some years I claimed medical expenses, which takes a couple extra minutes of input. I've declared interest/dividends/gains from a US account for many years now, and have my end of that paperwork down pat (but again, a few extra minutes for inputting some of those details). Occasionally I claim some foreign tax payments, either to the US or maybe there was some withholding on an ADR (foreign company on the US market)--again, another item to input. I turn in any supporting paperwork from me right there when they print two copies of my return, which goes in together right there with the copy they keep. And they supply a nice envelope for my copy. (We've never had a housing loan to claim, so I have no details on that.)

Frankly, an hour is cheap, time wise. It'd take me as long on my own, plus the printing is done for me, plus no trip to the post office to mail in the supporting docs. Separately, my local bank is fine with the tax office debiting my account (even tho the names differ!)--as one of the last steps in the process they ask, "Same account?" Me: "Yes."

edit: and I turn in the foreign asset report at the same time.

And it gets me out of the house...!

[Wales4rugbyWC23]

Rather than do it online, I go to the tax office. And whereas that was once a big time suck, that seems to be over and done with.

From the pandemic on there has been a reservation system (via LINE) where I can pick a 30 minute slot to begin the process. Once there for that, it has taken about an hour. (Not sure of the exact number but there might be 25-30 people per half hour slot.) This time-slot based system works great, even the parking lot has spaces available (in the years before it could take an hour just to get into the lot). Also, there's an early filing week available to 'the elderly'--the week before Feb 15th is open to serve folks like me.

There is a 'gensen' (源泉徴収票) issued for each pension, to submit/attach in the same way as if you were employed. I do 1-2 days of work each year, judging a HS drama/speech contest, and they send along the same slip. Now done with those times, but in some years I claimed medical expenses, which takes a couple extra minutes of input. I've declared interest/dividends/gains from a US account for many years now, and have my end of that paperwork down pat (but again, a few extra minutes for inputting some of those details). Occasionally I claim some foreign tax payments, either to the US or maybe there was some withholding on an ADR (foreign company on the US market)--again, another item to input. I turn in any supporting paperwork from me right there when they print two copies of my return, which goes in together right there with the copy they keep. And they supply a nice envelope for my copy. (We've never had a housing loan to claim, so I have no details on that.)

Frankly, an hour is cheap, time wise. It'd take me as long on my own, plus the printing is done for me, plus no trip to the post office to mail in the supporting docs. Separately, my local bank is fine with the tax office debiting my account (even tho the names differ!)--as one of the last steps in the process they ask, "Same account?" Me: "Yes."

edit: and I turn in the foreign asset report at the same time.

And it gets me out of the house...!

Would you be able to do this in your nineties? not quite in control with your faculties, as you are obviously now.

[Tkydon]

The additional kokumin nenkin payments would be about 1 million yen over those 5 years.

Basic Pension contribution, currently 16,520 x 60 months = 991,200

The additional received is, I believe, just less than 100,000 per year.

Additional Pension starting at age 65 for the Additional 60 months' contributions:

Y795,000 x 60 months / 480 months = An Additional 99,375 per year or 16,562 per payment (every 2 months) at age 65, before tax.

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

This will differ if you are receiving the Employee's Pension - Kosei Nenkin

Keeping the amount paid to the taxman down as much as possible makes sense, but we are talking about 20,000yen a year, or perhaps 400,000yen if you receive it for 20 years. Not a huge amount.

As Public Pensions are tax advantaged; if you are still working you can pay the contributions tax free so the government pays the portion you would have otherwise paid in tax, and only the Marginal Income after the Public Pension Plan Tax Deduction is subject to the increased Marginal Tax Rate if the marginal income takes you into the next marginal tax band, then I don't think there is a downside to paying the additional 60 months' contributions and waiting until at least 65 to take the Pension.

With say 25 years' contributions at age 60, if you elected to take the pension at 60, you would receive an annual Basic Pension of (Based on current Benefit, which will be increased over time in line with inflation):

At age 60 with 25 years' contributions:

Y795,000 x 25x12 months / 480 months x 70% = An Annual Pension of 347,812 per year or 57,968 per payment (every 2 months) from age 60, before tax.

At age 65 with 25 years' contributions:

Y795,000 x 25x12 months / 480 months x 100%= An Annual Pension of 496,875 per year or 82,812 per payment (every 2 months) from age 65, before tax.

At age 65 with 30 years' contributions (additional 5 years' voluntary contributions from 60 to 65):

Y795,000 x 30x12 months / 480 months = An Annual Pension of 596,250 per year or 99,375 per payment (every 2 months) from age 65, before tax.

At age 70 with 30 years' contributions (additional 5 years' voluntary contributions from 60 to 65):

Y795,000 x 30x12 months / 480 months x 142% = An Annual Pension of 846,675 per year or 141,112 per payment (every 2 months) from age 70, before tax.

At age 75 with 30 years' contributions (additional 5 years' voluntary contributions from 60 to 65):

Y795,000 x 30x12 months / 480 months x 184% = An Annual Pension of 1,097,100 per year or 182,850 per payment (every 2 months) from age 75, before tax.

Figures will be different for the Employee Pension - Kosei Nenkin or other pension plans.


Details of the Public Pension Plan Tax Deduction can be found here:

https://www.tax.metro.tokyo.lg.jp/book/ ... k2023e.pdf

Page 8 (PDF page 12) - 'Calculating the Public Pension Plan Deduction (Calculation Table)' refers.

After age 65, approximately the first ¥1,200,000 over the Individual Deduction of ¥550,000, so approx. ¥1,750,000 plus other Deductions for dependents, Health Insurance, health expenses over ¥100,000, and other Insurance Premiums and deductions would be tax free.

Income over this ¥1,750,000+ would be start to be taxable at the lowest Marginal Tax Rate of 15.105% (5% National, 0.105% Reconstruction, and 10% Residential Taxes).

[RetireJapan]

I wonder what happens with the elderly with dementia etc?

Just asked my wife, and she's not sure if my father in law does a return (he can't really understand things that are written down any more).

I can't imagine the tax office would care all that much either way...

[Tkydon]

I wonder what happens with the elderly with dementia etc?

Just asked my wife, and she's not sure if my father in law does a return (he can't really understand things that are written down any more).

I can't imagine the tax office would care all that much either way...

For the National Pension, National and Residents' Taxes and NHI are withheld at source, so if that is the only source of income, there is nothing to report.

Perhaps your FIL prepared a Power of Attourney that puts the admin in the hands of a proxy.

[Tkydon]

If you reach 60, you can go to the Pension Office and apply to pay voluntary contributions to get your number of contributions up by another 60 months... You cannot pay voluntary contributions past age 65.

Yes, normally they stop receiving or sending you bills for Pension Contributions at age 60, but you can elect to continue paying Voluntary Pension Contributions monthly to age 65 to get your Qualifying Months up.

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

See 'Voluntary Coverage' and 'How to Enroll for Voluntary Coverage' sections.

"The following persons can enroll in the National Pension system on a voluntary basis;

(1) Registered residents* of Japan aged 60 to 64 years
(2) Japanese citizens aged 20 to 64 years who reside in a foreign country
(3) Persons* born on or before April 1, 1965, aged 65 to 69 years who have not satisfied the minimum qualification period

* Excluding foreign nationals staying in Japan with specific visa (medical stay or long stay for sightseeing). Such foreign nationals cannot apply for voluntary coverage.

If you are subject to (1), (3) above, and wish to enroll voluntarily, you need to apply for enrollment at the municipal office of your place of residence."

The earliest you can actually Enroll for this extended Voluntary Coverage at the Pension Office is One Business Day before your 60th. birthday.

[captainspoke]

...
Would you be able to do this in your nineties? ...

My wife is good with numbers, and although I've never shown/taught her much about it, she has her own company and does the bookkeeping and tax return for that. She's plenty capable, and younger, so she could help with and/or do it for a while. Our kids could also help or take over, perhaps eventually for both of us.