Retirement planning

[Wales4rugbyWC23]

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

There is a lot of nuance in 'Pension Deductions'.

If you are a Part Time Worker or a Contractor, then you are responsible for your own Pension. You have to pay the Basic National Pension Contribution of Y16,980 yourself, and if you want to use iDeCo you can pay up to Y68,000 per month...

If you are employed full time, then the Pension Contribution for National Kousei Nenkin is 18.3% of your Gross Salary, 9.15% paid by you and deducted from your paycheck before Tax and the other 9.15% paid directly by your employer, again before tax, but it doesn't show up on your payslip.

Your employer may also, or alternatively, have another company Defined Benefit Pension Plan or a Defined Contribution Pension Plan (also known as a Japan 401k), which they may pay, or may provide matching if you choose to pay. In this case, it may limit the remaining Tax Free Allowance that you can use for additional iDeCo.
iDeCo for an employee with no such benefit is limited to Y23,000 per month.
In your case, it would seem that you are getting half of that benefit Tax Free from your Employer's system, leaving you the additional space for an iDeCo Contribution of Y12,000 per month.
If your Employer provided Pension Plan(s) were using all of the available Tax Free Benefit, then you woyuld not be permitted to contribute to iDeCo at all.

People in Shigaku Kyosai are also paying Kousei Nenkin, split 50/50 with their employer, and the additional Shigaku Kyosai Mutual Aid Pension Contributions, again Tax Free, leaving them the additional space for an iDeCo Contribution of Y12,000 per month. I understand this will increase next year to Y20,000 per month. I haven't looked at the details.

Now, if iDeCo is deducted directly from your Paycheck, the employer will adjust Withholding Tax to reflect the fact that iDeCo, along with National Pension, Health Insurance, Nursing Insurance, Unemployment Insurance and other payments are withdrawn before tax, and you will only be taxed at the National Level on the residual income after the tax free payments have been removed.

If the iDeCo payments are paid by you from your bank account, the employer does not know about those payments or the amounts, and so cannot adjust your Withholding Tax until you provide the Postcard at the Year-End Adjustment - Nenmatsu Chousei, so when they do get that information, they can refund the excess tax withheld through the year, or you can file for the Refund at Kakutei Shinkoku.

You also receive a benefit in Reduced Residents' Taxes in the following year, as your Taxable income is reduced by the Deduction of the Tax Free Pension Contributions and other Insurance Payments.

You are receiving those tax benefits, just in the form of reduced taxes in each paycheck, rather than in a lump sum refund for Withholding Tax over-paid through the year.

The Tax benefit for a Y12,000 per month iDeCo is as calculated above depending on your marginal National Income Tax Rate, plus an additional 10% Residents taxes on the Pre-Tax amount, which I didn't include above.

I think we are so lucky on this forum to have so many followers who are so knowledgeable about Japanese finances especially the pension system, I don't even think the Japanese pension office know all this. The Retire Japan Forum really is a step up in terms of content with personal finance, even compared to other personal finance forums.

[TokyoWart]

If you are employed full time, then the Pension Contribution for National Kousei Nenkin is 18.3% of your Gross Salary, 9.15% paid by you and deducted from your paycheck before Tax and the other 9.15% paid directly by your employer, again before tax, but it doesn't show up on your payslip.

Isn't this capped? When I look at my 厚生年金保険 deduction it is 59,475 yen, hasn't changed with my salary and comes out quite a bit below 9.15%.

[beanhead]

Isn't this capped? When I look at my 厚生年金保険 deduction it is 59,475 yen, hasn't changed with my salary and comes out quite a bit below 9.15%.

Yes. Correct. Someone on a 100M salary would also pay that 59,475 per month.

[Tkydon]

Yes, capped.

I forgot to mention that, but unable to edit posts now...

https://www.nenkin.go.jp/service/kounen ... yogaku.pdf

https://www.pmac.shigaku.go.jp/en/about ... 202409.pdf

[Bubblegun]

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

A lot of English language schools didn't use to. They classified all native teachers as part-time workers.

At that time, someone paying in 24 years into nenkin would get nothing in return. So, if you were in your 20s and were faced with this situation, you would probably have also agreed that this whole Japanese pension thing was a bit of a scam that you should avoid.

That was the exact mathematical conundrum most of the people I worked with were in.

Roger Van Zant » Mon Nov 11, 2024 4:44 pm

This can't be right. I am also on track to pay in "only" 30 years out of the maximum 40, but I will still get a pension of about 117,000 yen per month in retirement.

That's a nice little sum! Would there also be a taishokukin? a Lump sum on retirement?

I think it shows the difference between contract hours worked if employers contribute. v other teachers with a contract under 28 hours and are expected to fund 16,800 a month by themselves. This was well before the world of IDECO and 250,000 yen a month won't stretch far. But more importantly, it showed how the Japanese government thought of people who work part-time. Especially immigrants! ( this was 20-odd years ago) I suppose we were expected to leave. But after paying 20 years of pension, the government wasn't going to pay anything, and they were only going to give you three years cash back. This is also compounded by a lack of education on the new immigrant. Language barriers, illiteracy, a lack of awareness, and the assumption it's probably the same as back home. If we ask a company to enroll us into the other pension systems, the company will suddenly not renew that contract just before we get those employment rights. I can see in the future, some very young immigrants who come to work here may live a retirement life of poverty as employers use the present legislation to reduce costs.
However,We can see the numbers above, as employers pay half again into the staff pension. That's a 9% free contribution each month over 20, 30 years that many may never receive. At 16,000 yen a month ( just employer's contribution) over 30 years. at 6% growth is nearly 15 million yen a future pensioner is NOT GETTING.