Kojin Nenkin (private individual pension)

[Gareth]

Had a meeting today with a Nissay salesperson for Kojin Nenkin. Thought I would tell you what I found out.

In a previous post, I mixed up Kojin Nenkin (a private individual pension) and Nenkin Kikin (translated not so usefully as National Pension Fund).

Kojin Nenkin is a pension policy sold by insurance companies like Nissay. It is available to anyone, regardless of being self-employed, a full time company worker, a spouse, government employee etc.

At the time of joining, you need to choose:
1. a monthly payment
2. when you stop paying.
3. who your heir is.

1. The minimum you can pay is 10,000 a month but there is no maximum. You can pay by credit card monthly and can pay a year off at a time too. Once you decide the amount, you can't increase it. If you want to increase it, you need to buy a second policy. But you could decrease it if needs be. And if money gets very tight, you could stop paying altogether when you have hit a total of 100man paid in and keep the money there until you retire. You can miss up to two payments in a row without any penalties.You can also cash out with penalties depending on how far into the policy you are.

2. The point to stop paying caused some confusion as stopping paying at 65 means your last payment is in the last month of you being 65, i.e. just before your 66th birthday. (Is this the same for Kokumin Nenkin? Does stopping payments at 65 mean you stop paying essentially the day before you are 65 or the final day of being 65, one day before turning 66?) You can choose to stop at any age between 55 and 75. You can't extend this once you reach the age you decide, but you could buy another policy if you wanted to.

3. You can change your heir whenever you want. Don't know how that would work if someone got power of attorney but wouldn't be my problem by that time.

Once you get to the age you have chosen to stop paying at, you then need to make a decision about what to do with the money. The first decision is whether to start taking the money immediately or you can delay getting it. Delaying getting it means you can get a bit more, just like with the state pension.

Once you have decided to start taking the money, you can chose to receive the money as a lump sum or spread between five, ten or fifteen years. There is also another option, ten years + forever, which means you can receive money forever, but your heir would only receive something if you died in those ten years.

If you die at any point during the payment part, your heir gets the money, the percentage of which depends on how far you are through the policy. Similarly, if you die during the payment period, your heir gets what's left.

Other points:
It's sold by big insurance companies that are insured if they go bankrupt. So it seems there is pretty much no chance of the money being lost.
You can also take a loan from the amount you have paid in if you need to.
You can keep paying in by credit card if you move abroad.
However, when you receive the money, it can only be paid into a Japanese bank account.
You can also reduce income taxes by up to 40,000 a year and residence tax by up to 28,000. This goes on your tax form in a different place to any iDeCo, Nenkin Kikin, Fuki Nenkin or Kokumin Nenkin. The amount you pay has no bearing on the 68,000 yen a month maximum contribution for self-employed people.
Doing any other type of pension product, iDeCo, Fuki Nenkin etc has no bearing on doing this policy at all. I even think you can do this policy if you aren't paying the Japanese state pension at all.
There are no joining fees or monthly fees.

So how much will you get?

I'm currently a month before I'm 41 so this example is for paying for 25 full years, i.e. 300 months, to finish the month before I turn 66 (called stopping paying at 65 on the policy)

Pay 20,741 a month for a total of 6,222,300

Take the lump sum immediately:
Minimum 101.6% giving 6,320,000
Those whose policies matured this year got 110.3%. This percentage will change each year depending on what dividend the company pays, i.e. how successful it was. This works out at 6,860,000

Take the money immediately spread over ten years:
Minimum 104.4% giving 6,500,000 in total or 650,000 per year
Those whose policies matured this year got 117.5%. Again, this percentage will change each year depending on what dividend the company pays, i.e. how successful it was. This works out at 7,310,000 in total or 731,000 per year.

If I delay taking the money, the yearly payment will go up by 10,800 for each year I withhold based on taking the money over ten years, so if I delay for five years (the maximum allowed), I would get a minimum of 704,000 per year (an increase of 5x10800 from the minimum of 650,000 above).


So what do you think? Is this a good policy? I'm planning to play with some scenarios over the next few days based on the variables to see what would work best for me. Am thinking of doing this in addition to a combination of iDeCo and Nenkin Kikin (but iDeCo vs Kikin is another discussion).

Any thoughts massively appreciated. Cheers.

[Kanto]

Thank you for the details!

It seems that iDeCo is the clear winner here.

In addition, I do not see any advantage to this type of plan.

Wouldn`t a term life insurance policy + Index funds in your iDeco/NISA/Taxable be a better option long term?

Is this a straight annuity or is it a closed-end fund type scheme?

[Gareth]

I’m not thinking iDeCo OR Kojin Nenkin, I’m thinking iDeCo PLUS Kojin Nenkin

[Kanto]

I’m not thinking iDeCo OR Kojin Nenkin, I’m thinking iDeCo PLUS Kojin Nenkin

Sorry, I edited my comment.

Is this a straight annuity or is it a closed-end fund type scheme?

[Gareth]

Is this a straight annuity or is it a closed-end fund type scheme?


Sorry, I don't quite get what you're asking...

[RetireJapan]

So how much will you get?

I'm currently a month before I'm 41 so this example is for paying for 25 full years, i.e. 300 months, to finish the month before I turn 66 (called stopping paying at 65 on the policy)

Pay 20,741 a month for a total of 6,222,300

Take the lump sum immediately:
Minimum 101.6% giving 6,320,000
Those whose policies matured this year got 110.3%. This percentage will change each year depending on what dividend the company pays, i.e. how successful it was. This works out at 6,860,000

Take the money immediately spread over ten years:
Minimum 104.4% giving 6,500,000 in total or 650,000 per year
Those whose policies matured this year got 117.5%. Again, this percentage will change each year depending on what dividend the company pays, i.e. how successful it was. This works out at 7,310,000 in total or 731,000 per year.

If I delay taking the money, the yearly payment will go up by 10,800 for each year I withhold based on taking the money over ten years, so if I delay for five years (the maximum allowed), I would get a minimum of 704,000 per year (an increase of 5x10800 from the minimum of 650,000 above).


So what do you think? Is this a good policy? I'm planning to play with some scenarios over the next few days based on the variables to see what would work best for me. Am thinking of doing this in addition to a combination of iDeCo and Nenkin Kikin (but iDeCo vs Kikin is another discussion).

Any thoughts massively appreciated. Cheers.

I'm sorry I haven't gotten round to writing my nenkin kikin article yet, but I think for non-US citizens who are not terrified of the stock market iDeCo is far better.

As for private pensions, you are looking at a return of 101.6% to 117.5%, ie 6.3m to 7.3m. This is regardless of inflation, I take it?

If you put the same money into the stock market and get a 2% return (terrible by historical standards) you would end up with 7,972,085
With a 5% return (also low historically), you would end up with 11,878,893
With a 7% return (average), you would end up with 15,742,179
With a 9% return (good), you would end up with 21,081,375

Plus you would have full control of the money, it wouldn't be locked up with redemption penalties, etc.

The only way kojin nenkin makes sense to me is for diversification purposes, ie you already have significant investments in the stock market and you want to offset them with something solid that is guaranteed and has a slight tax benefit despite the poor projected returns.

[RetireJapan]

If you invest the money in tsumitate NISA any gains would be completely tax-free as well.

[Kanto]

Is this a straight annuity or is it a closed-end fund type scheme?


Sorry, I don't quite get what you're asking...

It seems to be an annuity, basically, you agree to lock your money away for a guaranteed return.

I would not recommend this type of product. As stated, iDeco and Tsumitate NISA are better options. Beyond that, investment in a diversified equities fund and bond fund in yourr Taxable Account would be a much better option and guarantee high returns over a long time horizon.

The other reason to go with this type of annuity is if you fear investing in stocks and bonds.

And if your time horizon is 20 years +, and this is long term savings, there is no reason to consider this IMO.

[Gareth]

If you put the same money into the stock market and get a 2% return (terrible by historical standards) you would end up with 7,972,085
With a 5% return (also low historically), you would end up with 11,878,893
With a 7% return (average), you would end up with 15,742,179
With a 9% return (good), you would end up with 21,081,375

Sorry I don't understand how you calculated those numbers... Could you please show how you calculated that?

I am thinking of this in addition to doing iDeCo (perhaps with kikin) and eventually NISA. But certainly not instead of them.

You asked about inflation. Yeah I guess it would be regardless of inflation but would presume the dividend would rise with inflation?

[RetireJapan]

Sorry I don't understand how you calculated those numbers... Could you please show how you calculated that?

I am thinking of this in addition to doing iDeCo (perhaps with kikin) and eventually NISA. But certainly not instead of them.

You asked about inflation. Yeah I guess it would be regardless of inflation but would presume the dividend would rise with inflation?

That is the question: is this pension index-linked (ie it will go up with inflation). If not, it is even worse as you are looking at a guaranteed loss over time.

The numbers are just from plugging the monthly investment and % return into a compound interest calculator like this one: https://www.investor.gov/financial-tool ... calculator