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Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 1:55 am
by Viralriver
So to start this off, let me be clear that I am not using iDeCo, but rather a company-paid contribution plan. They put in 51,000 JPY per month. My maximum contribution is 4,000 JPY to hit the legal limit of 55,000 JPY. Based on what everyone everywhere has ever said, I decided to maximise my contribution to get the tax savings. So I increased my contribution from 0 -> 4,000 JPY.
I keep a very close look at my payslips (since I'm a very paranoid person
). My next month's payslip had a reduction in net pay by 2,650 JPY. This seemed great at first - I essentially paid 2,650 JPY to put an additional 4,000 JPY into my DC plan... or so I thought.
Next month's pay check comes in, and my net pay has decreased by a further 1,815 JPY!!! This is a total deduction of 4,465 JPY. I'm now paying 4,465 JPY to have 4,000 JPY put into my DC plan.
So why the additional deduction? My standard welfare payment increased from 56,730 JPY to 59,475 JPY. This is in line with
this document. Essentially due to my additional DC payments my welfare band was pushed up. I'm essentially 'being punished' for contributing more by being forced to contribute even more to the standard welfare system.
As far as I can see, there is no benefit for me to continue contributing this amount, so I won't. But maybe a good PSA for those of you who are making individual contributions to check your payslips and make sure it's worth it!
Re: Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 2:32 am
by adamu
Interesting.
How much tax would you have paid on the ¥4,465 had it not been deducted for your DC payment though? Probably more than ¥465.
Re: Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 2:59 am
by Viralriver
The values I listed were all post-tax (net amount) so overall I am losing money.
But the information about the bands were given to me by my employer when I asked for information as to why my welfare amount increased, but on reading it myself I feel like it's actually completely independent of my DC contribution. My law-level Japanese is not good enough to be for sure, but it seems that this was a nationwide change for welfare payments, and anyone above the 635k monthly renumeration was going to start paying more regardless. My DC plan if anything reduced my remuneration, so I can't see any reason why that alone would have caused it. I've circled back to my employer to see if they can expand and if my hunch is actually correct as there's doesn't make any sense in hindsight!
Re: Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 4:17 am
by mule96
I don't think you get punished for paying more. What happened is that your increase in the DC contribution happened at the same time when they introduced an additional tier for Nenkin that was introduced from September (first payment in October). If you have a income of more than 650,000 JPY per month you pay more Pension. Our HR announced this increase that, before this the ceiling for max pension contribution was 620,000 JPY (employee pay 56,730 JPY), now it is 650,000 JPY (employee pays 59,475). So I think you would have paid more anyway.
In general, contributions to iDeco, DC Plans etc don't lower your social security contributions, only your taxes.
Re: Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 4:46 am
by TokyoWart
Viralriver wrote: ↑Wed Oct 28, 2020 1:55 am
So to start this off, let me be clear that I am not using iDeCo, but rather a company-paid contribution plan. They put in 51,000 JPY per month. My maximum contribution is 4,000 JPY to hit the legal limit of 55,000 JPY. Based on what everyone everywhere has ever said, I decided to maximise my contribution to get the tax savings. So I increased my contribution from 0 -> 4,000 JPY.
I keep a very close look at my payslips (since I'm a very paranoid person
). My next month's payslip had a reduction in net pay by 2,650 JPY. This seemed great at first - I essentially paid 2,650 JPY to put an additional 4,000 JPY into my DC plan... or so I thought.
Next month's pay check comes in, and my net pay has decreased by a further 1,815 JPY!!! This is a total deduction of 4,465 JPY. I'm now paying 4,465 JPY to have 4,000 JPY put into my DC plan.
So why the additional deduction? My standard welfare payment increased from 56,730 JPY to 59,475 JPY. This is in line with
this document. Essentially due to my additional DC payments my welfare band was pushed up. I'm essentially 'being punished' for contributing more by being forced to contribute even more to the standard welfare system.
As far as I can see, there is no benefit for me to continue contributing this amount, so I won't. But maybe a good PSA for those of you who are making individual contributions to check your payslips and make sure it's worth it!
My welfare payment went up to 59,475 yen in October without any changes in contributions to any DC plans. I think it's just the latest increase in maximum payment.
Re: Paying extra into your DC fund is not always a good thing!
Posted: Wed Oct 28, 2020 4:57 am
by Viralriver
Got it - thanks! This was what I thought when I read the website, but different to what my employer had informed me. Actually, even my payslip states "Your welfare payment has increased due to a change in monthly remuneration". I guess this was an automated message and got confused since they both happened at the same time.
On a similar note, is there any good resource to see how much money I'll get from my pension scheme in Japan? I assume it will be considerably less than what I'm paying in, but would like to know for investing purposes!