Pension savings and tax
Posted: Sun Jul 10, 2022 10:38 am
HI all,
In many countries you can add to your pension savings during your working years and deduct these pension savings from the taxable income of these years. Of course, you have to pay tax on the pension payments, when you start taking them. However, usually a big benefit can be realized, because the tax deductions often happen at a high(er) tax rate and the pension payments tend get taxed at a lower rate (assuming taxable income is lower after retirement). Even if you have no investment income or gain on your pension savings, the tax differential is the big benefit.
I am struggling to understand the real big value of e.g. NISA is, as there is nothing to deduct from your current taxable income, only the potential gains are tax free. Ideco does tend to provide a benefit based on the tax differential, but the amounts of money you can pay into these schemes tends to be rather small. I have only be in Japan for 11 years and have 2 years to go to retirement, but even if you use things like NISA and Ideco your whole (working) live, it may still be a struggle to close your 60-65 pension gap and/or try to supplement your 厚生年金.
Maybe I am just not getting it, but is there really no more interesting option for tax-friendly pension savings in Japan?
In many countries you can add to your pension savings during your working years and deduct these pension savings from the taxable income of these years. Of course, you have to pay tax on the pension payments, when you start taking them. However, usually a big benefit can be realized, because the tax deductions often happen at a high(er) tax rate and the pension payments tend get taxed at a lower rate (assuming taxable income is lower after retirement). Even if you have no investment income or gain on your pension savings, the tax differential is the big benefit.
I am struggling to understand the real big value of e.g. NISA is, as there is nothing to deduct from your current taxable income, only the potential gains are tax free. Ideco does tend to provide a benefit based on the tax differential, but the amounts of money you can pay into these schemes tends to be rather small. I have only be in Japan for 11 years and have 2 years to go to retirement, but even if you use things like NISA and Ideco your whole (working) live, it may still be a struggle to close your 60-65 pension gap and/or try to supplement your 厚生年金.
Maybe I am just not getting it, but is there really no more interesting option for tax-friendly pension savings in Japan?