Page 1 of 3
Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 2:45 am
by Tsumitate Wrestler
Over the last 6 months I have seen quite a few postings in expats groups where near-retirees or mid 50s folks are suddenly shocked by their pension forecasts. I have heard similar from other colleagues in the past.
"X had his own school and paid into to the system for 30 years and is only getting around 5万 a month!"
"My projected nenkin payment is only 80万 annually!"
"How can I budget retirement on nenkin+employee pension alone, why is it so low?"
It seems that a lot of people are under the misapprehension that paying into nenkin (or nenkin+employee pension), would unlock a fully funded retirement, worth well beyond the initial contributions. This belief seems shockingly common. Where does it come from? Is it based off of a misunderstanding of the fully funded company pensions that were more common 3-4 decades ago in the west?
It seems almost like many people seem to think Japan offers some sort of UBI upon retirement, and are completely unprepared for the reality. Pension in Japan are more like a "savings scheme".
Re: Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 11:37 am
by RetireJapan
This is the main reason RetireJapan exists.
I run into it all the time (with both Japanese and non-Japanese people). In my opinion it is the mirror image of the 'government pensions are a scam/ponzi scheme and you are just wasting money by paying into them' people.
Both stem from ignorance and a refusal to look at the numbers.
Re: Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 11:44 am
by adamu
RetireJapan wrote: ↑Thu Apr 04, 2024 11:37 am
This is the main reason RetireJapan exists.
I thought RJ exists because you were angry at people getting taken for a ride by unlicensed offshore insurance salesmen?
Re: Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 1:30 pm
by RetireJapan
adamu wrote: ↑Thu Apr 04, 2024 11:44 am
RetireJapan wrote: ↑Thu Apr 04, 2024 11:37 am
This is the main reason RetireJapan exists.
I thought RJ exists because you were angry at people getting taken for a ride by unlicensed offshore insurance salesmen?
Same thing. People not understanding personal finance = misery and poor quality of life
My friend getting arguably ripped off was just the catalyst
Re: Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 1:52 pm
by sutebayashi
Tsumitate Wrestler wrote: ↑Thu Apr 04, 2024 2:45 am
Pension in Japan are more like a "savings scheme".
The systems are a bit complex, that might be part of it.
I might be wrong in my understanding of some aspects, but I have always thought of the core system being funded by taxation. Many countries have these pay-as-you-go style systems where the current workers support the retirees.
It’s not like we are paying those taxes into a personal account (is it?), it’s just a system that promises us that future taxpayers will be paying our pensions.
Except, there are individualized parts like DCs, iDeCos. That is at least personalized, and better than plain savings.
I have never planned to rely on the tax funded part of the pension scheme, viewing it as unsustainable - demographically I can’t see it being a solid system. But as a salaryman it’s just tax like all the rest to me. “Social insurance premiums” are taxes!
Re: Why is there so much confusion around pensions?
Posted: Thu Apr 04, 2024 11:45 pm
by RetireJapan
sutebayashi wrote: ↑Thu Apr 04, 2024 1:52 pm
Tsumitate Wrestler wrote: ↑Thu Apr 04, 2024 2:45 am
Pension in Japan are more like a "savings scheme".
The systems are a bit complex, that might be part of it.
I might be wrong in my understanding of some aspects, but I have always thought of the core system being funded by taxation. Many countries have these pay-as-you-go style systems where the current workers support the retirees.
It’s not like we are paying those taxes into a personal account (is it?), it’s just a system that promises us that future taxpayers will be paying our pensions.
Except, there are individualized parts like DCs, iDeCos. That is at least personalized, and better than plain savings.
I have never planned to rely on the tax funded part of the pension scheme, viewing it as unsustainable - demographically I can’t see it being a solid system. But as a salaryman it’s just tax like all the rest to me. “Social insurance premiums” are taxes!
The government pension fund changes this a bit I think.
Re: Why is there so much confusion around pensions?
Posted: Fri Apr 05, 2024 12:35 am
by Tsumitate Wrestler
RetireJapan wrote: ↑Thu Apr 04, 2024 11:45 pm
sutebayashi wrote: ↑Thu Apr 04, 2024 1:52 pm
Tsumitate Wrestler wrote: ↑Thu Apr 04, 2024 2:45 am
Pension in Japan are more like a "savings scheme".
The systems are a bit complex, that might be part of it.
I might be wrong in my understanding of some aspects, but I have always thought of the core system being funded by taxation. Many countries have these pay-as-you-go style systems where the current workers support the retirees.
It’s not like we are paying those taxes into a personal account (is it?), it’s just a system that promises us that future taxpayers will be paying our pensions.
Except, there are individualized parts like DCs, iDeCos. That is at least personalized, and better than plain savings.
I have never planned to rely on the tax funded part of the pension scheme, viewing it as unsustainable - demographically I can’t see it being a solid system. But as a salaryman it’s just tax like all the rest to me. “Social insurance premiums” are taxes!
The government pension fund changes this a bit I think.
Caveats.....
Floor 2 (Employee pension) is jointly paid by employer and employee
DC (Corporate iDeco) is often partially funded by employers
Both floor 1 (nenkin) and floor 2 (employee pension) are supported by the GPIF, the largest pension investment scheme in the world. (The government invests a portion of everyone's pension funds to grow the pot).
Am I missing anything else?
Re: Why is there so much confusion around pensions?
Posted: Fri Apr 05, 2024 2:36 am
by Deep Blue
RetireJapan wrote: ↑Thu Apr 04, 2024 11:45 pm
The government pension fund changes this a bit I think.
Have you seen any numbers around this?
From someone posted previously - to my surprise - the UK was in a much less bad (I struggle to use the word better in this context) position than Japan when it came to future Government pension payments.
Re: Why is there so much confusion around pensions?
Posted: Fri Apr 05, 2024 2:52 am
by Tsumitate Wrestler
Deep Blue wrote: ↑Fri Apr 05, 2024 2:36 am
RetireJapan wrote: ↑Thu Apr 04, 2024 11:45 pm
The government pension fund changes this a bit I think.
Have you seen any numbers around this?
From someone posted previously - to my surprise - the UK was in a much less bad (I struggle to use the word better in this context) position than Japan when it came to future Government pension payments.
https://www.oecd.org/publications/oecd- ... 991363.htm
Scroll down and select Japan. Pg 6 gives you 2065 projections as well.
Re: Why is there so much confusion around pensions?
Posted: Fri Apr 05, 2024 3:51 am
by Deep Blue
Mercer have done some work on pension funds and rank the UK much more highly than Japan
https://www.mercer.com/insights/investm ... ion-index/
Japan is rated C on a scale or A to E.
Japan scores particularly poorly on sustainability (D).
