Japan’s pension system is far from ideal. However, as anyone who has lived in Japan knows, all residents are required to contribute to the system for as long as they live in Japan. This requirement at least guarantees contributors a certain amount of retirement income. But what if you decide to leave Japan before you are eligible to receive pension payouts? Fortunately, you can turn to the Japanese pension lump-sum option.
Japanese Pension Basics
The Japanese pension system includes the National Pension System and the Employees’ Pension Insurance System. Both systems are mandatory for all residents aged 20-59, including foreign residents of Japan. Here are the key points for each:
National Pension System: The National Pension System requires a fixed monthly contribution of ¥16,610 and has three categories of the insured:
- Category I: Includes self-employed, students, and those not in the next two categories.
- Category II: Employees, particularly those enrolled in the Employee’s Pension Insurance System.
- Category III: Dependent spouses of Category II individuals.
- The annual benefit as of 2023 is ¥795,000 (assuming 40 years of contribution).
- Employees’ Pension Insurance System: The Employees’ Pension Insurance System is designed for full-time employees, with contributions split between the employer and employee based on the employee’s salary. The Employees’ Pension benefits are calculated as 0.55% of one’s average annual salary multiplied by years of employment.
Benefits also include disability and survivor’s pensions. To be eligible for pensions, one must be 65 and have contributed for a minimum of 10 years. The full benefit requires 40 years of contribution.
Eligibility For The Japanese Pension Lump-Sum Refunds For Foreigners:
Many expatriates face challenges meeting the criteria for pensions and might depart Japan before the minimum necessary ten years. However, the lump-sum withdrawal option allows foreign nationals to withdraw their Japanese pension benefits early if they are leaving Japan.
To qualify for a lump-sum pension withdrawal, you must not be a Japanese citizen, have contributed to the National Pension or Employee Pension Insurance for over six months, not have an address in Japan, and have never received any pension payout, including disability allowances.
If you’ve paid premiums for ten years or more (qualifying for the old-age pension) and then opt for the lump-sum withdrawal, your previous contributions will no longer count towards your pension enrollment period.
How to Claim a Lump-Sum Pension Refund:
- Step 1 – Submit a Moving-Out Notice: Before anything else, download and submit a moving-out notice (転出届 = tenshyutsu todoke) to your municipal office.
- Step 2 – Fill Out a Lump-Sum Withdrawal Claim: Get your hands on the Lump-sum Withdrawal Payment Claim Form (脱退一時金請求書 = dattai ichi ji kin seikyū sho) either from a social insurance office or the Japan Pension Service website.
- Step 3 – Mail In Documentation: Once the form is filled, you’ll need to mail it with supporting documents including a photocopy of your passport, your National Pension Handbook or Pension Number documents, bank details, and if you haven’t submitted a moving-out notice, proof that you no longer reside in Japan.
Mail everything to the designated address for the Japan Pension Service. The processing time is around 3 to 6 months. After approval, you’ll receive a Payment of the Lump-sum Withdrawal Payment notice, and the funds will be transferred to your bank.
Upon withdrawal, you’ll initially receive 80% of your total pension as there’s a 20% income tax withheld. But fret not, this tax is reclaimable since you won’t be subject to income tax in Japan anymore. To retrieve it, you’ll need to follow the steps below:
- Step 1 – Keep the Original Notification: Once you receive your lump-sum withdrawal, ensure you have the original copy of the notification, as it’s essential for your tax refund.
- Step 2 – Appoint a Tax Representative: Use the appropriate form to designate your tax representative in Japan, and also complete other necessary tax return documents.
- Step 3 – Send Documents to Tax Representative: Mail your tax forms, the original notification of withdrawal, and the tax representative form to your chosen representative. They’ll then submit everything to the appropriate tax office.
- Step 4 – Collect Your Refund: After processing, a tax refund notice will be sent to your representative’s address, and the refund will soon follow to their bank account. They can then transfer this to your overseas bank account.
What About Withdrawing Money From iDeco?
iDeco stands for the Individual-type Defined Contribution (Pension Plan). It’s a private Japanese pension system based on the Defined Contribution Pension Act. Unlike obligatory public pensions, enrollment in iDeco is entirely optional, allowing participants to apply, make contributions, and select their preferred investment approach.
Both iDeco and the National Pension System are designed to provide financial support during retirement, but they differ in terms of flexibility, contribution rates, and benefits. While the National Pension System provides a structured and uniform approach, iDeco offers individuals more autonomy in planning for their retirement.
Anyone between the ages of 20 and 65 can enroll in the iDeco plan, and fortunately, the iDeco pension offers the option of lump-sum withdrawals as soon as contributors are eligible to receive benefits. This is typically at the age of 60; however, you must have been enrolled in iDeCo for at least 10 years. If you begin contributing to iDeco after the age of 50, your eligible age to receive benefits will be adjusted accordingly.
How A Professional Adviser Can Help You Plan For Retirement In Japan
Navigating Japanese pension options can be a complex process – especially if you don’t speak Japanese. A financial adviser can provide invaluable assistance by helping you navigate the intricacies of the Japanese pension system and your withdrawal. What’s more, a financial adviser can act as your tax representative, making sure that you not only successfully receive your pension withdrawals, but also your tax refund.
An experienced, English-speaking financial planner will have a comprehensive understanding of the National Pension Scheme, Employee Pension Insurance System, and iDeco pension options. This means they can offer tailored advice on contribution amounts, potential tax exemptions, and strategic approaches to maximizing benefits.
Remember, no pension system is a complete retirement plan. Whether you intend to retire in Japan or relocate to another country, you need a comprehensive savings and investment strategy to ensure a comfortable retirement. Tyton Capital advisers are well-versed in international financial solutions and can provide you with a personalized plan to fit your individual needs. Don’t leave your golden years to chance – set up your retirement strategy today to gain peace of mind for years to come.
