If you live in Japan, you’ve likely been paying into Japan’s pension system. Like any other country’s Japanese pension system is intended to give people a degree of financial security when they have reached the age of retirement. But what happens if you leave Japan and retire in another country? Although any pension isn’t enough to rely on for financial security, you don’t want to lose the money you’ve paid over your years living abroad…
Japan’s Pension System: How it Works
The Japanese pension system consists of two main components: the National Pension System (“Kokumin Nenkin”) and the Employees’ Pension Insurance System (“Kosei Nenkin” or “Kyosai Nenkin”). The National Pension System is compulsory for all registered residents of Japan aged 20 to 59 years who are not covered by the Employees’ Pension Insurance System. The Employees’ Pension Insurance System is primarily for individuals employed by private-sector or government organizations.
Under the National Pension System, individuals need to pay a monthly insurance premium or contribution of ¥16,520 (as of the fiscal year 2023) directly to the Japan Pension Service Office or the local government office. The payment notices are sent to individuals, and they have the option to pay at banks, post offices, or convenience stores. Discounts are available for advance payments, automatic bank remittance, or credit card payments.
The National Pension System has three categories of insured persons:
- -Category I: This includes all registered residents of Japan aged 20 to 59 years who are not covered by Category II or III. It encompasses various groups such as agriculture, forestry, or fishery business operators, self-employed persons, and students.
- -Category II: These are individuals enrolled in the Employees’ Pension Insurance System or Mutual Aid Associations, excluding those aged 65 to 69 years who are eligible to receive a pension due to old age or retirement.
- -Category III: These are dependent spouses aged 20 to 59 years of Category II insured persons who reside in Japan. There are exceptional cases where individuals without an address in Japan can enroll as Category III insured persons, such as students studying abroad or family members accompanying a worker detached to work in a foreign country.
Voluntary coverage is available for certain groups, including registered residents of Japan aged 60 to 64 years, Japanese citizens aged 20 to 64 years residing in a foreign country, and persons aged 65 to 69 years who have not satisfied the minimum qualification period. However, foreign nationals with specific visas (medical stay or long stay for sightseeing) are generally excluded from coverage under the National Pension System and cannot apply for voluntary coverage.
The pensionable age for receiving the Old-Age Pension varies depending on the pension system. Under the National Pension System, individuals who satisfy the contribution requirements can receive the Old-Age Pension from their pensionable age to 65. For the Employees’ Pension Insurance System, the pensionable age is 60 to 64 years for individuals born before a certain year.
To qualify for the Old-Age Pension, individuals need to have enrolled pension periods of 10 years or more. Previously, the requirement was 25 years, but a new mini-pension was created for those with 10 years of qualifying contributions through a law amendment in August 2017.
The benefits and payment amounts vary depending on the pension system and an individual’s contribution history. Individuals who have been in Japan for less than five years may be eligible for a lump sum withdrawal of the contributions made over the past three years, subject to certain conditions.
Those who have contributed for more than 10 years typically need to wait until they reach the pension age of 65 to start receiving benefits. However, many foreign residents of Japan don’t plan on staying there forever. What if you want to retire in another country?
What Happens To Your Pension If You Leave Japan?
Although many former Japan residents have lost a lot of money to the country’s pension system, this doesn’t have to be you. You may not be able to claim all of the money you’ve paid, but you don’t have to walk away with nothing. Foreign residents leaving Japan have two options when it comes to claiming their pension payments upon leaving the country. The first of these options is to cash out your payments.
How To Cash Out Your Japanese Pension Funds
It’s important to note that choosing to withdraw your pension funds requires that you give up your residency in Japan. You should also be aware that Japan has bilateral social security agreements with certain countries. If you choose to take a lump sum withdrawal, you may lose the transferable benefits that contribute toward pension benefits in a member country.
In addition, there are limits to how much you may have refunded to you. As such, it’s important to assess all of your options with your financial adviser before making a decision. If you do decide to cash out your Japanese pension, you can follow the following steps to do so:
- Step 1: Visit the Pensions Office (Nenkin Kikou) before leaving Japan to confirm your current accrued balance and estimated withdrawal eligibility. It is advisable to obtain a new Pension Book if the original one is lost.
- Step 2: Obtain a Lump Sum Withdrawal Form from the City or Ward Office where you are registered as a resident. The form can also be downloaded from the official website of your ward or city office.
- Step 3: Submit the completed application form, a copy of your passport (data page only), and the Pension Book from your new country of residence (if available) along with the application. If you don’t have the Pension Book, you should at least know and include your pension number.
- Step 4: Send the documents to the following address:
- Social Insurance Operation Center
- Takaido-nishi 3-5-24, Suginami-ku,
- Tokyo 168-8505, Japan
- Tel: 03-6700-1165 (in Japanese only)
- Step 5: Approximately four months later, the refunded money will be deposited into your specified bank account. It may be subject to a 20% withholding tax. In some cases, you may be able to reclaim this tax deduction by employing a professional Japanese tax representative. However, it is recommended to carefully evaluate the potential gains from reclaiming the deduction against the cost of employing a tax representative.
- Note: If you have already left Japan and want to get your pension money back, you will need someone in Japan to act as your tax representative and submit the necessary documents on your behalf.
To ensure a smooth process and avoid any complications, make sure to update your address information (“juumin touroku”) before leaving Japan. Failure to do so may result in being unable to claim a rebate until after the expiration of your special re-entry permit, which is five years.
As mentioned, there are a few drawbacks to taking the lump-sum refund of your pension payments. If your country has an equalization agreement with Japan, you may find that this system may offer you greater benefits overall.
How To Receive Your Japanese Pension Benefits Through An Equalization Agreement System
Equalization agreements between countries aim to protect those who work abroad for a limited time from losing their social security payments to their country of residence upon leaving. If your country has such an agreement with Japan, you can collect the social security benefits you have earned in both your home and host countries from only one government when you become eligible.
How and when you can receive pension benefits through the equalization agreement will depend on the specifics of your home country’s agreement with Japan. A financial adviser with expertise in equalization agreements will help you understand the particulars of the relevant agreement. Some of the factors you should consult with your adviser about include:
- -Retirement Benefit Eligibility: How long do you need to have contributed to Japan’s pension system to meet eligibility requirements? Does your country’s equalization agreement allow combining coverage periods between the home and host countries to meet eligibility requirements?
- -Partial Benefits: If you do not meet the eligibility requirements for benefits in either Japan or your home country individually, does your country’s equalisation agreement enable you to combine the coverage periods and receive a partial benefit based on the proportion of your total career completed in Japan?
- -Employer Considerations: If working on an international assignment with a company from your home country, has your employer taken into account the equalisation agreements between Japan and your home country? Have you been subject to dual contributions and benefit ineligibility, impacting your employer’s costs and your entitlements as an employee?
As you can see, navigating an equalisation agreement to receive your Japanese pension funds can be a complex process involving many considerations. Although it can mean maximising your wealth more than the cash-out method, misunderstanding in the process could cause you to lose your benefits.
Working With An Experienced Professional Adviser In Japan
A financial adviser specialised in international financial planning can provide valuable guidance on receiving your Japanese pension funds. An experienced professional will understand the specific rules and regulations surrounding pension benefits, tax implications, and cross-border wealth management. They can help you understand your options for withdrawing or transferring your pension funds and assist you in navigating equalisation agreements with your home country.
Working with a financial adviser can mean establishing a comprehensive financial plan to safeguard your wealth and ensure a smooth transition when leaving Japan. Don’t hesitate to get the help you need to make informed decisions, maximise your pension benefits, and establish a solid financial foundation for the future.