Japanese Pension System: A Guide for Foreigners

Understanding the intricacies of pension plans in the countries you reside in can be challenging for expats living abroad, and Japan is no exception. With this in mind, we’ve put together this brief guide to make this topic a bit less confusing for those who live and work in Japan either for a short or long period.

Types of Pensions in the Japanese Pension System

The pension system in Japan can be divided into two parts, both of which are collectively known as the Public Pension System:

• The National Pension System: This is a compulsory premium levied on all persons who have a “jusho” (residency) in Japan regardless of nationality and are between the ages of 20 and 59. The fixed monthly contribution for the National Pension System is ¥16,610.
• The Employees’ Pension Insurance (EPI) System: If you are a full-time employee, you will likely be enrolled in the Employees’ Pension Insurance System. In this system, both the employer and the employee pay half of the contributions. The contribution amount is not fixed and depends on the employee’s salary. The more you earn, the higher the contributions your company and you will have to make.

Different Forms of Pensions Available to Eligible Foreigners

In addition to providing retirement income, the Japanese Pension System also offers the following two benefits:

• Disability Pension: Where the expat receives a certain amount of money in case of disability.
• Survivor’s Pension: Where the family of an expat will receive a certain amount of money if the expat passes away.

Is the Japanese Pension System Compulsory for Foreigners?

The answer to this question is quite simple: yes. In Japan, it is mandatory for all people who reside in the country between the ages of 20 and 59 to join the pension system.

How Much Do You Have to Contribute as Pension and How Much Will You Get Back?

Contributions to the National Pension System are equal (¥16,610 per month) for everyone, regardless of income. Therefore, the pension benefit is also the same for everyone: ¥781,700 per year (as of 2022). Of course, this assumes you have contributed to this system for 40 years.

For the Employees’ Pension Insurance, on the other hand, the amount you and your company will contribute depends on your salary. Therefore, the amount you will receive after retirement will vary from person to person.

Calculating how much you will receive after retirement can be complicated when considering variables such as early retirement, late retirement, childcare, unemployment, or self-employment. However, the standard calculation is:

(0.55%) x (Average annual salary) x (Number of years employed)

To give you a rough idea of what you can expect, a person who worked for 40 years and had an average salary of ¥10 million during that time would qualify for an approximate annual pension of ¥3 million. The total pension is calculated in the table below.

Years of Contribution	Annual Pension
10	¥195,425
20	¥390,850
30	¥586,275
40	¥781,700

But How Much Will I Really Receive?

The big unknown is how much people who retire in the next two or three decades will receive. However, there is a general understanding within the Japanese population, both native and foreign, that the Japanese pension system will be able to sustain itself in the coming decades.

Like other national pension systems, the Japanese pension system operates hierarchically: the premium paid by the working-age population goes to the retired population. Therefore, it can be inferred that the Japanese pension system operates as a “financial intergenerational support mechanism.”

When we consider that Japan’s population has already peaked and is now in a steady decline, while at the same time the proportion of retired and elderly people continues to grow, we can see that the Japanese Pension System faces many challenges in the coming years, as it will likely struggle to maintain benefits.

It is likely that future retirees who are currently contributing to the system will not receive the same benefits as their older colleagues are receiving. Unfortunately, the common “solutions” to this problem are to increase the already high burden on contributors, raise the retirement age, reduce benefits, or print money.

You may want to think twice if you think the National Pension System will take care of your retirement needs. To ensure a comfortable retirement, you must make personal plans to supplement the government pension.

Pension Conditions in Japan

To qualify for pensions in Japan, you must be 65 years old and have paid Japanese national pension contributions for at least ten years. Failure to meet these conditions will result in non-payment of pension funds.

It is worth noting that the full basic pension benefit requires 40 years of contribution. However, if you have paid the national pension contribution for a minimum of 10 years, your pension benefits will be adjusted based on how long you have contributed.

How the Japanese Pension System Affects Foreigners

The truth is that many expats may be paying pension contributions in their home countries, making paying additional premiums a substantial financial burden. Additionally, most scenarios challenge expats to meet the eligibility criteria to receive their pensions. They might even leave before completing the ten years, which is the minimum number of contribution years required before receiving their pension funds.

To prevent expats from losing their pension benefits, the Japanese government has two structures in place, namely:

• The Social Security Agreement: This is a bilateral agreement between the Japanese government and the expat’s home country whereby the expat can combine their home country’s pension premium payment with Japan’s. This agreement is for an expat who will not stay in Japan for up to 10 years.
• The Lump-Sum Withdrawal System: An expat enrolled in the Japanese public pension system can withdraw a certain amount of the paid pension premium upon leaving Japan. An expat who wishes to apply for a lump-sum withdrawal must submit a lump-sum withdrawal application within two years of registering to leave Japan.

Japan has built a solid social safety net through its national pension plans and has served the country’s population well as Japan’s population grew. However, the viability of such programs will likely face difficult times with a shrinking and rapidly aging population. This means that individuals will have to take more responsibility for providing for themselves in retirement.

National pension systems are generally not advantageous for expat professionals who plan to live and work in different countries throughout their careers. Moving from country to country every few years makes it difficult, if not impossible, to qualify for any pension benefits in any country. Mobile professionals are generally compensated with higher incomes to offset these disadvantages.

Regardless of whether you plan to stay in Japan long enough to enjoy the full benefits of the Japanese pension or plan to move around, the reality is that no single national pension system is likely to cover all your retirement needs and allow you to have a happy and fulfilling life after work. Today, national pensions only guarantee that people are not completely destitute in their old age. Even so, you should not expect to live comfortably on just the pension system of any country.

It is each individual’s responsibility to secure their financial future. You should independently plan your happy and financially secure retirement, not relying solely on any national pension, but perhaps including it as part of the overall plan. This means having private retirement plans and investments to cover the likely significant gap.