Japan making expats live up to the letter of a rule

Japan Times column by Jenny Uechi

Starting in April 2010, Japan will require visa renewers to provide evidence that they have been paying into the country’s pension and health insurance programs.

Up to now, apparently, people who renew their visas in this country have been able to skirt the rules about social insurance programs. I myself, as a goody-goody, have always paid up. (Or at least kept the small arrearage within the rule!)

I blogged about this two or three years ago. Japan has a program of social insurance called “Kokumin Nenkin” (National Insurance). There is another program for salaried employees that runs parallel, but I’ll leave that out for simplicity.

Kokumin Nenkin got underway sometime in the 1960’s or ’70’s to provide a basic level of pension to retired people, in exchange for monthly premium payments.

The idea is you pay 480 installments between the age of 20 and the age of 60. Then, at age 65, the government here will send you a check of about $600 or $700 (US Dollar equivalent, you are getting the check in yen.)

Now the difference from U.S. social security is that this program is set up like an installment plan on an annuity from an insurance company. With those, you either make a lump sum payment or you pay in installments, for a “deferred annuity”. The insurance company promises to pay you back (usually for life, but also can be a term of years, like 10 years or 20 years).

Right now, the payment is 14,660 yen a month. (Let’s treat 100 yen as a dollar for convenience: it’s $146.60 about.) The proportionate share of that future pension check is currently estimated at about 138 yen ($1.38 USD). So, you see, you put 480 of these together, you get about $660.

Now, Japan has not been very good about making sure that everyone pays up on this. (Even or maybe especially for its own citizens!) And what happens is that some younger people look for any way to evade paying in, and the government really does nothing about it.

For older people, they are more likely to put in. As Samuel Johnson, I believe it was, said: “when a man knows he is about to be hanged in a fortnight (14 days), it concentrates his mind wonderfully.” The same goes when the time to retirement is actually something that one can feel and measure in their own life’s experience. A 50-year-old can “feel” 15 years in a more accurate way than a 20-year-old.

What has been going on in the expat community, is that any number of foreigners here simply avoid paying in to the National Pension. Even though Japan will refund up to 36 months of contributions, on a schedule, for whoever leaves Japan. (Imagine ever getting part of your social security money back if you ask for it!!)

So the foreigners in Japan, they don’t sign up. No one chases them. Even though all residents are required to be in.

Now is this good or bad? It’s going to depend on your political philosophies, your concept of law and what kind of world you want to live in. The rule is: all residents pay in. In America, if you are a wage earner, you are going to have the 6.2% old age and 1.45% Medicare premiums withheld. Or your employer is going to run a big risk. [Update 5/12/12: This is 5.3% old age, 0.9% disability, and 1.45% Medicare.]

In a country that has it set up like it’s a private company’s deferred annuity, I don’t see the difference. If this the rule, it is a bit presumptuous for people to show up in the country and decide the rule doesn’t apply to them. (“OK then, what other rules don’t apply to you?”)

Then, as it goes, the resisters simply make it worse for everyone else that want the benefit of the rule.
Pension insurance is just like any kind of insurance: Yes, true, you won’t know if you will collect on it. But if you are in the boat where you would, at some time in the foggy future, then you will want that coverage. This happens all the damn time.

There are things like “totalization treaties” that mostly help, and somewhat complicate the matter. In a pension totalization treaty, countries agree to suspend their qualification rules to recognize participation in plans of more than one country.

The United States first did one of these with Italy in 1979. And since then probably has done twenty-five or so with other countries.

In the U.S., you need forty “quarters” to qualify for a social security check. Each year, you can earn 4 quarters by earning just $6,000 or so in the year. So after ten years of even subsistence work, you should be “in” Social Security for some kind of check.

In Japan, out of those 480 months of paying in, you really need to make 300 months’ worth to see anything under the rule. So if you pay in 299 months and then leave, you get nothing but the 36 months refund amount. Sucks, eh?

Somewhere on the net, someone has said that the 300 month rule is modified by when you entered the program. Maybe this was Loophole Lewey, the CPA in Hawaii. So it might be that 299 months, or 200 or whatever does get you something.

But knowing human nature, it is a disincentive to enroll in the Japanese pension program.

Enter the totalization treaty.

If a U.S. citizen pays in even one month to Japanese Kokumin Nenkin, he or she will receive that small (estimated) $1.38 check at retirement, so long as he/she has paid in 25 years (or whatever required amount of time) combined between Japan, the U.S. and any other relevant treaty country.

So if you put (or plan to) 15 years in American social security, and 10 in Japanese Kokumin Nenkin, that is 25 years. America, you already qualify with 10 years (40 quarters), and the Japanese will count the 15 years in America on its 25 year rule. They will also send you a check on retirement.

So, if you come from a totalization country, the fact that you are paying the Japanese should be no skin off your . . . eh, teeth. The folks back home are paying their FICA on up to $105,000 or whatever, and so who are you?

Yes, it’s true that a visa holder here in Japan might not make it to age 65 anywhere. Or he/she is willing to hold on to their money and cover themselves and not ask for public help. But that really isn’t the system, is it? And particularly with U.S. social security, there is a built-in subsidy for people who did not pay in large amounts. (The so-called “bend points”, another post!) That is the whole rationale behind the Windfall Elmination Provision. So American cheaters here are scheming against both the Japanese and the Americans back home! Bad news!

Same goes for the National Health Insurance (“Kokumin kenko hoken”). The Japanese built the system out of health insurance contributions. And if some Australians or Brits have set up a private company to piggyback (for less money) on that system, it is really cheating the Japanese. For what I can see about the private (illegal) insurers mentioned in the article, that is all they are doing: piggybacking on a system they didn’t pay to set up.

For one, I am happy that the Japanese are enforcing the rule. It makes it easier to get other rights that are denied recognized and moves foreign visa holders out of a kind of second-class status.

My buddy at Debito.org suggests that he agrees with the new policy.