Japan pensions and totalization with Australia

Another one in my series about these pension totalization treaties.

A fellow over on Debito’s site put up the question of how contributions into the Japanese pension system (either Kokumin Nenkin or Kousei Nenkin) work with coverage in Australia.

The CPA in me can’t put those questions out of my mind, you know, when I read them. Unless I’m really shot.

So I looked into it the other night, and learned some interesting things.

Yes, Australia also now has a totalization treaty with Japan. These are the series of treaties where you are able to contribute to pensions here in Japan, and have some value credited to you in combination with whatever you happen to do back in your home country.

I have blogged about the U.S-Japan social security totalization treaty for some time now. In fact, I’ve also contacted Congress about lapses in it! A month or two ago, I looked into the situation of how this would work with Canadians here, because since March 2008, they also have something going that was agreed with the Japanese on this issue. There are a number of other countries, and of course Australia is now in the mix, with this treaty linked here.

There’s also a nice handout from Centrelink, which sounds like the Big Brother for social services in the Land Down Under.

These are the three points worth noting:

1) If your Australian employer sends you to Japan, you are potentially exempt from the Japanese system for up to five years. This is because you are going to have that 9% taken out in the Superannuation or “Super” (sounds to me like you are saying “supuh” or “supeah”, but you know what we are talking about. My “r” is just more rhotic.)

2) If you find work in Japan and go into the Japanese system, the Japanese will credit your time that you participated in the Australian system toward the 25 years that you need to vest in the Japanese system.

3) In Australia, you have an Age Pension which is money that you get at retirement, like in Canada, just for being you. But you must have 10 years residence in Australia to claim it. The totalization treaty lets you count your Japanese residency years if you participate in the pension system here. So in effect, your kokumin nenkin or kousei nenkin contributions are a substitute for the Super you would have back home. Instead of building an account that will be annuitized later, however, you are just building the straight annuity.

Now, that all said, there is this little twist. The Australian age pension is means tested by both income and assets.

Ordinarily, according to the Centrelink (Centerlink?) site, the government will pay $671.90 (AUD) to you, as a single person, once in a time period called a fortnight. (I understand this to be like 14 days.) Since mathematically there would be 26 of these fortnights in a year, this is AUD 17,469.40 a year, AUD 1455.75 a month.

The government will means test everything else you have. So if you have assets above about AUD 171,750, they are going to want about 3.9% of that yearly. And if you have other income—including the Super—-there is an exemption amount and above it they come at you for some percentage of that other income. They will reduce the age pension fractionally for that additional income, so it’s like a tax on it.

The Japanese offer a refund of part of the pension contributions here, up to 3 years’ participation. It’s called dai tai ichiji kin. You won’t get the whole three years back, it is some amount maximum 260,000 yen or so.

Does it make sense to exit the Japanese system if you are under Australian totalization?

My feeling in most cases is no. Under kokumin nenkin (the coupon book), you are currenty estimated to get something like 138 yen a month at retirement for each month’s payment here.

Under kousei nenkin, you will get that, plus a current estimated 0.04825% of your “monthly standard remuneration” for each month you participated.

The last part is gobbledygook, but it means if you made, say, 300,000 yen in a typical month, you would get an additional 145 more yen monthly for each month you participated.

This is why people get worked up about the Shakai Hoken, which kousei nenkin is a part of. It’s pretty clear that you get a better deal being in the Shakai Hoken (the extra 145 yen monthly), and this is why most Japanese employers do their best to keep you out.

Sure, some people feel that it is worth dodging the whole thing. They can get 10 years’ residence in Australia without a problem, and they get to keep their money they earn here for their own purposes. The home country will give them the age pension, and so they aren’t tied into Superannuation like the suckers back home.

Probably a few years’ dodging isn’t going to add up to much either way. But practically, at some point age catches up with the dodger. And then they don’t have enough time to build a nice pension. Then what?

It’s hard to work people up about a crisis they might have in the year 2041. But people used to laugh about a concept like the year 2010. Believe it or not.

But here it’s only about twelve weeks away.

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8 comments

  1. DavidG · March 31

    Hoofin – I am enjoying reading your old pension posts. They are certainly informative. This Australian one has most of the facts correct but as an Aussie I’d just like to put my two cents’ worth in. The Australian taxpayer-funded ‘Age pension’ in Australia is a transfer of wealth from the thrifty and financially independent – some of whom have surprisingly low incomes because they pay tax so others who never bothered to grow up and save any money get something they never paid one cent into.
    Non contributory social security schemes such as taxpayer funded pensions in Australia and the UK, for example, are by their nature discriminatory – freeloaders (who often don’t fit into the category of people who genuinely need free money because they had no chances in life) receive the hard earned savings of others and get a whole raft of additional benefits such as discounted transportation fares, rent relief etc.
    To kick relatively low income earners who actually help Australia by saving and being independent in the head as well as the teeth, successive Australian governments have put the age up at which they can access their Superannuation money. Recently the age jumped up three years from 55 to 58. It will happen again. So people who didn’t receive a cent from governments or taxpayers but had their Super contributions automatically taken from their pay, are finding it harder to access their money. Their money is in effect being ringfenced. Yet save not one whit of money during your working life and you get rewarded for it.
    It is an unjust system. All these agreements the Oz Government has signed is compounding the injustice. I know Aussies who worked in Korea and they can’t get their pension contributions from there refunded since Big Brother signed its agreement with South Korea. One time they could apply for it to Korea’s Pension service and get it transferred to their bank account when they went back home.
    The agreements work to ring-fence that money too. Even though the recipients were going to declare it on their tax return. They cannot get their Korean refunds nor their Japanese refunds if they worked there too as some did, without now going through the same Social Security system that gives free money to many undeserving people but screws those who never used the system down to the ground.
    Oh and the K pension system from what my friends told me is very fair. Your employee has to pay half, no ifs, no buts. The J pension system is inherently unfair especially kokuminkenkohoken. A flat 15,000 yen a month. Including on English teachers earning less than what used to be the aveage 250,000 yen salary a month. The longer you stay, the more money you lose especially when the Australian govt steps in to make sure that you can’t even receive those fruits of your labour when you cost it nothing living in Japan (or Korea). Other people will receive your hard-earned money but your right to enjoy what you paid or saved witll be hedged about with all sorts of restrictions.

    • hoofin · April 2

      David, I am not sure it works that way in Australia when it comes to the Japanese pension. What is supposed to happen is that participation in Japan, when combined with participation in Australia, gives the person the 25 years that they need to meet Japan’s vesting requirement. So whatever “unfairnesses” there may be to how Australia grants a subsistence check to people who did not save enough through the Super is not relevant to whether Japan is meeting its end of the bargain. To me, there is no argument that 15,100 yen for a 135 yen-a-month annuity is a cheap annuity. The private market does not sell life annuities for this, and the reason the Japanese can do it is that the other money is coming out of the 8% consumption tax. So totalization-country foreigners who do not participate in “nenkin” end up paying 8% consumption tax but get no benefit for where this money goes.

  2. DavidG · April 2

    Good points, Hoofin. I should have read your pension posts on what Japan does re the nenkin more closely. I know I ranted about how as an Australian if you do nothing to prepare for retirement, you can access taxpayer money, but be completely independent and save your own hard earned money and the Govt screws you in one way or another.
    If you have time to answer this, I hope you do. I have always paid the health insurance and pension parts of kokumin kenko hoken. I have done so for six years. I have a friend who was first in Japan around 2001 to 2007. He paid the national health insurance but never pension as his ward office said at the time he could opt out. He did.
    He returned a few years ago and has never paid the pension part in his new location. He received the blue book and various notices but has never paid. He says he won’t because he will just be forced to pay a shedload of money and get no benefit. He puts his money in an interest bearing account that has a good return. Needless to say that is not a Japanese bank.
    I think he would cough up the money if it wasn’t so much in back payments and if he knew he would get some money from the system if he made up for the missing payments. Like me he is Australian. Is it worth it for him to start paying the pension part of kokumin kenko hoken?

    • hoofin · April 4

      Yes. Because his savings account isn’t a life annuity, and when he turns around to buy one, it is going to cost a lot more than the nenkin. He can use whatever he saved to cover 2001-2007, which he can’t get coverage for. He can buy back up to five years on the “Kono system” for recent coverage. He just has to make 25 years total between Japan and Australia, where I think you get one year credit for each year of being a resident.

      Does he believe he won’t have 25 years between Australia and Japan by age 65?

  3. CC · November 1

    Hi Hoofin,

    Want to seek your advise. If I worked in Japan for 10 years and now returning to Australia. Do you suggest I don’t withdraw and get the 3 years max cash? If I was to keep the pension in Japan, do you know what are the steps to take?

    Thanks
    CC

    • hoofin · November 1

      CC,

      I am kind-of retired from giving out advice over the internet, but yours is a really simple question. Unless you have some fatal illness, 10 years of pension contributions staying in the system is much better than cashing out and only getting 3 years of contributions.

      If we just look at kokumin nenkin (national pension, not employer system):

      rough estimates

      15,500 yen contribution times 36 months = 558,000 yen

      benefit for 10 years contributions:

      135 yen times 120 = 16,200 yen per month at retirement (age 65) times 20 years’ in retirement (so 240 months) = 3,888,000 yen.

      So, ignoring any “present value” analyses, your three years’ worth of refunds “windfall” would have to seven times itself to be equal to what you lose.

      I am also assuming that you will totalize 25 years between Japan and Australia, which I understand is done by just residing in Australia, regardless of the “Super”.

      • CC · November 2

        Hi Hoofin,

        Thanks for coming out of your retirement and share your view on this topic. I will work out how to go about this operationally.

        Thanks again
        CC

        • hoofin · November 3

          You’re welcome. Don’t forget to also consider what it takes to qualify for disability insurance in Australia. A number of Americans cash out their Japanese “pension” and unknowingly cash out their stateside disability coverage as well . . .

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