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.