Social Security (Old Age Pension) Totalization FAQ’s that I get

The recent discussion on the net prompted by reports like this in the Japan Times has people sending a few questions by way. It’s easier just to do a general FAQ.

1. Totalization Agreement (“Treaty”)

Japan has these with about ten countries now, including the United States, Canada, France, and Australia. The Japanese have a different deal with the U.K. and I haven’t looked at that. But I am told it’s like a totalization. (A Brit can pay back to their home for 5 years or so if they choose.)

How a totalization treaty works is that the two countries (say, Japan and Canada) will combine the amount of time that you have participated in each system, in order to determine your future benefit. I know I said this somewhere already, so if you are having trouble with the English I don’t know what to say because I know they speak English in these other places.

So if you pay into Japan’s system for 2 years, Canada will count those two years towards whatever you need to vest (i.e. qualify) for old age pensions in Canada. PLUS, if you in turn can show 23 years’ participation in the Canadian system before you retire, you will the have 25 years that Japan requires for vesting. See?

What will you get from Japan? Based off current numbers, it’s something like 138 yen for each month that you participate here. You get this at retirement.

There is no way to make this point any easier, or “dumb it down” any more than that. You participate just one month, you get a currently projected 138 yen (1650 yen a year divided by 12, rounded) at retirement.

So none of the money you pay to the Japanese in the pension program is “wasted” in the sense that you have no chance of ever seeing anything back. [Retirement would be defined as reaching age 65, of course. But, waiting, that is the case with any deferred life annuity.]

Yes, you are currently paying for an old lady in Akita or Kagoshima to have a much-needed check—that is where your money is going. There is nothing wrong with that. Some young Japanese in Vancouver is paying into CPP for an old person in Nova Scotia to get their check. That’s how age pensions go.

The promise you get is that these school-uniformed youngsters you pass by on the street are going to send something to you in the future.

2. How do you (i.e. “I”) know what you will get in the future?

Well, I don’t know exactly. I can only go by what is projected. But it’s good authority, the Japanese Social Insurance Agency. On that link, you notice under benefits, they say it is 792,100 yen a year if you pay for the full 40 years. Forty years is 480 months. Divide 792,100 by 480, you get 1650 yen a year. At least I do. Divide that by twelve, it is 137.51 yen a month. I round this to 138 yen since they don’t have fractional yen anymore.

Will this program actually pay at 138 yen? Probably not. I know that with the Koizumi reforms, they adjust this number for either population or labor productivity. And it also gets adjusted for price level. If Japan has a serious inflation, this number goes up.

But the counter-argument is that a private pension or investment scheme won’t guarantee the final number, either. Certainly not in terms of purchasing power or inflation. So the future is a big unknown regardless. It will always be. I don’t know how to fix that for you.

3. People say Japan will still give me a visa whether I’m in the pension program or not.

OK, fine. I have the sense, if I were in your boat, that they probably will. But I also have the sense that effective April 2010 (and probably effective yesterday) somebody in the bureaucracy is checking to see whether you are enrolled a the pension plan if you go to renew the visa.

I’m not one of these lifer gaijin yet, and maybe never will be. But one thing I’ve noticed is that Japanese can be very thorough when the pressure is on to be thorough. So, you have this regulatory initiative to get foreigner visa holders enrolled in the right programs. Then, you have a major election, where one of the themes is how everyone should be covered by pension insurance—even promising a flat number like 70,000 yen per month in the Party Manifesto.

Now, there are those two things. Check if the foreigners are properly enrolled, and, oh, by the way, everyone in Japan should have a minimum 70,000 yen a month pension.

Right? So what are you going to conclude? Same old same old? Or regime change?

Yeah, go ahead and follow Ron Kessler. He’s got the story of “how it always was!” and says that Justice Minister Chiba Keiko won’t take your visa away. But I’m saying that participation in health and pension is up to the final word of the Health and Labor Minister (Kousei Rodou Daijin). And that’s Minister Nagatsuma Akira, a/k/a Mister Nenkin a/k/a Mister Pension.

This is a serious man. He made his reputation by exposing the failure of the old regime in carrying out the laws about pensions. He stood up for the people who were getting stiffed by the pension agency. He has substance, as I would say. And I am sure many others would too.

Have you seen Minister Nagatsuma smile yet in a TV news report or interview? No, right? What does that tell you? There’s big things going on, on the pension side of Japanese life. And the person in charge is a serious guy with a serious portfolio. And you want to scam the pension system by not paying? And still get a visa without worrying?

Ohhhhhhh-keyyyyyyyyyyyyyyy . . .

(Just my opinion, you know. But they are going to check that.)

4. Invitations to argue on chatboards about this topic.

Sorry, I don’t do chat boards, except participate on ones that are moderated and sponsored by people who I trust, like Arudou Debito.

The problem with chatboards or BBS format is that anyone can show up. Including people who just like the bicker. And what I’ve found on the internet is that the BBS format tends to attract people who just like to bicker. And want to win at it.

And since the moderation is very light, there isn’t going to be much in the way of fact checking. Nor very much in preventing the “discussion” from turning into just ad hominem. (Personal attacks.)

If you visit me, I appreciate that you think I have something to say. If you disagree, well, it’s the internet and basically anyone can get on and broadcast their view, so read somewhere else. I try to get it right if I am talking about something credibly, and if it’s just my opinion, then I know it’s right as an opinion, because it’s mine.

BBS’s that are tied to businesses are even worse, because in the end they just want the hits. The same 200 people check in 10 times a day, now they have 2,000 hits a day. Then, they can sell banner ads and other things off that traffic. Advertisers will still pay the money, and it’s kind of like a diseased business.

Especially how it is in Japan with the expat community, you know, there are people here who have set themselves up as the suppliers to the gold prospectors. In the Gold Rushes of the American West (and Canadian West), the only ones who got rich where the people who sold the tools, the living space, and the food.

Similarly here, there are people who have been around Japan for a while, and they’ve set themselves up as, basically, the supplier to the prospectors. They promote the expat insurer businesses, because they are making banner ad money off them.

You guys that want to live in Japan, you’re the mark, basically. You go to the gaijin friendly website and you give your money to the businesses selling through there.

These guys link to “free” news off Kyodo, AFP, or the AP. Or even off key blogs or websites about Japan. You visit there to get the news, plus BBS opinion. They make money coming and going.

I don’t want to be a part of that.

My own sense is that these guys are a little more a paper tiger than they let on. Because it’s really a small group of maybe 500 or even 1,000 people constantly hitting the site. So the numbers they show on something like Alexa are huge compared to the solo site blogger. But for what the solo site is doing, they [i.e. the solos] probably get a sizable chunk of traffic.

So for me, I am happy just to blog, and if you like it then, yes, please come back.

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2 comments

  1. chuckers · October 20, 2009

    I am sort of confused by your second point.
    Either your math is off or I don’t understand your point.

    JPY 792,100 per year / 12 months is JPY 66,008 per month of benefit in retirement.

    Oh, wait, nevermind. Now I see what you are saying. In other words, if I contribute only 1 month at JPY 14,660 (current rate, paid by hand each month rather than annually via direct deposit thereby forgoing a slight discount) I can expect to get back JPY 138 (rounded) per month from age 65 until I die. It will take about 8 years and 10 months (age 73+) to break even on that. Living longer means pure “profit.”

    Works the same for paying in full. 480 months * 14660 (current rate) = JPY 7 036 800 paid in.
    Expect back JPY 792 100 per year from 65 until I die. 7 036 800 / 792 100 = 8.88 years. I think that works out to about 4.05% ROI (based on 8.88 years to get back your initial investment and then another 8.88 years to get back that amount again.) Plus, that number will be adjusted for inflation (but then, so will the pension dues.)

    [This post got edited several times before hitting Submit because I confused myself several times while working this out. Hopefully I got things straightened out now.]

    You may want to point out that this just refers to Kokumin Nenkin (what you refer to as the coupon system.) Kousei Nenkin (salaryman plan) works on top of that and provides a much better return on invest (I would presume. I don’t have the figures in front of me to work it out.)

    Kousei Nenkin is a much better way to be if you can get it but I understand some less reputable companies in various fields try get around that and make their employees sign up for just Kokumin Nenkin. Assuming they are told they have to.

    There is also Kokumin Nenkin Kikin for non-salyarman types only that, for a couple 100 yen more a month can increase their ROI. But those lot whinging about having to pay for pension in the first place are probably not going to go for that either.

    • hoofin · October 20, 2009

      Yes, Chuckers, that’s the general point. 14,660 yen gets you a projected 138 yen a month at age 65.

      I wanted to make it just very simple. If someone pays the nenkin coupon, what do they get for that coupon?

      Will it be 138 yen exactly? No way. With the 2003 reforms, the payment is adjusted for both inflation (either wage or price), and one other adjustment that maybe goes to population. In recent years, one of these adjustments raises the base amount and the other lowers it, to where the overall adjustment is about even.

      The finance guy in me says I should run different discount rates on the future streams of income, but the idea is just to simplify it. The idea is that paying over the flat amount entitles the vested participant to get that small stream of income at 65.

      138 yen times 480 payments times 12 months in a year = 794,880 yen (approximately 792,100 yen a year—you can tell it’s more like 137.5 yen and not exactly 138 yen.)

      The non-payer’s excuse is “keep your money because you’re getting zero back”. But that’s just a lie at this point. Treaty partners’ citizens get the promise to be paid back the money in the future–the so-described deferred annuity.

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