The post I promised the other day.
This is the update to the series I began a few years ago. The figures the US Social Security Administration put out for 2012 still have Japan as Number Two in collecting off the totalization agreement, with Canada naturally in first place. The amount Japan is getting for its claimants is still on the uptrend.
As people who’ve read me previously know, in the early 2000’s the United States and Japan came to a totalization agreement by which each party agrees to collect from and insure the other country’s nationals for old age pension. If, for those various reasons, a participant in the other’s program cannot meet the vesting requirement (that is, the amount of time or contributions you need to be able to collect in the program), then that country will consider years that the participant paid into the other country’s program.
So, for example, the United States requires about 10 years (technically, 40 credits, which could be had in less than 9 years) in US Social Security, in order to get an old age pension at 66. Japan requires 25 years (300 months) in either the Kokumin Nenkin or Kosei Nenkin (or other small variants on those).
It’s obviously easier to vest in 10 years instead of twenty-five. But that’s not what has me, since most all Americans are not going to avoid the Social Security program. The problem is with Japan’s misfeasance (malfeasance?) when it comes to making sure that Americans are enrolled in the program to which they are entitled. Secondly, that since Japan is so lackadaisical when it comes to administering its old age pension, foreigners are usually found in a situation where they either haven’t enrolled in either Kokumin Nenkin or Kosei Nenkin. Unscrupulous employers then play a game of saying that if the individual does not push the issue of enrollment, they can take home the difference in their pay. (What is really going on is that all wages in foreigner-employing industries are bid down by the fact that the social security tax is never collected. I believe the runners of Japan realize this, and that’s why they never press the issue with companies that employ foreigners.)
When a Japanese comes to work in America (and many more Japanese work here than Americans in Japan), they do not have to do this whole kabuki about enrollment in US Social Security. They get the same access and coverage that the U.S. citizen gets. When Americans go over to Japan and work, though, it’s a whole different story.
(“What?”, you ask me — “many more Japanese come to America to take jobs here than Americans get in Japan, even though America has almost three times the population?” Yes, that’s right. That’s it’s own side matter.)
When you look at who is collecting, it’s people born before 1950, who probably were assigned to American divisions of Japanese companies in the 1970’s and ’80s’. Someone might say that the $8.7 million is just their previous contributions (and the employer share) coming back to them—similar to how the Japanese are willing to cash in Nenkin contributions up to 36 months. But that’s not the point, either.
Old age pensions are annuities. Annuities are valuable. Annuities cost a LOT of money. Ever notice how few Americans over the age of 45 are looking to dodge social security tax? In fact, many people in their sixties hold on to jobs as long as they can, because they know it’s an extra $20 or $30 for the social security benefit. And it’s a benefit that adjusts with inflation.
You cannot go out and buy a private policy for the price that the US government offers you in Social Security. You cannot get a counterparty that is a government with taxing power. You get a private corporation that could easily go bust like AIG almost did until the Federal Reserve bailed in out in 2008. What they charge you for an annuity, which almost always does not adjust for inflation, is little better than you could get if you bought a 30-year bond and lived off the coupon. Joint life is extra, (if you have a spouse.)
So, you see, what is happening to Americans in Japan is that we are being cheated. We are being cheated because we are not given the same access to the proper government old age pension program, and we are cheated because the Japanese allow others to skirt joining the program, and thereby bid wages down because the dodgy employer is going to want to hire the individual who does not mention the Blue Book, and in fact maybe doesn’t even know what one looks like. (That last type is the best for them.)
It would be nice to see if Secretary of State Kerry or Ambassador Kennedy will finally press this important retirement financing issue, which should have been solved when totalization was effective in October 2005. However, I have written the same sentence with Clinton and Roos substituted as names. The names change, but the problem continues.
[Update 12/17/13: Last year’s post on this topic.]