Pension update to Wiki

[rogueebear]

Made an Update to the Wiki here: https://www.reddit.com/r/JapanFinance/wiki/index/insurance/pensions

I hope it's correct? and the correct place to put it? First Wiki entry I've ever done in my life...

Time of writing is January 2022. Information is based on January 2022 figures/calculations.

Japan has 3 levels or “Category” of Pension levels.

Category 1: National pension.

National Pension premiums are fixed at (as of 2022-01-16) 16,610 JPY per month.

The current Standard maximum National Pension annuity is 780,900 JPY per year and that is based on 40 years (480 month) of contributions record.

The calculation to calculate your annuity for National Pension in retirement is as follows:

780,900 JPY/480 months x (Number of Months Contributed)

For example:

Bob is in Japan for 25 years (300 months). He is a good resident, and follows Japanese law and thus contributes to the pension system. Bob’s National Pension Annuity will be:

780,900/480 x 300 = 488,062 JPY per year

(worth noting that those enrolled on Category 1 ONLY, can increase their National Pension annuity by paying in Fuka Nenkin and Nenkin Kikin, ReitreJapan did a post on them here: https://www.retirejapan.com/blog/overpaying-kokumin-nenkin/)

That is not, much right? This is where we lead onto the next Category….

Category 2: Employee’s Pension Insurance System (EPI).

Those who are enrolled in Shakai Hoken with their employer will be enrolled in and contribute to EPI.

This is where things get a bit trickier because unlike the fixed figures of National Pension, EPI premiums and annuity are bit more variable and complex to calculate.

EPI Premiums:

Premiums are based on your Standard Monthly Remuneration (SMR) and your bonuses, Standard Bonus Amount (SBA).

- Your SMR will include (Salary+Allowances), such as Transport.

- Bonuses are only considered SBA if they are paid at intervals of more than 3 months.

Your SMR is calculated and assessed every August, based on an average of your salary+allowances over a 3 month period (April, May, and June). There are a few other variables which affect this calculation and they are outlined here: https://www.nenkin.go.jp/service/kounen/hokenryo/hoshu/20121017.html

There are a few other occasions when your SMR will change before August. These are outlined here: https://www.nenkin.go.jp/service/kounen/hokenryo/hoshu/20150515-02.html

You can also see your SMR bracket for each month contributed to EPI on Nenkin Net: https://www.nenkin.go.jp/n_net/

Once you know your SMR bracket you can check the deductions table to see how much your monthly premiums will be. You as the employee will want to check the 折 半 額 9.150% column because both you and employer will be paying 9.150% to make the total 18.300% figure.

The most recent deduction table (October 2020) is here: https://www.nenkin.go.jp/service/kounen/hokenryo/ryogaku/ryogakuhyo/20200825.files/01.pdf

You can find older versions here: https://www.nenkin.go.jp/service/kounen/hokenryo/ryogaku/ryogakuhyo/index.html

Now as you can see on the October 2020 deductions table the highest maximum SMR bracket is 650,000 JPY, which is for an average Salary+Allowances of 635,000 or more per month.

This means if say for example, you earn 800,000 JPY per month, then your SMR will still be 650,000 JPY and your EPI premiums will be 59,475 JPY.

However, this also means the maximum possible ASR (Average Standard Remuneration) is 650,000 JPY.

ASR is very important because this is what is used to calculate Annuity in retirement (or lump-sum withdraw should you leave Japan and wish to lump-sum withdraw)…

Calculating your ASR:

Calculating your ASR will require you to find your SMR for every month contributed to EPI. Once you know all your SMRs you add them together and then divide by the number of months contributed to EPI.

For example… let’s go back to our friend Bob.

As you know Bob lived and worked in Japan for 25 years (300 months). All 300 of those months he contributed to EPI. However, his salary was not the same all 300 months. He changed jobs for a few years, took a pay cut for more free time to find himself a bit etc etc. He then came back from finding himself with a vengeance on a nice 10 million JPY a year salary for 15 years! GO BOB!

Bob had:

- 5 years (60 months) with a SMR of 500,000 JPY

- 5 years (60 months) with a SMR of 200,000 JPY

- 15 years (180 months) with a SMR of 650,000 JPY

Bob’s ASR is 530,000 JPY:

(500,000 x 60) + (200,000 x 60) + (650,000 x 180) / 300 = 530,000 JPY

Annuity:

Firstly, we need to establish your multiplier for benefits calculation. This is based on your Date of Birth. See this document here: https://www.nenkin.go.jp/internatio...nsion/employee.files/0000026924gBiokR09V4.pdf Note: This document uses a “.” For the figure but for the calculation you need to use “,” i.e 1.000 = 1,000

As you can see for those born April 2nd 1946 or later is 1,000 (I think this will apply to the majority of readers so I will use this in the example/explanation)

Once you know your multiplier we need the following calculation:

Multiplier = 1,000

A) ASR x (7.125/multiplier) x (Number of your EPI months March 2003 and earlier)

B) ASR x (5.481/multiplier) x (Number of your EPI months April 2003 and later)

So, let’s go back to Bob again…. Bob was born after April 2nd 1946 and moved to Japan after April 2003… As mentioned above Bob’s ASR is 530,000 JPY and contributed 300 months to EPI.

Bob’s EPI annuity in retirement is:

530,000 JPY x (5.481/1,000) x 300 = 871,479 JPY per year

Again, that is not much either. However, EPI premiums also include National Pension contributions. So by paying into EPI for 300 months, Bob has also been paying into National Pension for 300 months too!

This means Bob’s final annual annuity is:

488,062 JPY (National Pension) + 871,479 JPY (EPI) = 1,359,541 JPY per year

(there are a few other benefits for dependent family, Disability Employees' Pension and Disability Allowance and Survivors' Employees' Pension etc. Read up on them here: https://www.nenkin.go.jp/international/japanese-system/employeespension/employee.html)

Again… that is also not much. However, that secures Bob an income until the day he dies.

However, Bob is a smart guy and utilized the knowledge, and wisdom shared r/JapanFinance and ReitreJapan. As a result has used his working life to secure a house, and pay off the loan. He also utilized his iDeCo allowance for 25 years, and a mixture of NISA/Tsumitate NISA/Taxable investments to supplement his retirement.

He also made Voluntary NIC payments to his UK state pension to secure his 35 years contributions record (Bob’s UK State Pension alone, provides him with an additional approx. annuity of 1.4 million JPY!... so he actually gets approx. 2.7 million JPY per year from his combined Japanese Pension + UK State Pension)

Happy Retirement Bob!

Category 3: Dependent Spouses of Category 2

Those who are registered and approved as Dependent Spouses of Category 2, will have their National Pension contributions paid for them.

 

[eterna]

@rogueebear Thanks a lot for taking the time to put this down and take a swing at the wiki ! While I can only speak for myself I think it is great to fill up the wiki and avoid post fatigue (re : crypto tax). So, hats off !

I cannot contribute much but read through and it is easy to follow. Posting it here is a great way to fine tune and add some more.

I think it would be good to add a bit more on your cat 3, add when contributions are waved (such as during child care leave), and add some calculations to show how 'profitable' it is depending on contribution level (minimum contributions have a nice return, then it drops down, and at 650k it is ugly).
Would also be good to have a recap table with a few example pensions to provide quick basic guidance (contribute the minimum but full duration, you get this, contribute the max 650k-based for half the years you get this etc).

Plus explanation to nenkin online account as discussed recently, and encourage people to check their monthly records and forecasted amounts.

A section for foreign pensions (not only UK) would also be great to start expanding on the different countries cases.

Finally a link to long term investment can be made, such as "having a monthly pension of 100k, considering a long term post-tax investment return of 5%, would be equivalent to an amount of 24 MJPY", to me this part is relatively comparable to bonds / secured investment when reading about basic investment online.

 

[rogueebear]

@eterna All great ideas for input.

I am yet to experience what happens during childcare leave… but soon will

So I was actually hoping someone with experience/knowledge in that department could mention what happens there… do you 1) continue to get contributions made for you at your current SMR bracket? Or do you 2) just get National pension paid for you? Or do you 3) get neither? I.e no contributions on months on childcare leave?

If 3, then- Yea, I agree that is something people should consider with childcare leave planning because they in theory would lose up to 12 to 24 months of pension contributions. (Edit: and in theory could even affect a PR application due to needing the past two years contributions on record)

Also if 3) then would that mean you can no longer contribute to iDeCo whilst on childcare leave too?

As for compounded growth with iDeCo/DC that is very important, but I think a separate subject to the State backed pensions. I am thinking of writing something up once the law changes in October 2022 to allow me to carry on contributing to my iDeCo… so watch this space with that one (unless anyone writes up before).

As for overseas pensions, I can only input information regarding the UK state pension, as I have no exposure or knowledge of what other countries offer their overseas citizens, but I agree that would be very helpful for other non-UK readers. Especially as overseas state backed pensions should (I believe) also be taxed as “Pension income” in Japan too

 

[eterna]

@rogueebear Based on my own record, those months show the same way previous months were, with the same 標準報酬月額 (SMR). No deductions were made from the 'benefit' I received at the time (not taxable income, and no social security contribution either but you are still protected).

No idea for ideco, DC plan at the time for me.

For the foreign section, maybe we can start a section and call on the community to populate it with other locations. Overall the page is going to get very long and not too factual with a high level of information, so what about keeping it high level and linking the info in this thread (or other comments) for details ?

Looking at my page, it seems the pension I would be entitled right now (これまでの加入実績に応じた年金見込額の情報) would be 'equivalent' to a 9.5% yearly return on the premiums paid so far (これまでの保険料納付額).
I did not check the number for the premiums paid so far but the ratio seem pretty 'decent' (people who skip on paying might take a pause).

I need to calculate how much it would have grown by putting the same into an proper ETF, and it will be miserable in comparison.

 

[rogueebear]

@eterna

Based on my own record, those months show the same way previous months were, with the same 標準報酬月額 (SMR).

Sweet, so your record continues as normal whilst on Child Care Leave, even though you're not actually contributing for those months. That's good to know!

No idea for ideco, DC plan at the time for me.

Come October 2022 you will be able to do up to 20,000 JPY in an iDeCo too. That does assume you have up to 20,000 JPY spare in your 55,000 JPY monthly allowance though, after Employer contribution is made.

For example if your employer is paying in 20,000 JPY. Then you could do 20,000 JPY iDeCo and 15,000 DC OR you can do 20,000 JPY DC and 15,000 iDeCo etc (if that makes sense?)

So essentially, if you're currently not fully utilizing your whole 55,000 JPY monthly allowance because 1) your employer blocks you as per their DC policy and 2) they are not contributing 27,500 JPY or more for you per month to reach 55,000 JPY, then you should really look into this change. I am looking forward to brush the cobwebs off my iDeCo and can get that beast compounding again.

For the foreign section, maybe we can start a section and call on the community to populate it with other locations. Overall the page is going to get very long and not too factual with a high level of information, so what about keeping it high level and linking the info in this thread (or other comments) for details ?

That's a good idea. Then if a list of countries which offer a state backed pension for their overseas citizens starts to form, we could just make a wiki page with links for each overseas pension.

Looking at my page, it seems the pension I would be entitled right now (これまでの加入実績に応じた年金見込額の情報) would be 'equivalent' to a 9.5% yearly return on the premiums paid so far (これまでの保険料納付額). I did not check the number for the premiums paid so far but the ratio seem pretty 'decent' (people who skip on paying might take a pause).

Yea, it's really good too! That is money from 65 (current age) until you die. Thinking positive I am sure you would like to live until you're at least 85-90? Maybe even older... no reason why not if you keep yourself healthy.

So a state backed pension will essentially assure you an income which can be paid out anywhere in the world. Have Japan as your base and go on many trips with your wife/old friends to countries where that money will go further .... beats having to work to make ends meet as a 65+

 

[eterna]

@rogueebear Please check my example calculation for 'Carl' (born after 1946 and worked in Japan after 2003) with 10 years in the max bracket (650k/month SMR) :

National/basic pension : 780 900 / 480 x 120 = 195 225 JPY/year

Employee Pension : 650 000 x 5.481/1000 x 120 = 427 518 JPY/year

Total pension 622 k/year

At the same time contributions were 59 475 per month (latest sept. 2020 level) so a total of 7.137 M JPY.

So if Carl had skipped his legal obligation and placed the same contribution on the market (at the end of each year) for a long term 5% return (post tax, so 6.25% pre-tax), he would have 8.89 M by the end, and would afterwards receive about 450k per year thereafter.

Looking long term over 40 years, Carl would multiply his pension by 4, at 2.488 M per year. But at the same time his 28.548 M contribution would have grown on the market up to 86.21 M, giving him a yearly rent thereafter of 4.07 M.

Under those parameters, and ignoring the illegality and visa risk of it, the market investment becomes more interesting for Carl only at the 25th years mark (1.59 M/year from investment of previous year 31.76 M outpaces the pension of 1.555 M who grows only by 62k a year).

I would also like to make a scenario for 'Adam' who pays the minimum 16 610 monthly, what would be the SMR associated with that level ? Maybe also make one for David who earns an average english teacher salary. Having those examples clearly laid out might help convince some people of their interest in paying into the system ... having no money when old sucks and personally I think they should at least understand what they will get out of what they pay instead of just ignoring it.

 

[rogueebear]

@eterna

Please check my example calculation for 'Carl' (born after 1946 and worked in Japan after 2003) with 10 years in the max bracket (650k/month SMR) :

National/basic pension : 780 900 / 480 x 120 = 195 225 JPY/year

Employee Pension : 650 000 x 5.481/1000 x 120 = 427 518 JPY/year

Total pension 622 k/year

Yea, that sounds about right. But just remember for Carl's ASR to be 650,000 JPY, it would require him to have an SMR of 650,000 JPY for ALL months (120 months in your example) enrolled in EPI.

At the same time contributions were 59 475 per month (latest sept. 2020 level) so a total of 7.137 M JPY.

Also correct, assuming he was on the 650,000 JPY SMR bracket for all 120 months. But do note, they are also a tax deductible. So Carl's 713,700 JPY (59,475 JPY x 12) would have been a tax deductible too.

So if Carl had skipped his legal obligation and placed the same contribution on the market (at the end of each year) for a long term 5% return (post tax, so 6.25% pre-tax), he would have 8.89 M by the end, and would afterwards receive about 450k per year thereafter.

Looking long term over 40 years, Carl would multiply his pension by 4, at 2.488 M per year. But at the same time his 28.548 M contribution would have grown on the market up to 86.21 M, giving him a yearly rent thereafter of 4.07 M.

Under those parameters, and ignoring the illegality and visa risk of it, the market investment becomes more interesting for Carl only at the 25th years mark (1.59 M/year from investment of previous year 31.76 M outpaces the pension of 1.555 M who grows only by 62k a year).

So legalities a side as you mention, it is worth noting that Shakai Hoken is a lot more difficult to avoid than National Pension because your employer is obligated to enroll you. But Yea, I mean investing yourself could work out better, it could also work out worse.

A State backed pension is what I like to consider a diversification. It ensures you have an income until you die. So the way I see it is (assuming you can afford to) one should be maxing out their pension, and also investing in their own private pension/investment accounts.

I would also like to make a scenario for 'Adam' who pays the minimum 16 610 monthly, what would be the SMR associated with that level ?

National Pension contributed months do not have a SMR bracket, so would not be included when calculating your ASR and thus are not included in your EPI calculation.

So for Adam, assuming he contributed only National Pension for 40 years (480 months) he would just use the fixed National Pension calculation (unless you contributed to Fuka Nenkin/Nenkin Kikin). However, if say Adam spent say 10 years on National Pension only + 30 years on EPI, then he would need to do a calculation of 40 years National pension (as EPI includes National Pension) + 30 years EPI (based on whatever his ASR is for those 30 years EPI).

Maybe also make one for David who earns an average english teacher salary.

Assuming David was enrolled in Shakai Hoken with his English teaching employer for every month he was in Japan, he would then use the same EPI calculation i.e Average aggregate of SMRs to find ASR, then calculate based on amount of months contributed to EPI.

If he had a mixture of EPI and National Pension only months, then he would use a similar calculation as Adam.

The potential example scenarios are almost endless. But let's try put one down for each Adam and David...

Adam:

40 years (480 months) National Pension only (No Fuka Nenkin/Nenkin Kikin)

Annuity = 780,900/480 x 480 = 780,900 JPY per year

Not great at all for Adam. But then he would have only paid 16,610 JPY per month in premiums (which also would have been a tax deductible) and as a result could have also maybe afforded to utilized his Category I, 68,000 JPY per month iDeCo allowance (or if a US Tax payer, he could have utilized Nenkin Kikin)

David:

Born After April 1946. In Japan after April 2003. 40 years (480 months) in Japan. Unfortunately, an ALT for all 40 years. Spent 10 years with a shitty dispatch company who skirted his Shakai Hoken, so 10 years National Pension only. However, managed to get a Direct Hire ALT job and worked for them for 30 years (360 months) and thus was enrolled onto EPI with them with a static (no pay rise) salary+Allowance of 316,000. Meaning SMR of 320,000.... so because salary remained static that means ASR is 320,000 too:

ASR = (320,000 x 360 months) / 360 = 320,000 JPY

Annuity = ((780,900/480 x 480) + (320,000 x (5.841/1,000) x 360)) = 1,453,783 JPY per year.

David's fairs better than Adam's but then David would have paid a lot more premiums than Adam (due to Shakai Hoken). However, David would have also been able to utilize his 23,000 JPY per month iDeCo Allowance too. However, if David is a US tax payer then yea, his investment options in Japan would be heavily limited as Category II cannot utilize Nenkin Kikin.

 

[mitchellh]

@rogueebear This is really great info!

 

[rogueebear]

@mitchellh You’re welcome.

I only “switched on” with pensions maybe around 2-3 years ago years ago (about my 2nd year in Japan). Before then, I was quite carefree, but in the back of my mind I always worried about “what am I going to do when I am old?… am I going to have to work all my life?” Especially as family wise, I was dealt a 7, 3 off suite (poker analogy)… basically, I will inherit fuck all, so unlike others, I don’t have that to depend on either.

However, Learning about pensions, and how they work, has taken quite a bit of weight off my shoulders for my present day self, and certainly helped with those future worries/anxiety. So now I feel pretty confident for my retirement, and my future self will thank my present day self for it too.

Additionally, learning how they work has also alerted me to one attribute I do have to substantially improve my pensions/retirement further… and that is time.

So I am happy to share what I have learned about the Japanese pension system, in the hopes that anyone reading, with the same worries about their future can put the wheels into motion to take control of their retirement whilst they still have time.

 

[mitchellh]

@rogueebear You're definitely helping me feel more comfortable about it!

Looks like we might be the same age too if that "86" in your username has the significance I think it does.

 

[shawb]

@eterna

So if Carl had skipped his legal obligation and placed the same contribution on the market (at the end of each year) for a long term 5% return (post tax, so 6.25% pre-tax), he would have 8.89 M by the end, and would afterwards receive about 450k per year thereafter.

Though if he did stop these payments at 60 and let the investments simmer there for 5 additional years like he would have had to with the pension he would then have around 11.5 million and in case he took all the profits out from there after he would receive around 570k per year. And that is already very close to the pension he would have received, with the difference that when he dies the pension stops but in the other case he could leave 11.5 millions to the foundation of homeless cats.

Of course the pension payments make you, or your widow, eligible for disability pension or widow's pension. Then again if you decide to kick the bucket before reaching retirement age you get nothing but your investments would again be left for the cats.

So the calculations are not very simple, and as much as I like doing them they are kind of pointless as the law is the law. Stealing your food would also be cheaper than paying for it but it doesn't get less illegal even if the penalties are non-existing.

 

[rogueebear]

@shawb I think a keen advantage a pension has over other investments is not only that it will secure and income until you die, but is that the premiums are a tax deductible, which is very beneficial for present day life.

Additionally, pension annuities in retirement from state backed pensions are taxed as “pension income” which is tax more favorably than capital gains/dividends etc

So if you’re investing in some ETF or index fund (outside of your iDeCo or NISA/Tsumitate NISA) then your taxes for that will be higher than income defined as “pension income” I.e state backed pension annuity.

This document here: https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/gensen/pdf/1648_73_gaikokugo_r03_en02.pdf

Outlines the deductions from “pension income”.

Using our friend Bob…again with his ¥2.7 million state backed pension annuity (his Japanese + UK pension combined). Let’s assume Bob is 65 or older, and whilst claiming his “pension income” earns less than ¥10 million a year in Other “non-pension income” income.

He will get to deduct ¥1.1 million off his total state backed pensions (UK and Japanese combined).

Essentially ¥1.1 million of his ¥2.7 million “pension income” becomes tax free.

Meaning if he was just having his Japanese and UK state pension annuity as his only source of income, his taxable income would be:

¥2.7 million - ¥1.1 million - ¥480,000 basic deduction - whatever his premiums are for NHI… let’s just say ¥150,000 per year

= ¥970,000

Which is only in the 5% rate. Meaning his income tax bill is ¥48,500 (and his Resident tax bill is ~¥100,000)

Meaning he gets ¥2.7 million a year until he dies (Based on current figures/calculations as state pensions rise slightly with inflation etc) but only pays ~¥148,000 in taxes.

 

[fannypack]

@rogueebear For Category 2, how does Kyousai nenkin (public worker pension) differ from the above? Some foreigners do pay into this system, if you're working at a national university for instance.

 

[rogueebear]

@fannypack This one I am not too sure of. I believe @nicoleb07 maybe better able to help with that as I believe he has been enrolled in it.

 

[nicoleb07]

@rogueebear I believe kyosai nenkin used to be quite different (and better) but a few years ago it was brought in line with kosei nenkin.

To make up for that, I believe kyosai nenkin has a small supplementary component but I don't think it makes much difference and I'm not sure of the details.

It does mean you only get a 12,000 yen a month iDeCo contribution limit though, which sucks.

 

[resjudicata]

@rogueebear Go bob!

 

[rogueebear]

@resjudicata Yea right! He did well. Everyone should be like Bob!

 

[joeychannel]

@rogueebear This is wonderful stuff, great job.

I am curious about this take by the Japanese fellow who retired with his wife at 45 (no kids).
https://zz597.blogspot.com/2018/09/blog-post_14.html?m=1

It seems he was able to opt out of paying the national pension, mostly for income reasons, but my reading is that his national pension still increases even though he isn't paying (50% reduction).

I only mention this because of /@idontknow-Torio comment about how investing your pension income would yield better results.

My Japanese is not fluent so perhaps I misunderstood this Japanese FIRE post about pensions.

 

[rogueebear]

@joeychannel I am not clued on about the exemption part of Kokumin Nenkin. It's something I (luckily) have not been in a position to need to research.

I am curious about this take by the Japanese fellow who retired with his wife at 45 (no kids). https://zz597.blogspot.com/2018/09/blog-post\_14.html?m=1

The gist of my understanding of this person's goal is to apply for and obtain the full-exemption due to "low income". Although I honestly don't think this guy is struggling, but on paper he may qualify for it.

I say this because in another link he mentioned: https://zz597.blogspot.com/2017/11/blog-post_20.html

株式やリートの配当金は源泉分離課税として確定申告は不要になりますが、ソーシャルレンディングの配当金が多くなれば確定申告対象となり、金額に応じて社会保険料が高額になっていくため、収入の調整をうまくしていく必要があります。

So he knows exactly what he's doing.....

But he also seems to lack faith in the sustainability of pension system (which is fair enough).

Anyway, to try explain what I understand about the exemption.....

There are 4 types of exemption for National Pension (Category I) which are granted based on examination of low household income, or if you are receiving the Disability Basic Pension or the Public Assistance under the Livelihood Protection Act.

1) full-exemption = You pay 0 JPY monthly premiums

2) 3/4 exemption = You pay 4,150 JPY monthly premiums

3) 1/2 exemption = You pay 8,310 JPY monthly premiums

4) 1/4 exemption = You pay 12,460 JPY monthly premiums

Any granted exempt month will still be added on your pension record, so it will not be a missed month.

So when it comes to calculating your Annuity in retirement you can include those exempt months in your calculation. Unless of course, you fail to pay the required amount if granted exemptions 2,3, or 4 (from my list above).

HOWEVER, they will be slightly adjusted.

The Pension website states:

For the purpose of calculation of your pension benefits, your periods of full-amount -exemption for March 2009 and earlier will count as one-third of full-contribution-paid periods (the 3/4-amount-exemption periods will count as half, the half-amount -exemption periods as two-thirds and the 1/4-amount-exemption periods as five-sixths). Your periods of full-amount-exemption for April 2009 and later will count as half of full-contribution-paid periods (the 3/4-amount-exemption periods will count as five-eighths, the half-amount exemption periods as three-fourths and the 1/4-amount -exemption periods as seven-eighths).

So to but this in an easier to read layout:

Exemption period for March 2009 or earlier:

1) Full exemption = 1/3 (0.33)

2) 3/4 exemption = 1/2 (0.5)

3) 1/2 exemption = 2/3 (0.66)

4) 1/4 exemption = 5/6 (0.8333)

Exemption period for April 2009 or later:

1) Full exemption = 1/2 (0.5)

2) 3/4 exemption = 5/8 (0.625)

3) 1/2 exemption = 3/4 (0.75)

4) 1/4 exemption = 7/8 (0.875)

So lets give Bob a break this time (he is a robust law abiding resident who has strong belief that a state pension is great) because Bob was enrolled in EPI for every month he was in Japan, and instead go back to @idontknow-Torio's Adam for this example:

Adam has 40 years (480 months) of National Pension contributions. However, at some point after April 2009 he had a bit of a rough patch....COVID hit his freelance work hard!

for 2 years (24 months) he was granted full-exemption.

His Annuity in Retirement would be:

780,900 JPY / 480 months x ((24 x 0.5*) + (480-24)) = 761,377 JPY

*notice this is the 24 months he had at a full exemption which due to being after April 2009 at worth 1/2 or 0.5 of a full normal contributed month. So out of 480 months his record has as contributed, his calculation can only calculate 468 months.

Adam's 2 years (24 months) of full exemptions would have saved him (16,610 JPY x 24 = 398,640 JPY) in premiums, However, in return would have given him 12 months of free contributions on his annuity calculation.

Additionally, Adam would have 10 years to pay the exemption periods i.e say 5 years later Adam gets some money. He can pay back those 2 years full-exemption and he can then include them as full months in his annuity calculation.

That is my understanding of how the National Pension exemption system works anyway.... (Happy to be corrected if incorrect).

I do have an additional question though. Does anyone know what happens to those on unemployment insurance? Are you 1) required to pay National Pension? 2) Eligible for exemption?, or 3) Do you get contributions made for you at your last SMR rate?

 

[lifeabundant]

@rogueebear Quick question about the category 3, so in bob's case his spouse won't be paying any premiums but she will receive the same amount as Bob's? A bit curious on the spouse end. Thanks!