Pension System

1) What is a public pension plan?

The public pension system is administered by the national government and was established to provide Japanese citizens with financial security throughout their lifetime, while also allowing society to proactively prepare for future uncertainties. Factors like aging, illness, and injury can hinder an individual's ability to lead an independent life, and saving enough in advance can be limited. Consequently, the public pension system permits individuals to prepay insurance premiums, ensuring they receive benefits in the form of a "pension" when required.

The public pension system comprises two main types: the National Pension Plan and the Employees' Pension Plan. Japan's public pension system has a two-tiered structure, with the National Pension System, known as the Basic Pension System, constituting the first tier, and the Employees' Pension System comprising the second tier. Company employees and civil servants are automatically enrolled in the Employees' Pension System to complement the National Pension System.

2)Classification of Members

Members of the public pension system (i.e., insured individuals) are categorized based on their occupation and other factors. The classification determines the specific insurance system to join, the payment of premiums, and the payment method.

3)Difference between National Pension Plan and Employees' Pension Plan

The National Pension Plan encompasses all Japanese residents between the ages of 20 and 60. Consequently, even foreigners residing in Japan with a domicile and a residence card must join the National Pension Plan.

In contrast, the Employees' Pension Plan (Kosei-Nenkin) is an additional pension scheme for company employees, civil servants, and others employed by a company. Enrolling in the Employees' Pension Plan also automatically enrolls participants in the National Pension Plan. When eligible for benefits, National Pension Plan participants receive the "Basic Old-Age Pension," while those in the Employees' Pension Plan receive the "Old-Age Welfare Pension," in addition to the "Basic Old-Age Pension."

Here is a summary of the key differences between the National Pension Plan and the Employees' Pension Plan.

※1　出典：国民年金機構「国民年金保険料」

https://www.nenkin.go.jp/service/kokunen/hokenryo/20150313-02.html

※2　出典：国民年金機構「老齢年金ガイド」

https://www.nenkin.go.jp/service/pamphlet/kyufu.files/LK03.pdf

4) Types of Public Pensions

①Old-Age Pension

The old-age pension is provided to insured individuals aged 65 or older and comes in two forms: the Basic Old-Age Pension and the Old-Age Employees' Pension.

Basic Old-Age Pension: This pension is available to insured individuals who have participated in the National Pension Plan for 10 years or more.

Employees' Pension: An additional pension for those eligible for the Basic Pension for the Elderly who have been members of the Employees' Pension Plan for a specific duration.

②Survivor's Pension

The Survivor's Pension assists surviving family members with living expenses following the death of an insured individual. It has two variants: the "basic survivor's pension" and the "survivor's welfare pension."

Survivor's Basic Pension: Available to spouses or children (under 18 years old) whose livelihood was supported by the insured individual who met the National Pension's requirements.

Survivor's Welfare Pension: Accessible to surviving family members of insured individuals who meet the criteria for receiving the welfare pension and supported the livelihood of the insured person upon their passing.

③Disability Pension

Disability Pension provides financial support when an illness or injury affects an individual's life or prevents them from working. It has two types: the "basic disability pension" and the "disability welfare pension."

Basic Disability Pension: Paid to those with a disability grade (Level 1 or 2) as per the law due to an illness or injury diagnosed while enrolled in the National Pension Plan, including individuals disabled before age 20 not covered by the National Pension Plan.

Disability Welfare Pension: Supplementary to the Basic Disability Pension for those disabled (Level 1, 2, or 3) due to an illness or injury initially occurring during enrollment in the Employees' Pension Plan.

5) Switching between National Pension and Employees' Pension

①When to switch

Switching between the National Pension Plan and the Employees' Pension Plan may become necessary during marriage, employment changes, or job transitions. The typical timing for these switches is as follows:

When becoming a company or public employee: Category 1 and 3 insured individuals switch to Category 2.

Upon retiring from a company: Category 2 insured individuals switch to Category 1.

When a spouse's annual income drops below 1.3 million yen due to marriage: Category 1 and 2 insured individuals switch to Category 3.

Regarding switching mid-month and its impact on pension premiums, premiums for the Employees' Pension Plan are calculated monthly. Consequently, when joining a company, you must pay premiums for the month you join, regardless of the specific entry date. 

For resignations, if you resign on the last day of the month, you must pay the premium for that month; otherwise, no payment is required. However, you must pay National Pension Insurance premiums for the month of retirement or Employees' Pension Insurance premiums for the month of job change.

6) Foreign Workers and the Public Pension System

As previously mentioned, all residents of Japan, including foreigners with a domicile in Japan, are obliged to join the National Pension Plan. However, some foreign individuals who do not plan to stay in Japan until they are eligible to receive benefits may choose not to pay premiums. Measures to address such cases include:

①Social Security Agreements

Many countries have their own pension systems similar to Japan's National Pension Plan. Consequently, residents abroad may be required to pay insurance premiums in both their home country and their host country, potentially resulting in double payments. To mitigate this issue, social security agreements have been established between countries, allowing the aggregation of pension enrollment periods. If Japan and a foreign worker's home country have such an agreement, the worker need not worry about double premium payments when returning home.

②Lump-sum Withdrawal Payments (LWP)

For individuals from countries without a social security agreement, the Lump-sum Withdrawal Payment System is available. This system enables foreign nationals who have enrolled in the National Pension Plan or Employees' Pension Plan in Japan to claim a portion of the premiums paid to the Japan Pension Service upon returning to their home country.

Eligibility for the Lump-sum Withdrawal Payment System includes:

Not having Japanese citizenship.

Not being insured by the National Pension Plan or the Employees' Pension Plan.

Having paid premiums for six months or more.

Not being eligible for an old-age pension, etc.

Not having a domicile in Japan.

Less than two years have passed since the last loss of insured status.

The refund amount under this system varies based on the premium payment period, average compensation during the insured status period, and other factors.

It is important to note that using the Lump-sum Withdrawal Payment System means you have not paid insurance premiums in Japan. If a social security agreement exists between Japan and the worker's home country, the period of premium payment in Japan may be added to the home country's pension payment period. However, if the Lump-sum Withdrawal Payment System is used, it will not be added, and if the individual returns to Japan, they will have to restart accumulating pension payments from scratch.