Japan

Japan’s social insurance system is regulated by (i) a law of 1954 on employee’s pension insurance and (ii) a law of 1959 on national pension. The social insurance system involves a flat-rate benefit for all residents under the national pension program and earnings-related benefits under the employees' pension insurance program or other employment-related program.

The national pension program covers all those persons residing in Japan aged between 20 and 59. Voluntary coverage is available for persons residing in Japan aged between 60 and 64 and for Japanese citizens residing abroad.

Further, the employees’ pension insurance covers all employees younger than 70 working in covered firms in industry and commerce, including seamen. Most self-employed persons are excluded from the system.[1]

Special employment-related system are applicable to civil servants.

The national pension program is funded with contributions from the employees’ pension insurance or other employment-related program, which are transferred to the national pension program. The employees’ pension insurance or other employment-related programs pay contributions for low-income and dependent spouses of insured persons. Low-income persons, beneficiaries of the disability national pension and persons who receive livelihood assistance do not have to make contributions for the national pension program. 50% of the cost of benefits and 100% of administrative costs are financed by the national tax system.

As regards the employees’ pension insurance, funds are contributed by both the insured person and its employer in the following proportions: (i) Insured person:7.852% (variable) of monthly wage class earnings (salary and bonuses before tax), according to 30 wage classes; miners and seamen contribute 8.224% (variable) of monthly earnings (salary and bonuses before tax). Employers contracting out of a portion of the Employees’ Pension Insurance contribute 5.47% to 5.77% of monthly earnings (salary and bonuses before tax); and (ii) Employer: 7.852% (variable) of monthly payroll (salary and bonuses before tax), according to 30 wage classes; contributions for miners and seamen, 8.224% (variable) of payroll (salary and bonuses before tax). Employers contracting out of a portion of the Employees’ Pension Insurance contribute 5.47% to 5.77% of monthly earnings (salary and bonuses before tax). The minimum monthly earnings used to calculate contributions are 98,000 yen (approximately USD 1,200), while the maximum monthly earnings used to calculate contributions are 620,000 yen (approximately USD 7,500). The minimum and maximum earnings levels are adjusted on an ad hoc basis according to the increase in the national average wage. The total cost of administration is financed by the national tax.

For those covered by the national pension program, the funds are available at age 65 with at least 25 years of contributions (including any periods exempt from contribution requirements such as low-income periods). The full pension is paid with 40 years of paid contributions. The coverage period includes years of coverage under the employees’ pension insurance and other employment-related programs as an insured’s dependent spouse (including common-law spouse). There is no requirement to cease employment and the pension is not earnings-tested. Further, early pension is available from age 60 to 64 with at least 25 years of contributions.

The pension may be deferred until age 70. The insured must satisfy the qualifying conditions for the old-age national pension and cannot claim the pension sooner than one year after fulfilling the conditions.

In case of coverage by the employees’ pension insurance, the funds are available at age 60 (age 59 for seamen and miners) with at least 25 years of coverage (including any periods exempt from contribution requirements). There is no requirement to cease employment. The pension is reduced if the pension and salary combined exceed a certain limit. The reduction is greater for those aged 60 to 64 than for those aged 65 to 69.

For those covered by the national pension program, the old-age benefit consists of 792,100 yen (approximately USD 9,800) a year. A reduced pension is paid according to the number of contributions paid and credited. The pension is paid every 2 months. An early pension is available, in which case a reduction is made: (i) for those born on or after April 2, 1941, the reduction is 0.5% multiplied by the number of months between application and one month before age 65, and (ii) for older cohorts, the benefit is reduced by 42% to 11%, depending on the age at which the pension is awarded from age 60 to 64. Also, pension can be deferred, in which case the pension is increased: (i) for those born on or after April 2, 1941, the increase is 0.7% multiplied by the number of months between application and one month before age 65, and (ii) for older cohorts, the pension paid at age 65 is increased by 12% to 88%, depending on the age at which the pension is awarded from ages 66 to 70.

A dependent’s  supplement is paid to a qualifying spouse aged 65 or older and ranges from 15,300 yen (approximately USD 190) to 227,900 yen (approximately USD 2,800) a year, depending on the spouse’s age.

All benefits are automatically adjusted annually according to changes in the cost of living and wages.

For those entitled to a pension under the employees’ pension insurance, the old-age benefit is based on the insured’s average monthly wage over the full career multiplied by a coefficient determined by the insured’s date of birth multiplied by the number of months of coverage. The pension is paid every 2 months. Pensioners aged 60 to 64 receive an additional 1,676 yen (approximately USD 20) a month for each month of total coverage.

In case of working pensioners aged between 60 and 64, the full pension is paid for continued employment from age 60 to 64 if the combined total of monthly earnings and pension is no greater than 280,000 yen (approximately USD 3,500); if the combined total is 280,000 yen (approximately USD 3,500) to 470,000 yen (approximately USD 5,800) a month, the pension is reduced by 50% of the increase in monthly earnings; if monthly earnings exceed 470,000 yen a month, the pension is further reduced.

In case of working pensioners aged between 65 and 69, if the combined monthly earnings and pension exceed 470,000 yen (approximately USD 5,800), the pension is reduced by 50% of the increase in monthly earnings.

A dependent’s supplement of 227,900 yen (approximately USD 2,800) a year is paid for a spouse; 227,900 yen (approximately USD 2,800) a year for each of the first two children and 75,900 yen (approximately USD 940) a year for each subsequent child up to the end of the fiscal year in which the child reaches age 18 (up to the month they reach age 20 if disabled).

Benefits are automatically adjusted annually according to changes in the cost of living and wages.

The programs (both the national and employees’ pension programs) are supervised by the Pension Bureau of the Ministry of Health, Labour and Welfare (http://www.mhlw.go.jp). The Japan Pension Service (http://www.nenkin.go.jp), under the fiscal and management responsibility of the Ministry of Health, Labour and Welfare, administers both programs nationally. Japan Pension Service collects contributions, provides consultation services, and pays benefits for both programs through their branch offices.



[1]For the purposes of the national pension program, a self-employed person is a person who runs an unincorporated business with no more than 4 workers.

 

 

Source:Social Security Programs Throughout the World: Asia and the Pacific, 2010, available at http://www.ssa.gov/policy/docs/progdesc/ssptw/2010-2011/asia/index.html

 
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