Introduction of Japanese Public Pension System
Since the public pension system in Japan was established in 1942, it has gone through the Second World War, post-war period, economic recovery, high economic growth, bubble economy, financial crisis and aging, and several reforms have been carried out to finally formed the current public pension insurance system.
In the past, the responsibility of nursing the elderly in Japan used to fall on the young members of the family. However, with urbanization, aging, childlessness, and nuclear clans (the phenomenon where the family structure changes from a large family formed by several families living together within a clan to a small family formed by couples and their unmarried children), the proportion of the working population is decreasing and concentrating in the big cities, which results in the traditional form of nursing care no longer being applicable to the elderly.
Japan's public pension insurance system is generally recognized in three stages. The first stage is the period from the establishment of the system in 1942 to the realization of the universal pension in 1961, the second stage is the period from 1965 to mid-1973, when the system was continuously enhanced in accordance with the rapid economic development, and the third stage is the period from 1985 to the present, when a series of reforms have been carried out in order to eliminate the negative impacts of childlessness and aging.
According to the report on “National Pension Participation and Premium Payment Situation in the Year 2020” issued by the Pension Bureau of the Ministry of Health, Labour and Welfare and the Japan Pension Service, in 2020, 98% of public pension insurance participants in Japan paid their pension premiums on time and in full, while only 2% of them did not pay their premiums in the past 24 months.
Pension insurance plays a significant role in the aging society in Japan. The Ministry of Health, Labour and Welfare's 2019 National Living Basis Survey shows that among all elderly households in Japan, nearly half (48.4%) depend solely on pension income for their livelihood, with 27% of households having more than 60% of their total income from pension income. The average pension income per household is about 1.99 million yen, representing 63.6% of the average total income.
In this passage, based on the information and related law from the Ministry of Health, Labour and Welfare, Kaizen will briefly introduce the Japanese Public Pension System, summarize the types of pensions for a reference to our current and potential customers. In addition, Kaizen do provide
Japanese social insurance enrolment and salary calculation services, please contact our consultants for further information.
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What is “Public Pension”
Japan's public pension system is a social insurance system based on the idea that the majority of the society should support and overcome difficulties together, and its purpose is to protect the livelihood of the elderly, as well as to solve the problems brought about by accidental injuries and the death of the economic pillar of the family. Accordingly, all people living in Japan between the ages of 20 and 60 are obligated to participate in the pension insurance. The insurance premiums paid by these people and their employers, as well as the amount of national funds, are used to support the livelihood of the pension recipients.
However, those who do not contribute to the pension insurance are, in principle, not entitled to receive a pension.
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Operations
The basic operation of the public pension insurance system is carried out through the basic concept of utilizing the premiums paid by the current working generation for the payment of pensions, which is called the “mutual support of generations” (in Japanese. “世代與世代の支え合い”). In practice, the Japanese government allocates tax revenue to subsidize the pension in addition to the insurance premiums paid by the working generation.
Most countries, such as Japan, manage their pension systems based on a contribution system. Contribution refers to the operation system that utilizes the insurance premiums paid by the current working generation as the main source of funding for the pension, which can be adjusted according to the changes in salaries and prices to ensure a certain level of living standard for the pension recipients. The disadvantage of this method is that if the balance between the insurance premiums paid by the current working generation and the pension needs of the current recipients is overturned, the entire social pension system will be affected. At present, the heavily aging Japanese society is facing such a risk.
Compared to the contribution system, the accumulation system is an operation system in which the insurance premiums paid by a participant are used as the main source of funding for future pension payments. The amount of insurance premiums paid by a participant has a direct impact on the level of pension payments he or she can receive in the future, which is not affected by the balance of the demographic structure but is unable to cope with the situation when there is a significant change in the economic environment. In Japan, private pension insurance is mostly based on the accumulation method.
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Differences from the Living Allowance
Public pension insurance covers all Japanese citizens and provides livelihood protection for citizens in the event of aging, accidental injury, or the death of the economic pillar of the family, regardless of their income or assets.
The living allowance, covered directly by Japan's national treasury (tax money), represents the minimum amount of money needed to maintain the livelihood of those living in difficulty. The Japanese government conducts a very strict investigation of the income and assets of recipients before granting the living allowance.
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Two-Stage Structure
Japanese public pension insurance system consists of two structures: the “National Pension" (in Japanese, "国民年金") for all citizens aged 20 or older to under 60, and the “Employees' Pension” (in Japanese, "厚生年金") for company employees, civil servants, etc. The National Pension and the Employees' Pension are both available to citizens aged 20 or older to under 60. Employees, civil servants, etc., aged 20 or older to under 60 should participate in both the National Pension and the Employees' Pension.
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Participants
As of the end of 2020, the total number of participants in public pension insurance in Japan was 67.56 million, a decrease of 60,000 from the previous year. The following table shows the number of participants by category:
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Types of Participants
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Description
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Participants numbers
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No.1 Type of Participants
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Farmers, sole proprietors, students, unemployed
persons over 20 and under 60 years old.
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14.49 million
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No.2 Type of Participants
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Company employees, civil servants, etc.
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45.13 million
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No.3 Type of Participants
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Spouses aged 20 or older and under 60 whose
annual income does not exceed 1.3 million yen are dependents of No. 2. Type
of Participants
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7.93 million.
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Three Types of Pensions
In the event of old age, accidental injury, or death of the family breadwinner, public pensions are categorized into three types, as follows.
(1)
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Old Age Pension.
An “old-age pension” is a monthly pension that a citizen can receive from the age of 65 until his/her death. Those who participate in the National Pension System are eligible to receive the Old-Age Basic Pension, while employees and civil servants who participate in the Employees' Pension System are eligible to receive the Old-Age Employee's Pension. An old-age pension is a pension that pays an additional amount of money on top of the old-age basic pension; therefore, the amount of the old-age pension is higher. The longer the period of contribution to the National Pension and the Employees' Pension, the higher the Old-age Pension benefits to be received in the later years of life. The amount of the Old-age Pension depends on the amount of the past salaries and remunerations.
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(2)
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Disability Pension
People who are disabled due to illness or injury can receive a “Disability Pension” (in Japanese, “障害年金”) with different benefits depending on the disability level. People who participate in the National Pension System can receive the “Basic Disability Pension”, while employees of companies and civil servants who participate in the Employees' Pension System can receive a higher amount of the “Disability Employees’ Pension”. A disabled person may receive a higher amount of the Basic Disability Pension if they have children, or a higher amount of the Disability Employees' Pension if they have a spouse.
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(3)
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Bereaved Pension
In the event of the death of a person who was the family's economic pillar, the spouse and children of the deceased are entitled to a Bereaved Pension (in Japanese, "遺族年金"). If the deceased was a participant in the National Pension, the spouse and children of the deceased are entitled to the Basic Bereaved Pension; if the deceased was a participant in the Employee's Pension, the spouse and children of the deceased are entitled to the Employees' Bereaved Pension.
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Contribution and Receipt Ratio
In general, the participant contributes 50% of the public pension insurance, the remaining 50% of the national pension is contributed by the country (tax), and the remaining 50% of the health pension is contributed by the employer. Those who have paid their share of the public pension insurance in accordance with the above regulations can receive the full amount of the pension upon fulfilment of the conditions for receiving the pension.
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Pension Recipients Living Supports
Recipients of public pensions whose income and earnings are below a certain level are entitled to an additional pension support benefit (in Japanese, "年金生活者支援給付金"). The amount requirements listed in this section are based on April 2022 data; the actual amounts are adjusted based on annual price changes.
(1)
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Old Aged Pension Recipients Living Supports
Individuals aged 65 or older who receive an old-age basic pension are eligible for an old-age pension living supports if all their family members are exempted from paying municipal taxes, as well as the total amount of their pension income and other income for the previous year did not exceed 881,200 yen. The amount of the subsidy is calculated according to the following formula:
i. Amount of contribution period = 5,020 yen * (Period of premium payment÷ 480 months)
ii. Amount of premium exemption period = 10,802 yen * (Period of premium exemption ÷ 480 months)
Old Aged Pension Recipients Living Supports = (1) + (2)
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(2)
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Disability Pension Recipients Living Supports
Individuals who receive a disability pension and his/her total income for previous year did not exceed [4,721,000 JPY + (number of dependents * 380,000JPY)] are eligible for a disability pension recipients living support. Disability level 2 individuals can receive an amount of 5,020 JPY and disability level 1 individuals can receive 6,275 JPY.
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(3)
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Surviving Family Pension Recipients Living Supports
Recipients of the surviving family basic pension who’s the total income for previous year did not exceed [4,721,000 JPY + (number of dependents * 380,000JPY)] are eligible for an amount of 5,020JPY surviving family pension recipients living supports per months. If the number of children is two or more, the amount of the subsidy will be divided equally according to the number of children.
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KNOWLEDGE
