Employees’ Pension Insurance in Japan, Explained
The first pension system in Japan dated back to 1875 but was meant only for soldiers serving in the military.
This benefit gradually extended to other parties such as public enterprises and government workers, but it was only until much later, in 1942 and 1961, that the government established laws that provided the groundwork for the national and employees’ pension: the main pillars of the Japanese pension system.
Although there are many pension programs that business owners can take advantage of, today we take a look at the employees’ pension insurance in Japan—the one incorporated businesses must be the most mindful of.
Comparing employees’ pension to national pension
The first thing to grasp is how employees’ pension and the national pension differ.
National pension (国民年金保険 = kokumin nenkin hoken) is a social insurance that all Japanese residents from 20 to 60 years old are mandated to enroll in.
In contrast, the employees’ pension (厚生年金保険 = kou sei nenkin hoken) is insurance that augments the national pension premium for government and company workers.
So businesses are not presented with an ultimatum between choosing one or the other. Rather, insurance fees for employees’ pension include national pension fees.
Perhaps the most significant difference between the two pension types is insurance fee payments. Those who are only enrolled in the national pension must pay the full insurance premiums directly to the relevant agencies themselves, whereas those enrolled in employees’ pension split insurance fees in half with their employer and have theirs calculated and drawn automatically from their salaries.
With the national pension, you can start receiving up to 65,000 yen per month once you turn 65, that is if you have paid for the full term of 40 years. The amount decreases if you do not pay for the full period. The average premium for the national pension currently stands at approx. 55,000 yen.
Enrolling in the employees’ pension doubles or sometimes triples the benefits received. This is because the employees’ pension premium is proportional to the enrollment length and the salary. As of 2020, the average employees’ pension premium received (which includes the national pension) is approx. 140,000 yen.
To sum it up, employees’ pension is not a program that replaces the national pension but something that adds to it. And depending on enrollment length and salary, the premiums significantly bolster the national pension premiums.
Other benefits of enrolling in pension
There are other benefits to the Japanese pension system. Besides securing against financial risks after employees’ retirement and providing a sense of stability, paying for pensions helps to reduce taxes for your company as insurance fees count as expenses that you can report to the tax office.
Also, those enrolled in the national pension become eligible to receive disability pension and bereaved family pension, safety nets providing financial support to the insured’s household in the case of severe illness, disability, or death.
Yet the benefits are not the only motivation for businesses to cover employees’ pensions. Businesses that are mandated to provide pension insurance for their employees may face imprisonment or a hefty fine for noncompliance.
But at what point does enrollment in employees’ pension become mandatory?
There are two angles from which to examine whether you must enroll your employees in the program or not. One is from the business’ perspective and the other is from the employees’ perspective. The following sections cover the applicability guidelines for businesses and employees respectively.
How to determine if your business must cover employees’ pension
Your business is compulsorily obligated to pay for employees’ pension if you are a 強制適用事業所 = kyousei tekiyou jigyou sho, if either of the following conditions apply to you:
Your business is a corporate establishment 法人事業所 = houjin jigyousho
Your business is a private establishment with 5 or more employees on a steady basis 個人事業所 = kojin jigyousho
Concerning private establishments, the following businesses or organizations are exempted from enrollment even if 5 or more employees are present.
Agriculture, Forestry, and Fisheries
Businesses assisting legal affairs
For further details on businesses mandated to cover employees’ pension, refer to this freee.co.jp article (Japanese).
How to determine if your employees are eligible for employees’ pension
Once you have determined whether your business is mandated to cover employees’ pension, the next step is to determine if your employees are eligible to enroll.
As a general rule, you must enroll your full-time employees, whether foreign or resident, if they fall under the following two conditions.
Under 70 years of age
Works on a steady basis
However, if the following conditions apply, enrolling in employees’ pension is voluntary, even for employees working at a kyousei tekiyou jigyousho.
The employee is hired by the day
The employment contract is less than a month
The employee is working at a seasonal enterprise (4 months) or a temporary enterprise (6 months)
The establishment changes location frequently
A note about part-time workers: if they work 3/4 of the amount full-time workers do, they may have to enroll in the employees’ pension.
If the above conditions do not apply to your employees, consider if they fall into the category below, which are the guidelines of eligibility for employees’ pension.
Employee works 20 hours or more each week
Employees’ official earnings per month is 88,000 yen or more (over 1,060,000 yen per year)
*Not applicable for employees who are students
Expected employment period of 1 year or more
Company in question has 501 or more employees
How much will it cost to enroll in employees’ pension?
Insurance premiums for employees’ pension withdrawn from salary and bonuses follow this calculation:
Standard monthly salary x insurance premium rate = insurance premium withdrawn from monthly salary.
Standard bonus x insurance premium rate = insurance premium withdrawn from bonuses.
“Aside from the base wage, the standard monthly salary includes position allowance, weighting allowance, dependent family allowance, commuting allowance, housing allowance, overtime allowance, and any cash or items given as payment for labor. Furthermore, bonuses paid 4 or more times per year also count as part of the standard monthly salary.” (Translated excerpt from Japan Health Insurance Association)
“When determining the standard bonus amount for calculating employees’ pension insurance fee, the definition of a bonus is any reward for labor paid up to 3 times a year, whether it be a salary, benefit, premium, whatever the reward is called. Any payment given 4 or more times a year will be considered as a standard monthly salary.” (Translated excerpt from Japan Pension Insurance)
For the insurance premium calculation, round off the bonus amount without the taxes to the nearest 1,000 (e.g., 410,500 yen >> 410,000 yen). Bonuses exceeding the 1,500,000 yen benchmark will count as 1,500,000 yen.
As of Reiwa 3, employees’ pension rate stands at 18.300%. So, here’s what the calculation would look like:
Standard monthly salary (260,000 yen) x insurance premium rate (18.300%) x 1/2* = pension insurance premium (23,790 yen)
Standard bonus (410,500 yen >> 410,000 yen) x insurance premium rate (18.300%) x 1/2* = pension insurance premium (37,515 yen)
*The insurance premium is split evenly between employer and employee
How to enroll in employees’ pension
Businesses that are compulsorily mandated to enroll in employees’ pension insurance should submit the designated applications to the Japan Pension Service within 5 days of establishment.
The following applications must be submitted either by mail or at a Japan Pension Service window or electronically (mandatory for large companies). Employee pension insurance application forms are accessible here.
Note: These documents are the same application forms to apply for employees’ health insurance because if you are applying for employees’ health insurance, you will also be required to apply for employees’ pension insurance (this applies to enterprises that voluntarily enroll employees in social insurance).
Notification of New Application for Health Insurance and Employee's Pension健康保険・厚生年金保険新規適用届 = kenkouhoken・kouseinenkin hoken shinki tekiyou todoke (See here for a tentative translation of this form provided by Japan Pension Service)
Notification of the Acquisition of Eligibility 被保険者資格取得届 = hihokensha shikaku shutoku todoke (See here for a tentative translation of this form provided by Japan Pension Service)
Notification of eligible dependents 被扶養者（異動）届（国民年金第3号被保険者関係届）= hifuyousha (idou) todoke (kokumin nenkin dai 3 gou hihokensha kankeitodoke) (See here for a tentative translation of this form provided by Japan Pension Service)
Application of Registering Bank Account for Insurance Fee Payments 保険料口座振替納付（変更）申出書 = hokenryou noufu (henkou) moushidesho
Keep in mind, each time you hire a new employee who is eligible for employees’ pension, you must submit 「健康保険・厚生年金保険被保険者資格取得届」within 5 days of the hiring date to the Japan Pension Office.
Furthermore, when an employee retires, you must submit 被保険者資格喪失届 hihokensha shikaku soushitu todoke (Notification of disqualification) to the pension office with the same method as the above-mentioned documents.
Employees’ pension insurance in Japan (covered here) and employees’ health insurance (covered previously) are just two types of insurance that corporations are compulsorily obligated to enroll in.
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