The pension problem - The Pulse 1

Japan, Inc., Dec, 2003 by Terrie Lloyd

WHILE MOST OF THE attention is focused on the poor state of affairs in Japan's pension system, there is a unique problem for foreigners working in Japan that also needs to be addressed. The way the pension system is structured at the moment, foreigners living in Japan for longer than three years but less than 25 years pay 9 percent of their salary (which must be matched by their employer) into the Japanese pension system, without any way to receive benefit from the contributions when they get older. Not only that, with the exception of just two countries' citizens, foreigners can't use the Japanese contributions when they go back to their home countries.

Like a number of other countries in the world, Japan won't pay out a pension unless you've been paying into the system for at least 25 years. This means that foreigners working for fewer years not only can't collect a pension here in Japan after contributing up to [yen] 37 million (the top contribution rate), but when they go home, they also can't collect a pension there either. (For example, in Australia, you have to contribute for 25 years in order to receive a pension). Clearly this is very unfair, and may well constitute a basic breach of human rights.

Japan seems very reluctant to allow foreigners to have reciprocal pension arrangements. So far, there are only two countries, Germany and the UK, which have reciprocal pension agreements. The Japanese government probably knows that the approximately 80,000 Westerners in Japan who are typically highly paid are contributing somewhere between [yen] 100 billion and [yen] 200 billion a year to the national pension coffers without any associated costs, and thus it is dragging its feet in terms of offering pension agreements with citizens of other countries. For example, in April of 1995, the Canadian and Japanese governments agreed to have working level discussions to introduce a Canada-Japan pension agreement. But today, over nine years later, there is still no substantial progress.

Actually, the Canadian pension case is an interesting one. There are over 1,800 Japanese working in Canada (over 34,000 actually live there), and for each Japanese, the contribution to the Canadian pension system borne by the employer is just CN$1,330 a year. In contrast, a Canadian employer's contribution in Japan is [yen] 746,000 (at the highest rate), about eight times more. So not only is the current system unfair to foreign individuals, but it punishes companies as well.

In November 1994, the Japanese government introduced a system allowing foreigners to claim up to three years of their pension payments back if they leave the country. But these refunds only apply to the individual. Companies don't qualify for a refund, even though the pension contributions will never be used.

In a Japan Times interview with the Ministry of Health and Welfare, officials claim that since 90 percent of foreigners leave Japan within three years, the refund period was limited. However, unless the Japanese government introduces reciprocal pension agreements with other countries, the 10 percent who stay significantly longer than three years and who are making contributions to the country are being doubly punished--unable to collect a pension either in Japan or their own country, and unable to retrieve any of their contributions beyond a mere three years. This situation cries out for reform.