Accessing pension earlier: Lump-sum withdrawal payments of the EPI system

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All employees working for a corporate business operating in Japan must be covered by the Employees’ Pension Insurance system (EPI system) and pay contributions. However, if you are a foreign national, then you might leave Japan permanently before you reach retirement age. In such a case, will you lose all your contributions you have paid? The answer is NO. You can claim “lump-sum withdrawal payments” which allow foreign residents leaving Japan permanently to receive a one-off payment. Let’s have a look on details.

What is the lump-sum withdrawal payments of EPI system?

In Japan, all corporate entities must be registered with the EPI system. The lump-sum withdrawal payments of EPI system allows foreign workers, who were employed by Japanese companies for 6months or more, to receive a one-off payment after they return to their country. Those foreign employees working for a Japanese company are required to enroll in the EPI system, however, they also are likely to leave Japan for good before they start receiving the Old-age Basic Pension. The lump-sum withdrawal payments was introduced to prevent those foreign employees from wasting their contribution money. The National Pension system has a similar lump-sum payment system. Foreign employees working for a small business or sole proprietors who paid contributions for 6 months or more can apply for the lump-sum withdrawal payment after they depart Japan permanently.

Conditions for Lump-sum withdrawal payments of EPI system

To receive your lump-sum withdrawal payments, you must firstly meet all of the following conditions:

You have coverage periods under the EPI system for six months or more.
You are not a Japanese citizen
You have never been entitled to any Japanese public pension, including the Disability Allowance
You are not resident in Japan and not covered by the National Health Insurance

In addition, you need to file your application with Japan Pension Service within two years after your Basic Resident Register in Japan is canceled. The procedures might take some time as an application can be made only outside of Japan. Also, in order to meet the condition No.4, you must lodge a moving-out notice at a municipal office in your area. Make sure to cancel your Basic resident Register at your municipal office before leaving Japan.

Payments amount under the EPI system

Compare to payment amount under the National Pension system which is scaled by contribution period, a calculation of the lump-sum withdrawal payment under the EPI system is a lot more complicated. For example, the payment for an applicant who enrolled in EPI system after April 2005 is calculated by their contribution period as follows:

6 – 11 months : Your ASR* x Your Multiplier (your contribution rate x 0.5 x 06)
12 – 17 months: Your ASR* x Your Multiplier (your contribution rate x 0.5 x 12)
18 – 23 months: Your ASR* x Your Multiplier (your contribution rate x 0.5 x 18)
24 – 29 months: Your ASR* x Your Multiplier (your contribution rate x 0.5 x 24)
30 – 35 months: Your ASR* x Your Multiplier (your contribution rate x 0.5 x 30)
Over 36months: Your ASR* x Your Multiplier (your contribution rate x 0.5 x 36)
*ASR: Average Standard Remuneration

20.42% of income tax will be deducted before your final payment is deposited into your nominated bank account.

Average Standard Remuneration (ASR)

Your benefit amounts under the EPI system is calculated by using your Average Standard Remuneration (ASR), which is scaled to work out your income group, instead of the exact figure of your income. Your monthly ASR is determined from 30 income groups which your average figure of April to June remunerations falls in. Also, bonuses are rounded down to the nearest 10,000 and included as an average bonus. Note that the amount of average bonus is capped at JPY1,500,000. Finally, your ASR is calculated by dividing a sum of your monthly ASR and average bonus by your total coverage periods (months).

Multiplier

Your multiplier varies depending on the length of your EPI coverage periods. It is scaled every 6months until your EPI coverage periods reaches 36months. After 36months, your multiplier is fixed a flat rate. That means, once the length of the EPI coverage period reaches 3years, your future benefit amount will not change no matter whether you are employed for 4years or 10 years. Also, your EPI coverage period is aggregated throughout your career as long as you participated the EPI system.

Contribution rate

A contribution rate will be raised by 0.354% every year from 2004 up to 2017, and it will be fixed at 18.3% after 2017. Examples of contribution rate in recent years are: from September 2013 17.12%, from September 2014 17.474%, from September 2015 17.828%, and from September 2016 18.182%.

Calculation example

If you participated the EPI system for 3years until April 2016, under the condition of your monthly wage JPY220,000 and bonus 300,000, your ASR is:
(JPY220,000 x 36) + (JPY300,000 x 36)/36 months = JPY270,000
Furthermore, the contribution rate from September 2014 to August 2015 is 17.474%, and the index number for over 36months contribution period is 36, therefore your lump-sum withdrawal payments will be:
JPY270,000 x (1/2 x 17.474% x 36) = JPY849,236
Then, 20.42% of income tax will be deducted and you will receive the balance of JPY675,823 in your account.
※The calculation above is example only. You must inquire the accounting personnel of your company or Japan Pension Service for your own case.

Required documents

You must submit the following documents to apply for the lump-sum withdrawal payments of EPI system.

Application form

The application forms in multiple languages can be downloaded from Japan Pension Service website.

Photocopy of your passport

Page(s) showing date of your final departure from Japan, your name, date of birth, nationality, signature and resident status, e.g., instructor, engineer or trainee.

Your bank account detail

Documents issued by your bank name of the bank, name and address of the bank branch office, your account number and anything to show the account holder is the claimant (yourself).

Your Pension Handbook

Make sure to take your pension handbook with you when you leave Japan.

You will need to send above documents after you leave Japan. The application from with detailed instruction can be downloaded Japan Pension Service website. Even a mailing label is attached on the form. Once your application is granted, your lump-sum withdrawal payments after tax will be internationally transferred into your bank account at a rate at the time. You can file your tax return to adjust income tax deducted from your payment, however, you will need to appoint a tax agent residing in Japan to claim a refund.

Before applying for the lump-sum withdrawal payments…

Importantly, you should carefully decide whether to apply for the lump-sum withdrawal payments if your country is one of the partner countries of Japan under the bilateral Social Security Agreement. Once you use your coverage periods to receive your payments, the periods will no longer be valid to apply for such totalization benefits. In some cases, you will receive more gain in the end if you choose not to receive the lump-sum withdrawal payments. Therefore make sure to research about the pension system of your own country before you apply for the lump-sum withdrawal payments. (Please refer to the column about the lump-sum withdrawal payments of the National Pension system)

Partner countries of the bilateral Social Security Agreement of Japan: Germany, U.S.A, Belgium, France, Canada, Australia, the Netherlands, Czech Republic, Spain, Ireland, Brazil, Switzerland, Hungary, India (not in effect), Luxenberg (not in effect), Philippines (not in effect)

Summary

Even though your company will pay half of your contribution amount, an accumulated total of all contributions paid will be quite large sum. You definitely want to avoid wasting all those contributions. If you are planning to depart Japan for good after you terminate working for your company, and you have never been entitled to any Japanese public pension, the lump-sum withdrawal payments is worth considering to recover the contributions you have paid.