Social insurance in Japan covers health insurance, nursing care insurance for those aged forty and over, employees' pension insurance and employment insurance. Combined, the employee share runs to roughly fifteen percent of pay, matched by the employer.
What makes it distinctive is the calculation method. Rather than applying a percentage to each month's pay, the system assigns you a standard monthly remuneration grade and charges a fixed amount based on that grade.
How the grade is set
- The annual review, teiji kettei, takes the average of your April, May and June pay and uses it to set the grade applying from September until the following August.
- An occasional revision, zuiji kaitei, applies if fixed pay changes by enough to move you two or more grades, taking effect after three months.
- New employees have a grade set from their expected remuneration at the point of hire.
- Bonuses are charged separately at the same rates, subject to their own caps per payment and per year.
The April to June averaging window is the detail worth knowing. Overtime worked in those three months raises your grade for the following twelve, which means a busy spring produces higher contributions for a year even if the rest of the year is quiet. Japanese employees are well aware of this and it is a recognised source of grumbling.
The components
The pension grade has a ceiling, so very high earners contribute a fixed maximum. Health insurance grades extend further up. Employment insurance is the exception that is calculated on actual pay rather than on a grade.
What it buys
- Health cover with a standard patient co-payment of thirty percent for most adults, and a high cost medical expense benefit capping monthly out of pocket costs by income band.
- The employees' pension, paid on top of the basic national pension, calculated from career average remuneration and the number of contributing months.
- Injury and sickness allowance, paid at around two thirds of standard remuneration for up to eighteen months of inability to work.
- Maternity allowance at a similar rate around childbirth, plus childcare leave benefit paid through employment insurance.
- Unemployment benefit through employment insurance, with duration depending on contribution history and the reason for leaving.
The high cost medical expense benefit is worth singling out because it is the feature that makes Japanese healthcare financially predictable. Above a monthly threshold scaled to income, the state covers the excess.
Leaving Japan
Foreign nationals who have contributed to the pension system for at least six months and who leave Japan can claim a lump sum withdrawal payment, subject to a cap on the number of contributing months counted. The claim must be made within two years of leaving.
A withholding tax applies to the lump sum, and a portion of it can be reclaimed by appointing a tax agent in Japan before departure and filing afterwards. This is a genuine sum of money and it is frequently left unclaimed.
Alternatively, where a social security agreement exists between Japan and your home country, contribution periods can be aggregated for pension qualification purposes instead of taking the lump sum. Which is better depends on how long you contributed and where you expect to retire.
Social insurance is deductible from taxable income in Japan, so it reduces the tax bill as well as take-home pay. See both on the Japan Salary Calculator.