In recent years, consultations for foreigners at consultation desks have been increasing regarding pensions, nursing care, and retirement. As of December 2015, there are 230,000 foreigners from South America residing in Japan, including 170,000 Brazilians, 47,000 Peruvians, 5,400 Bolivians, and 2,600 Argentines. By age, those aged 60 or older make up 10% or less of the total, so it is not likely that many South Americans will be faced with pension or nursing care issues right away. However, with almost no new immigrants from South America, some households are bringing over their elderly parents from their home countries, and it is expected that they will face many challenges in the future, including whether they will be able to receive pensions and, if so, how much they will receive, as well as elderly care issues.
A quarter century ago, most Peruvians from South America who were residing in Japan were in their 20s or early 30s, but now they are in their 40s and 50s.1 It is unclear how long they were enrolled in the pension system while working in their home countries, but it can be assumed that very few Peruvians in Japan are eligible to receive a pension, even if they had enrolled as civil servants. In the 1980s, Peru was plagued by problems such as hyperinflation, high unemployment, and terrorism, so many Japanese Peruvians chose to work in Japan, mainly after the Immigration Control Act was revised in 1990.
This time, we would like to consider the pension issues faced by South American workers in Japan by comparing the pension systems and participation rates of South America and Japan.
Pension participation rates in Latin American countries
According to a report published a few years ago by the Organisation for Economic Co-operation and Development (OECD), the World Bank and the Inter-American Development Bank, entitled "The State of Pensions in Latin America 2014", 2 pension systems in the region are poorly managed, and despite the economic prosperity of the past decade, only 45% of the total workforce has contributions to a pension. This is the average participation rate, but it varies considerably from country to country. In Brazil, Argentina, Chile and Costa Rica, it is between 50% and 70%, in Colombia and Mexico it is between 30% and 40%, and in the Central American countries, Peru, Bolivia and Paraguay it is less than 20%.
Enrolment rates vary greatly depending on education level, gender, salary and business type. Men with both a high level of education and income, and working for large, well-run companies, have the highest rate of pension enrolment. Of 100 salaried workers, 64 are contributing to a pension, but the figure is just 17 among self-employed individuals. The enrolment rate for those working for large companies is 71%, but the figure is just 51% for medium-sized companies and 24% for small companies. If you work for a small company, have low skills and a low salary, like many self-employed people, you will find yourself in a very difficult situation in retirement.
Of course, even if they are taxi drivers, plasterers, or plumbers, reliable craftsmen save up money little by little to build their own homes, and some even buy apartments for retirement and use the rental income as a pension. These people tend to be middle class in countries with relatively large economies or not so severe inequality (Argentina, Chile, Uruguay, southern and southwestern Brazil, etc.). In South America, it is not so uncommon for people to take measures to protect themselves after retirement rather than relying on the finances of a country that is not very reliable.
The concern now is the "new middle class" that has emerged in recent years. Many of them have started paying pension contributions because they have taken up regular employment. However, looking at Brazil's middle class, the economic downturn that has continued for the past three years has caused an increase in the number of people who have lost their jobs, their incomes to fall, and fallen back into poverty, and the pension enrollment rate is also falling.
Welfare pension
Since 2000, many South American countries have had financial leeway due to the expansion of primary product exports, and the payment of "welfare pensions3 " to support the elderly has become widespread. This has allowed people who are not eligible for pensions to receive a certain amount of pension. For example, Argentina has a system commonly known as the "housewife pension4 ". This is a special welfare pension that women over 60 and men over 65 who are not eligible for general pensions can apply for. The payment rate is only the equivalent of the minimum wage, but for a certain period of time, monthly pension insurance premiums are deducted and various elderly medical benefits (examinations, treatment, hospitalization, and medicine are almost free) are available. It is a social policy that is greatly welcomed as it provides relief to all unpensioned people, regardless of gender. In fact, the payment of welfare pensions to people over 65 in Argentina has increased dramatically in recent years.
However, not all countries have such welfare pensions. In Paraguay and Peru, the system still allows them only as an exception, and they are almost nonexistent in Central America and the Caribbean. In Latin America, countries with good welfare pensions are Venezuela, Bolivia, and Argentina. The payment requirements and amounts vary from country to country, but the payment standards are not very strict. Local media reports that because they were quite generous during the period when the finances were rich from oil and grain, there are many cases of people receiving double benefits (pensions and other subsidies) or receiving benefits even when they do not need them at all.
Securing pension funding
In order to improve social security systems, including welfare pensions, a nation's financial base must be improved. Although some countries have seen a temporary improvement in their finances, the financial base of the social security system has weakened in recent years, and how to maintain the financial resources of the pension system in the future has become an important issue for each country.
To maintain pension systems, we need to increase the number of regular employees who can join these systems. But half or more of the young workers concentrated in urban areas are in non-regular or black market jobs, so we need to address that first. We need to be able to collect taxes and social security contributions from companies and workers.
Furthermore, the fertility rate in South America is gradually declining, with the average figure for Latin America being 2.29 in 2015-20, projected to fall below 2 points by 2030, and the number of births per woman projected to decline further. In 25 years' time, relatively developed countries such as Argentina, Brazil, Colombia, Chile, and Costa Rica are projected to have a rate of 1.8 or less, meaning that they will face the same problem of low birth rates and aging populations as Japan.
In parallel with this, the average life expectancy in each country may increase from the current 73 years to 78 years. Although it differs by country and region, it is said that the standard of living will rise due to a decline in infant mortality rates and an expansion of medical services, and more people will live longer. This means that the number of active workers paying into pensions will eventually decrease, and the number of people receiving pensions for longer periods of time will increase. Assuming that we will become an aging society with a declining birthrate in the future, securing financial resources will be an issue for each country.
Pension situation for Japanese workers
In the case of Japanese workers living in Japan, they initially refused to join social insurance, which includes pension contributions, on the grounds that they would return to their home country someday, thus aiding their employers in circumventing the law. Even if they had joined the system, many of them applied for the "Pension Withdrawal Lump Sum Payment5 ," which applies only to foreigners, and received a refund of part of the pension they had paid up until that point, and now they no longer meet the requirements to receive a pension.
Only recently have Japanese workers started to take an interest in pensions. With guidance from authorities and stricter regulations, even temporary staffing agencies have begun to process workers for enrollment. There has been an issue that very few people can meet the 25-year enrollment period required to become eligible to receive pensions, but the government's economic measures at the end of July 2016 included a reduction in the eligibility period to 10 years. This is scheduled to be implemented from 20176 , and many foreign workers will be able to receive pensions from the age of 65 according to the period they have contributed to the Japanese pension.
In the case of the National Pension, which is mainly subscribed to by self-employed people and housewives, if you pay insurance premiums for 40 years, you will receive the full amount of 780,000 yen per year, and in the case of the Employees' Pension, which is subscribed to by salaried workers, you can receive benefits in proportion to your income, so the amount you receive will be significantly higher. In addition, the National Pension and Employees' Pension can be received together, so the longer you are subscribed to the pension, the higher your pension amount will be7 .
However, if you join the pension scheme, about 15% of your salary will be deducted every month. The largest part of this is the employee pension insurance premium, which is 8.914% of your salary (the total premium is currently 17.828% of your salary, split equally between the employer and the employee. This ratio is adjusted periodically, and any increases are stipulated by law). The company is to pay the full amount of the workers' accident compensation insurance premium, but another deduction is made for the health insurance premium of 5% for medical coverage and the employment insurance (unemployment) premium of 0.4% (employers pay 0.7%). Foreigners who value their take-home pay have always complained about this.
However, on closer inspection, although there are differences in systems and mechanisms, South American countries have higher contribution rates and the amount of benefits is far below that of Japan. In Peru's system, the pension age is 65 and the membership period is 20 years. In the case of state-run pension systems, the pension contribution deducted from wages is 13%, and in the case of private systems, it is 10% (in Peru and Chile, salaried workers can choose between state-run and private pension management institutions). Although the employee contribution is only a few percent, other deductions are made for medical insurance and work-related accident insurance. In most Latin American countries, the employer's contribution is quite high, reaching 25% to 30% of the wages paid. In Brazil, you must be a member for 30 years before you are eligible to receive benefits.
Although Japan's social security system has many issues, it is quite comprehensive when viewed from a global perspective and from the perspective of the principle of beneficiary payment, and the amount of benefits is far more reasonable than in South American countries. This is because the government shoulders the costs that cannot be covered by insurance premiums alone. In the future, the main topic of discussion will likely be the funding of medical care for the elderly.
For Japanese workers who live and work in Japan, there are many benefits to joining the Japanese social insurance system and paying the premiums together with their employer. This can be considered the best way to prepare for retirement.
Notes:
1. Looking at the immigration statistics on " Foreign residents by nationality, age and gender, " more than half of the Peruvian and Brazilian residents currently in Japan are in their late 30s, 40s, or 50s, with a significantly larger number in their mid-40s.
2. OCDE, Banco Mundial y BID 2014, “ Panorama de las Pensiones: America Latina y el Caribe .” Published by OECDE, World Bank, and IDB Inter-American Development Bank, “Pension Situation in Latin American Countries 2014”
3. A system established to provide relief to people who cannot receive pensions for various reasons. In South America, the finances have improved significantly over the past decade through the export of mineral resources and grains, and many governments have expanded this system. A certain amount of pension is now paid to people who have never paid pension insurance premiums. However, in Brazil, Bolivia, Venezuela, and other countries, there are criticisms that this is an excessive support measure, and it has become a cause of financial pressure in each country. In Japan, the old-age welfare pension was established in 1961 when the national pension system was launched. This was a system established to provide relief to people who could not receive the national pension at that time due to old age or other reasons (currently 398,000 yen is paid per year).
4. A type of welfare pension. As of 2016, the minimum wage is 7,000 pesos (equivalent to 460 dollars, or 46,000 yen in Japanese yen), and housewives can receive the same amount. Since the enrollment and eligibility requirements are waived, a certain amount (equivalent to 20%) will be deducted as insurance premiums every month for five years. In addition, since you can enroll in elderly medical insurance, most tests and treatments are free of charge. Even if you are a foreign national, you can have the same rights if you are a permanent resident.
5. This procedure can be applied for after you return to your home country. Once you receive the lump sum, you will no longer be eligible to receive a pension in Japan, and if you return to work in Japan you will have to start paying pension contributions from scratch. The Pension Service website provides information on the procedure in multiple languages:
" Lump-sum Withdrawal Payment for Short-Term Resident Foreign Nationals "
6. " Low-income earners, those without pensions, and students will benefit, but questions are raised about its effectiveness ," Sankei News, August 2, 2016
7. Japan Pension Service : By logging in to the pension website , you can check your pension records and your estimated pension assets.
© 2016 Alberto J. Matsumoto
