#26 Check your severance pay system (退職金制度の確認 日本語併記)

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#26 Check your severance pay system (退職金制度を確認しよう)

Today I’d like to talk about the necessity of checking your severance pay system.

In Japan most of the company sets a retirement age at 60 or 65. When you become at the age usually you can have a quite big amount of money0 as a severance payment. It’s very important to know how much you can have in advance in order to prepare your retirement.


There are two types of severance payment. One is retirement lump sum payment, another one is company pension. The first one is paid at once, the second one is paid as an annuity for the certain period of your time.


With retirement lump sum payment the amount gets bigger as the period of your time for the working become longer. Since Japan used to have or still have lifetime employment and seniority the amount usually depends on how long you have worked for the company.


However the amount you can have totally depends on your company. Since it’s not duty for the all company provides you the retirement payment, so some company have good system some companies don’t. Even some companies don’t have those payment system at all.


If you have one, you are lucky. Because when the income tax for the retirement payment is calculated you can use much more tax deduction which means you can receive your money very efficiently.


Retirement lump sum payment is not only paid after your retirement age but also it is paid when you quit your job before 60. For example, usually if you work for the company more than three years, you can have something. But less than three years you can’t have anything.


Let’s move on to the company pension. There are two types of company pension, one is called DB another one is called DC. DB is the abbreviation for the defined benefit if your company provides you DB, please go ahead to ask your company how much you can have in your future. Because with DB your company guarantee you the amount. On the other hand, DC is quite different from DB. DC is the abbreviation for defined contribution you need to be more careful with the system.


There are mainly three things you have to be more careful with. Number one with DC your company doesn’t guarantee you the amount which you will be paid. So you have to manage it by yourself.


Number two, because DC is just like a money account, your company puts some amount of money as a contribution into your DC account. Then you have to choose what kind of financial product you want to invest, otherwise your money can’t grow at all.


Number three under a Japanese law, you can’t withdraw your money until you become age of 60. Even though you go back to your country you can’t withdraw it. In fact DC is quite a good system when it comes to the taxation and asset formation, but it’s not good for everyone. I’d like to talk more about DC in my next video.