Lump-sum retirement allowances and corporate pensions
- Retirement lump sum (taishoku ichijikin): A lump sum paid when you leave. It is not legally required, so whether you get one and how much depends on company rules; some firms have no retirement benefit at all.
- Defined benefit corporate pension (DB): The company bears the investment responsibility and pays a set benefit, often with a choice between a pension and a lump sum.
- Corporate defined contribution (corporate DC): You invest the employer’s contributions yourself, and what you receive depends on the results. Generally you cannot withdraw before 60; when you change jobs you move it to the next employer’s DC or to iDeCo.
- How it is taxed: A lump sum is taxed as retirement income; a pension as miscellaneous income (public pensions, etc.). Lump sums usually carry lighter tax thanks to the large retirement income deduction below.
Retirement income deduction and half taxation
With 30 years’ service and ¥20m, taxable retirement income is ¥2.5m: about ¥156,000 of income tax (including the reconstruction tax) and about ¥250,000 of resident tax. Retirement income is taxed separately from other income.
If you submit the declaration on receipt of retirement income (taishoku shotoku no jukyu ni kansuru shinkokusho) to your employer, the correct tax is withheld and no return is needed. Without it, 20.42% is withheld and you settle through a tax return.
For officers with five years or less of service there is no halving, and for ordinary employees with five years or less, the halving does not apply to the portion above ¥3m after the deduction.
Retirement income = (allowance − retirement income deduction) × 1/2 Deduction up to 20 years’ service: ¥400,000 × years (minimum ¥800,000) over 20 years: ¥8m + ¥700,000 × (years − 20)
| Years of service | Retirement income deduction | Taxable retirement income on a ¥20m allowance |
|---|---|---|
| 10 | ¥4m | ¥8m |
| 20 | ¥8m | ¥6m |
| 30 | ¥15m | ¥2.5m |
| 38 | ¥20.6m | ¥0 |
Part-years of service are rounded up to a full year.
iDeCo: contribution limits and the 2027 changes
iDeCo (individual-type defined contribution pension) is a plan you fund and invest yourself, received from age 60. Contributions are fully deductible, investment gains are tax-free, and on receipt you use the retirement income deduction or the public pension deduction. In principle you cannot withdraw before 60.
| Member | Current monthly limit (from Dec 2024) | From contributions paid in Jan 2027 (for Dec 2026) |
|---|---|---|
| Self-employed etc. (Category 1) | ¥68,000 (combined with National Pension Fund, etc.) | ¥75,000 (combined) |
| Employee, no corporate pension | ¥23,000 | ¥62,000 |
| Employee or civil servant with a corporate pension | ¥20,000 (within ¥55,000 including employer contributions) | Within ¥62,000 including employer contributions |
| Dependent spouse etc. (Category 3) | ¥23,000 | ¥23,000 (unchanged) |
Based on Ministry of Health, Labour and Welfare materials. From December 2026 the joining age also extends to under 70 (conditions apply, such as not yet receiving the basic old-age pension or iDeCo old-age benefits).
New receipt-order rule: from 5 years to 10
If you take iDeCo or corporate DC as a lump sum and later receive a company retirement allowance, the retirement income deduction is used only once for any overlapping years of service/membership. Until now, receiving the allowance five or more years after the iDeCo lump sum meant the overlap was ignored (the so-called 5-year rule).
Under the FY2025 tax reform, this period is 10 years where the iDeCo/DC lump sum is received on or after 1 January 2026 and the allowance comes after it (lump sums received up to 2025 stay under the old 5-year rule). A plan to take iDeCo as a lump sum at 60 and the retirement allowance at 65 may now overlap and raise the tax. The period when the allowance comes first and iDeCo later (the so-called 20-year rule) is unchanged.
Alternatives include taking iDeCo as a pension or combining lump sum and pension. Which works better depends on the size of the allowance, other pension income and social insurance premiums, so recheck just before you claim.
Public pensions: National Pension + Employees’ Pension
- National Pension (basic old-age pension): With 40 years (480 months) of contributions from 20 to 60, the full amount for FY2026 is ¥70,608 a month (for those born on or after 2 April 1956). Shorter contribution periods reduce it proportionally, and at least 10 years of coverage is needed to receive it.
- Employees’ Pension (old-age employees’ pension): Proportional to average pay and months as an employee. The FY2026 standard model household (a husband who worked 40 years on average earnings and a full-time homemaker) receives ¥237,279 a month combined.
- Annual revision: For FY2026, pensions rose 1.9% (National Pension) and 2.0% (Employees’ Pension). Amounts follow prices and wages from each April, but “macroeconomic slide” can keep increases below inflation.
- Checking your pension: The Nenkin Teikibin statement sent in your birthday month and the Japan Pension Service’s Nenkin Net show your record and estimated pension.
When to start: 65 as standard, early and deferred claims
Deferring raises the monthly amount but shortens the period you receive it. In simple terms, starting at 70 overtakes the total from starting at 65 only after about age 82, and starting at 75 after about 87 (before tax and social insurance). A larger pension can also mean higher tax and health and long-term care premiums, so weigh that too.
Monthly suspension = (total monthly remuneration equivalent + basic monthly pension − ¥650,000) ÷ 2
- In-work old-age pension (zaishoku rorei nenkin): If you work for a company after 60 while drawing the old-age employees’ pension, half of the amount by which pay (total monthly remuneration equivalent) plus pension (basic monthly amount) exceeds the threshold is suspended. The threshold rose sharply from ¥510,000 in FY2025 to ¥650,000 from April 2026. The National Pension (basic pension) is not reduced.
| Starting age | Pension amount (65 = 100%) |
|---|---|
| 60 | 76% (earliest) |
| 62 | 85.6% |
| 65 | 100% |
| 68 | 125.2% |
| 70 | 142% |
| 75 | 184% (latest) |
Early claims (kuriage) cut 0.4% per month (born on or after 2 April 1962); deferral (kurisage) adds 0.7% per month. The change lasts for life.
Where NISA fits
NISA is another tax-free scheme for personal saving. Since 2024, gains are tax-free on up to ¥3.6m a year (¥1.2m tsumitate + ¥2.4m growth) and ¥18m over a lifetime. Unlike iDeCo you can withdraw at any time, but contributions are not deductible. The FY2026 tax reform includes allowing tsumitate investment for ages 0–17 from 2027 (check Financial Services Agency announcements for details).
Both schemes let you choose products without principal protection, and what suits you depends on your time horizon and risk tolerance. This guide explains the systems only and does not recommend any product or allocation.
FAQ
Should I take my retirement benefit as a lump sum or a pension?
A lump sum often carries light tax thanks to the deduction and halving; a pension keeps the money invested but is taxed each year as miscellaneous income and counts toward National Health Insurance premiums. The result depends on the plan’s rate and your other income, so compare using your employer’s projections.
What happens to my pension if I leave Japan as a foreigner?
With less than 10 years of coverage you can claim a lump-sum withdrawal payment within two years of leaving, but that period is then removed from your record. The Japan–Korea social security agreement has no period-totalisation rule, so compare taking a Japanese pension later with taking the withdrawal payment.
When can I start receiving iDeCo?
You can start between 60 and 75. If you have less than 10 years of membership at 60, the earliest starting age is pushed back (up to 65).
Will my pension be cut if I keep working after 60?
The National Pension (basic pension) is not reduced. The old-age employees’ pension is partly suspended only if pay plus pension exceeds ¥650,000 a month (FY2026). From 65 to 69, premiums paid while working are added to your pension each year from the October payment (in-work annual revision).
Basis and sources
- National Tax Agency No.1420 — Tax on retirement allowances (retirement income deduction)
- Ministry of Finance — FY2025 tax reform outline (overlap period after a DC lump sum extended to within 9 prior years)
- iDeCo official site (National Pension Fund Association) — contribution limits and benefits
- Ministry of Health, Labour and Welfare — Defined contribution pension system (2027 limit increases)
- Japan Pension Service — Pension amounts from April 2026 (National Pension ¥70,608/month)
- Japan Pension Service — In-work pension reform (April 2026, threshold ¥650,000)
- Japan Pension Service — Early pension claim (kuriage)
- Japan Pension Service — Deferred pension claim (kurisage)
- Financial Services Agency — NISA special site