Pension Agreement Between Norway and Japan
The NCCJ is actively supporting the need for a pension agreement between Norway and Japan.
Our closest neighbors Sweden and Finland, as well as several other European countries, have already successfully completed negotiations. A pension agreement coordinates the pension systems between two countries and reduces costs for individuals and companies.
This important to maintain strong ties and increase mobility between Norway and Japan.
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Below is the NCCJ’s letter of appeal.
The need for a Social Security Agreement between Norway and Japan
In this letter we, the Norwegian Chamber of Commerce in Japan (NCCJ) would like to bring to your attention the urgent need for a social security agreement between Norway and Japan. The goal of such agreements is to coordinate pension programs bilaterally and increase mobility of the workforce between the countries. The current system poses unequal terms for Norway and the Norwegian employees contributing to the Japanese system compared to Japan, and the Japanese employees contributing to the Norwegian system.
Background
Norway and Japan already have social security agreements with a wide range of countries in Europe and elsewhere. The significant benefits derived from such agreements, as well as the process of entering into such agreements, should already be familiar to both countries.
Japan currently has social security agreements implemented with Germany, United Kingdom, Republic of Korea, United States, Belgium, France, Canada, Australia, The Netherlands, Czech Republic, Spain, Ireland, Brazil, Switzerland, Hungary, India, Luxembourg, The Philippines, Slovakia and China. In addition, it has agreements signed with Italy, Finland, and Norway’s neighboring country Sweden.
In the case of Japan, there are additional factors that make an agreement particularly important.
The Japanese Pension System
A unique characteristic of the Japanese pension system is that individuals are required to contribute for a minimum of 10 years to qualify for old-age basic pension. Japan has two pension systems, the Kokumin Nenkin (the National Pension system) and the Kosei Nenkin (the Employees' Pension Insurance). All residents of Japan between the ages of 20 – 59, including foreign residents, are required to enroll in the Japanese pension system.
Only a minority of foreign residents in Japan intends to spend more than a decade in the country, and the majority of foreigners in Japan will therefore not qualify for a Japanese pension. For foreigners, it is not possible to continue contributing to the pension system from abroad to reach the 10-year requirement. This is possible for Japanese citizens only. While foreigners may qualify for a lump-sum withdrawal payment after permanently leaving Japan, the amount is limited and will at most include the last three years of contributions. Currently the lump sum payment is capped at 297,720 JPY (approximately 24,500 NOK) for the Kokumin Nenkin (3 years total coverage and last contribution to be made Apr. 2020 – March 2021). The monthly payment for the Kokumin Nenkin is 16,540 JPY = 3 years adds up to 595,440 JPY (approximately 49,000 NOK). When the lump sum is paid out there is consequently a loss of half the amount, 297,720 JPY (approximately 24,500 NOK). For the Kosei Nenkin the contribution is higher, based on the individual’s salary and it is paid for 50/50 by the company and the employee respectively. In addition, for this pension only around 50% of the last 3 years of contributions will be paid back when leaving Japan, and the total amount is, unlike the Kokumin Nenkin, subject to an income tax of 20,42%.
The Norwegian Pension System
The general rule for the Norwegian pension system is that a 3-year membership is required to qualify for old-age pension from Norway. In addition, there are restrictions on the export of pension payments. Generally, you need to live in Norway a minimum of 20 years after the age of 16 to be entitled to payments of pension while living abroad.
Current situation for Japanese companies and Japanese citizens living and working in Norway
More so than Norwegian companies, Japanese companies tend to frequently rotate their employees. Because of this, the norm is to continue payments to the pension system in Japan, in addition to the payments to the system in Norway. This can be considered to be an extra cost for the companies.
Because the 10-year requirement of the Japanese pension system, many Japanese employees will continue contributing to the Japanese system while at the same time living and working in Norway. This constitutes a significant cost to the individual and/or the employer that is paying the assignment costs.
There are more than 1200 Japanese nationals living in Norway as of 2019. Many of them maintain strong connections to their home country and want to keep the option open of returning to Japan without any financial repercussions. The general rule in Norway, dictating the need for an individual to reside in the country for a minimum of 20 years to receive pension payments, is a hurdle in this regard and is a trigger for continued contribution to the Japanese pension system.
Current situation for Norwegian companies and Norwegians working in Japan
For expatriates on international assignments in Japan from countries with which Japan has social security agreements, it is possible to continue making non-taxable pension payments to the home country's pension system. Providing the assignment period is limited to 3–5 years, the assignee will also be exempt from making payments into the Japanese pension system.
In contrast, Norwegian employees that wish to maintain their membership in the National Insurance Scheme in Norway (Folketrygden) need to make both Japanese and Norwegian pension payments while on assignment in Japan. If the employer makes the voluntary contributions on behalf of the employee, these are considered taxable income and can constitute a significant tax cost. Not having a social security agreement puts Norwegian companies and employees at a significant competitive disadvantage, which will only worsen as more and more countries complete social security agreements with Japan.
The 10-year requirement also discourages Norwegians from working in Japan, thereby limiting opportunities for trade and exchange of culture and expertise between the two countries. Norwegian companies have a need for a work force with various international competences. A global mindset and ease of mobility is an increasingly important competitive factor. The lack of a social security agreement between Norway and Japan results in a disadvantage; both Norwegian workers and Norwegian companies.
Barriers to mobility: A challenge for increased economic and business relations between Japan and Norway
During the last 25 years, the economic relationship between Norway and Japan have grown and became solid.
Export from Norway to Japan has been stable at around 10 billion NOK, and import from Japan to Norway has been equally anchored at around 10 billion NOK in the last 15 years. This makes Japan one of the most important trading partners for Norway and several Norwegian companies depend on Japan as a reliable trading partner.
15 years of relatively stable trade is a solid predictor for increased business. The Japanese industry and economy are changing in various ways, and Norwegian products, services and competences are increasingly more relevant. There are strong indications pointing to untapped potential for Norwegian industry in Japan within the fields of energy, health/welfare, maritime/offshore and design/lifestyle/tourism. Still, as the world's 3rd largest marketplace, Japan remains a competitive arena and Norwegian companies have to compete with both domestic and foreign offerings. For Norwegian companies to succeed, competence about this market and the ability to deliver products and services localized to the Japan is essential.
Movement of the workforce is an effective way to increase competence about a market and the ability to develop a global mindset – employees having diverse experience and skills is a competitive factor of increasing importance. For Norwegian companies operating in Asia, the mobility of employees to and from Japan is a principal asset if achievable at a fair and reasonable cost. Currently, more than 400 Norwegians are contributing to the pension system in Japan and the number is expected to increase. This happens at the same time as Norwegian companies have to learn how to maintain their international business activity with very high domestic cost levels in Norway. Consequently, the costly pension barriers to having Norwegians work in Japan make Norwegian companies rely more on employees of other nationalities that are less likely to move back to Norway with their unique experience and competence.
The Japanese footprint continues to increase in Norway. In addition to trade, Japanese companies are active investors in Norway. The Japanese Embassy registered 52 Japanese companies in Norway in 2019, including manufacturing plants. New relationships and partnerships are formed resulting in an obvious need for mobility. A recent example to illustrate this is Japanese interest in battery manufacturing. Not only are Japanese companies actively looking at opportunities, but Japanese engineers are also recruited by Norwegian companies, bringing unique experience in technology for the benefit of industrial development in Norway.
Right now, Norway–Japan relations are in a disadvantage compared to Sweden, Finland and other countries that already have secured a social security agreement with Japan.
A social security agreement between Japan and Norway will remove barriers, accelerate economic development for equal benefit and enable the mobility of expertise to carry out matters on the agenda of present and future importance to both countries.
Advice on important points
The NCCJ would like to advice some important points which we would like to see in the final agreement between Japan and Norway:
Eliminate double social security taxation. *
*Avoid double social security taxation that occurs if a worker and his or her employer are required to pay social security taxes to Japan and Norway on the same earnings.
Totalization of coverage periods to allow people to use Norwegian periods of coverage to make up for the required 10 years to qualify for Japanese pension.
Right to apply for Japanese pension in Norway or apply for Norwegian pension in Japan.
Right to receive Japanese pension payment in Japan, Norway or a third country.
The option for individuals to choose between qualifying for Japanese pension by totalizing coverage periods, or to choose "lump sum withdrawal payment" upon leaving Japan.
The pension agreement should cover Norwegians currently contributing to the Japanese pension system, and take into account their accumulated period (years) of contributions. The pension agreement should also cover Norwegians not residing in Japan but still eligible to claim their lump-sum payment.
Right to apply for Japanese disability pension in Norway or apply for Norwegian disability pension in Japan.
Best regards,
Simen Aasen, Rune Nordgaard, Svend Haakon Kristensen on behalf of the NCCJ.
Tokyo, March 10th, 2021.