Retirement benefit scheme and retirement pension plan

Date: March 25, 2021

I. Introduction

This is to provide a picture of Retirement benefit scheme and retirement pension plan

II. Overview

(1) Retirement benefit scheme includes a Defined Benefit plan, a Defined Contribution plan, and a retirement allowance system

1. Scope of application: This Act shall applyto all businesses or workplaces employing workers: Provided that this shall notapply to businesses employing only relatives cohabiting with their employer

2. Establishment, etc. of Retirement AllowanceSystems:  Any employer who intends to setup a retirement allowance system shall establish a system that makes itpossible to pay a retiring worker a prorated amount equivalent to average wagesearned for 30 days for each year of his/her continuous service.

3. Payment of Retirement Allowances: Where anyworker retires from his/her office, the employer shall pay such worker aretirement allowance within 14 days from the date when a ground for the paymentoccurs: Provided, that the payment date may be delayed under an agreement bythe parties concerned in extraordinary circumstances.

(2)

1. Grounds for early withdrawal and securedloan: housing purchase, need for caring for the participants or dependents ofthe participants more than 6months, security money for lease of homeless people(only once for one's period of service in a position), force majeure

2.  By2012, tax deferral benefits were offered in case of transferring more than 80%of lump sum retirement allowance within 60 days from the last day of work. However,from 2013, a retiree shall 100% of lump sum retirement allowance within 60 daysfrom the last day of work for tax deferral benefits.

 (3) Whena business operator newly established Defined Benefit Pension Plan pays theretirement allowance derived from the years before joining the plan the methodsof payment differ by rules and regulations of the business operator

1. Where the rules and regulations are set tomake a retroactive payment of retirement allowance for the period of joiningpoint to the Defined Contribution plan (hereinafter referred to as DC plan): paythe contributions equivalent to 1/12 of the annual wages at the joining pointto the DC plan.

2. Where the rules and regulations are not setto make a retroactive payment of retirement allowance for the period of joiningpoint to the DC plan: The retirement allowance for the service period beforethe joining point shall be paid by calculating the average salary for the lastthree months from the last day of service.  

III. Case Study

Case study for calculating withholding tax derivedfrom DC plan and additional retirement allowance in the same year

An employee who worked for a company whichestablished DC plan retired on August31, 2019. His company paid thecontributions to the DC plan from his joining date to the end of 2018 butdirectly paid the retirement allowance for the period from Jan 1^st2019 to Aug 31^st 2019.

1. Where the employer established DC plan andoffers additional retirement allowance to the retiree the person withwithholding tax liability for retirement income is the employer. 

2. Where the employer makes a payment forretirement allowance ahead of the DC pension trustee (financial institution)the employee shall submit PAYE situation a written notice for additionalretirement allowance within the 10 days of following month from the payment andgive an immediate notice of Retirement Income tax withholding receipts to theDC pension trustee (financial institution)

4. Where the DC pension trustee (financialinstitution) makes a payment ahead of the employer the trustee shall give anotice to the employer who shall aggregate the lump sum retirement allowanceand calculate retirement income tax.

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