Japan Pension Basics

Posted on 20th October 2015 by Trevor Reynolds in Blog |Finance in Focus

Japan Pension and who has agreements where you can transfer credits for the basic state pension.

According to http://www.nenkin.go.jp/n/www/english/detail.jsp?id=34  the list of countries with such agreements with Japan are Germany, United Kingdom, Korea, United States, Belgium, France, Canada, Australia, Netherlands, Czech Republic, Spain, Ireland, Brazil, Switzerland.

The Japanese National Pension System, which is the Japanese equivalent of Social Security. In order to get money from that you need to have paid for at least 25 years (might get decreased to 20 for foreigners, but not yet). Also, the amount you get is whopping 65,541 yen per month for 40 years of contributions. Less for under 40 years …
References to numbers are from here:
http://www.nenkin.go.jp/n/www/share/pdf/existing/english/pdf/1.pdf

(1) Old-age Basic Pension

If you have paid the National Pension contributions for at least 25 years and satisfy the conditions, the following amount is paid when you become 65 years old. *1

★Benefit amount = Y786,500 (annual amount in Fiscal Year 2012 for those who have paid contributions for 40 years)  that is only 65,542 per month! 

When you go for the lump-sum payment, you are giving up any benefits, including credit under the agreement. Unless they make a mistake, they will simply delete you from their system after you refund request is processed.  This is based on the first bullet under “Important Notes” on page 5 of:

http://www.nenkin.go.jp/n/open_imgs/service/0000005247.pdf

So depending on the system you are ending up in the credit may be more than the money you get back but that is assuming the system you end up in survives.

From the Japan Pension service website:

http://www.nenkin.go.jp/n/www/english/detail.jsp?id=39

An article from the US Social Security Administration:
http://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p89.html

 

Everyone needs a private personal savings plan. 

Congress Proposes Fraudulent New Law To “Fix” Social Security

Posted on 30th July 2015 by Trevor Reynolds in Blog |Finance in Focus

On January 31, 1940, the very first Social Security check ever delivered went to Ms. Ida May Fuller, a former legal secretary who had recently retired.

 

Ms. Fuller had spent just three years paying into the system, contributing a total of $24.75 to Social Security. Yet her first check was for nearly that entire amount. Quite a return on investment.

She went on to live past 100, collecting a total of $22,888.92, over 900 times the amount she contributed to the program. Her story is quite the metaphor.

 

If you’re not familiar, Social Security is comprised of two primary trust funds: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).

Essentially, all of the taxes paid in to Social Security end up in one of these two trust funds.

The trust funds then ‘manage’ the money to generate a rate of return, and then pay out distributions to program recipients.

Now, the funds are overseen by a Board of Trustees which is obliged to submit an annual report on the fiscal condition of the program. It ain’t pretty.

The Disability Insurance (DI) fund is particularly ugly. In fact, the trustees themselves wrote in the 2015 annual report that

“[T]he DI Trust Fund fails the Trustee’s short-range test of financial adequacy. . .”

 

and,

 

“The DI Trust Fund reserves are expected to deplete in the fourth quarter of 2016…”

In other words, one of the two Social Security trust funds is just months away from insolvency.

When people think about Social Security, they think that all the problems are decades away.

Wrong. This is next year.

The other trust fund, OAS, is projected to “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

Which means that if you’re 47 or younger, you can kiss Social Security goodbye.

Bear in mind, these aren’t my calculations. Nor are they any wild assertions. They’re direct quotes from the trustees themselves.

And, just who are these trustees? The Secretary of the Treasury of the United States of America. The Labor Secretary. The Secretary of Health and Human Services.

Some of the most senior officials in the US government sign their name to an official report stating that these funds are nearly insolvency– one of them even NEXT YEAR.

Not to worry, though. Congress is on the case.

Late last week, several dozen members of Congress introduced the “One Social Security Act”, HR 3150, to solve this problem.

And let me tell you, their solution is bold. Fearless. And brilliant.

HR 3150 attacks the looming insolvency of Disability Insurance by eliminating the fund altogether.

So instead of having two separate funds for two distinct purposes of Social Security, the legislation aims to combine them into one unified fund.

That way, with just one fund, there won’t be any separate reporting about DI’s insolvency.

It’s genius! They make the problem go away by eliminating the requirement to report it.

There’s just one small issue. Legally, they have a word for this. It’s called fraud.

You and I would go to prison if we commingled funds like this. But in the hallowed halls of Congress, this is what passes as a solution.

This is so typical– solving problems by pretending that they don’t exist and destroying any element of transparency and accountability.

This pretty much tells you everything you need to know about government.

Look, it’s a hard reality to swallow. But the government’s own data show that these programs are not going to be there for you.

And the story smacking us in the face right now demonstrates precisely how politicians intend on ‘solving’ the problems.

These people aren’t the solution. They’re the problem.

And don’t think that ‘voting the bums out’ will affect anything. Elections merely change the players, not the game.

The only way forward is to invest in yourself, particularly in your business and financial education. Make plans based on the assumption that Social Security doesn’t exist.

And if, by some miracle, it’s still there by the time you retire, you won’t be worse off for having built a larger nest egg thanks to the financial acumen you developed.

 

http://www.zerohedge.com/news/2015-07-29/congress-proposes-fraudulent-new-law-fix-social-security

Pension Problem….

Posted on 15th July 2015 by Trevor Reynolds in Blog |Finance in Focus

According to a new report from Pew Charitable Trusts. States are short $968 billion for their pension systems, an increase of $54 billion over the year before. When debts from local programs are taken into account, the total shortfall tops $1 trillion, according to the report.

http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/07/the-state-pensions-funding-gap-challenges-persist

 

Stay Healthy

Posted on 11th June 2015 by Trevor Reynolds in Blog

Stay healthy—a good motto, and most people look after themselves reasonably well, through diet, exercise, and lifestyle balance.

From time to time we all get sick however—standard ailments and inflictions (flu, food poisoning), bizarre stuff we didn’t know existed (bursitis, pitariasis rosia), and the scary stuff waiting for some but not all of us (heart failure, cancer etc etc). And then there’s the chance of an accident—some predictable as turned ankles hiking; others sheer bad luck, like being on the wrong crossing, or outside the wrong building, at the wrong time. Most accidents are not the result of reckless behavior; they just happen.

Note also, for many of you this is not just about yourself, but your loved ones, children especially, for whom you would want the best care. Best care will include a pro-active element, so check-ups and screening.

The standard Japanese national health package, delivered either through the private route, kokumin kenko hoken, or the corporate route, kenko hoken, will cover you for consultations, treatment, ward hospitalization, for as long as recovery takes. 30% of the costs (with a cap) though, go to the patient; and that percentage even with a cap is monthly cap, not a total—so a long-term illness can wipe out a family’s resources (hence the prevalence of stand-alone cancer insurances in this country).

If you would like to eliminate the 30% co-payment, insure against catastrophe, upgrade your cover so you can specify a private room, enlist the support of emergency rescue services, and make sure you are covered around the world, not just in Japan, you are fully entitled to take out private health insurance. They also all come with 100% Cancer Cover. We offer various levels of enhancement with a number of big name foreign insurance companies, and indeed have been working with them for several decades.

Banner Japan assist expats in Japan and Asia with their health insurance needs. Since 1979 we have set up many cost effective and reliable programs for Embassies, schools, companies and individuals.  If you would like to see what’s on the menu please contact us on 03 -5724-5100  info@bannerjapan.com

State of the markets

Posted on 20th May 2015 by Trevor Reynolds in Blog |Finance in Focus

You are in a bull market until proven otherwise. We are in a bull market and the question is when is the change coming?

This USA bull run started way back in 2009.

However, on a more current look the last attempt to decline was in Oct. 2014 when the S&P lost about 200 points over about 3 weeks. Then a slight wobble of 100 points in Dec and it has been a slow choppy rise to where we are today at all-time highs.  Will we go higher?  As you can see in the graph below the S&P is in a rising wedge which over time will resolve itself one way other the other.  There is a stronger probability that it will test the October 2014 lows (at worst) and then head back up, we will review if that comes. So, we would wait until this unfolds before entering or adding more to equities.

May 2015 Markets

 

Japan….the economy is in an untenable position. Unless Japan open their borders and embrace change, both unlikely, their hopes to end 25 years of economic malaise rest with Abe-no-mics and massive money printing.  Abe’s three policy arrows have been largely rhetoric and designed to keep the status quo… strange as Abe did campaign on change and the future.  But, bearing in mind 40% of the voters are over the age of 60 why would they want any change quickly? Abe clearly has this in mind and not the future of Japan.  Difficult and costly choices need to be made by the Japanese people as the leaders will not do it.

 

May2015 japan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As you can see in the chart above the Nikkei has taken 25 years to reach the top of its Bollinger band. (This is one of the more popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.)

The real problem in Japan is the containment of the human spirt –  Japan needs to unleash this innovation once again — an example is as Richard Katz says “brands like Sony, Panasonic and Sharp continue to dominate in Japan – where not a single new market entrant of any significance has emerged since 1946. In the US by comparison, 8 of the top 21 consumer electronics hardware firms, including Cisco, did not even exist in 1970. In Japan, incumbents keep holding on.”  We believe the bureaucracy of Japan has a huge role in stifling this wonderful country.

A current example of the human spirt alive and well in Japan is the food and restaurant scene now available. Back in 1990 the only foreign food was a limited McDonald’s menu – today Tokyo has more Michelin stars than France. Good thing food bureaucracy is relatively low.

The Japanese market continues to rise but the gains now are very correlated with the direction of the Yen and that “easy rise” in the stock market has happened.  Going forward can companies in Japan make real profits that are not directly linked to the weakening Yen?

May 2015 japan CE

 

As a contrast; Australia

May 2015 Aus CE

Source http://www.tradingeconomics.com/japan/corporate-profits

So what other markets are lined up for a correction?   Seems all are at or not far from mulit-year highs and my guess is the US market will lead, as whatever it does the rest of the worlds markets will follow — some more violently than others.

 

State of the currency markets

Posted on 19th May 2015 by Trevor Reynolds in Blog |Finance in Focus

may 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The chart above shows the US$ index, which is a measure of the value of the U.S. dollar relative to majority of its most significant trading partners.

As you can see from the chart the US$ is correcting downwards but this is a normal correction based on the fact the US has been posting some poor economic numbers but the chart is indicating the US$ index may fall to around 90 then turn back up as the US growth numbers, even poor, look better than the rest of the world.

Dollar/Yen

may 2015 2

 

 

 

 

 

 

 

 

 

 

 

Recently we have seen 122 as a high (March 2015) and we have seen 118 (April 2015) as the low. The pair have been stuck in trading range. This reminds me of Jan 2014 to August 2014 when the pair was stuck in a range of 105 to 100.  The BOJ continues to do QQE: the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 50 trillion yen and the BOJ will increase the monetary base at an annual pace of about 60-70 trillion yen. In Addition the Bank will purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of 1 trillion yen and 30 billion yen respectively. So again we believe the Yen is stair stepping itself higher .. once 125 vs 1$ goes there is little resistance until 147. One should not hold Yen, unless there is a material change in BOJ policy. (Remember a ‘rising’ Yen is a weakening Yen.)

EUR/Dollar

may 2015 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fall of the Euro over the last several years from 160 in 2008 to a low of 104 in 2015 — it is only natural to see a bounce but the question is how high can that bounce be 115 or 120?  We doubt anything more than 120 if it can get there — Greece is still a huge issue which leads to Portugal, Spain, Italy and the rest of Europe. These issue have not been resolved and judging by the progress in Greece things can likely only get worse.

GBP

May 2015 4

 

 

 

 

 

 

 

 

 

 

 

The Election in the UK produced a small Conservative majority win – this has given the Pound wind in its sails for now. The question is can Sterling keep these gains longer term.

 

AUD

may 2015 aus

 

 

 

 

 

 

 

 

 

 

 

 

Australia can still cut interest rates. Many believe this will happen especially in the face of falling commodity prices.  However the last rate cut was highly anticipated and factored in as the AUS$ rose after the cut. Australia can take on more debt as the government has low debt levels compared to its peers.  The other wild card for the Aussie is China as any stimulus China does has a direct effect on the Aussie economy of just about 24 million people — about the same as the Shanghai municipality.

The Pension Challenge

Posted on 25th March 2015 by Trevor Reynolds in Uncategorized

A growing challenge for many nations is population ageing. As birth rates drop and life expectancy increases an ever-larger portion of the population is elderly. This leaves fewer workers for each retired person. In almost all developed countries this means that government and public sector pensions could collapse their economies unless pension systems are reformed or taxes are increased.

The Japanese Pension System is only available once you have paid into the system for 25 years, assuming they have your records!  Even so this is only for the basic subsistence level, if you could call it even that, as it is below poverty line income.

So what should one do?  As always DIY – there are many very easy ways to start savings.  One is to sign up for a portable pension plan. This will be a minimum of five years but is best aimed at your earliest foreseeable retirement age. This will normally be between 55 and 60. You also agree a monthly amount to put away. The more you put into the plan, the more there will be for your retirement. However, you should not take on an obligation you cannot fulfill.

It is very easy as one can contribute using a credit card – this is convenient, is cheaper than using a bank to make transfers, and after a few months you don’t really notice the money going out. Your monthly contribution is then invested into a series of mutual funds. Doing things this way gives you advantages:

Access to diversified range of funds. The days of opaque mystery funds and lack of choice are long gone. You can be in range of funds which will sustain overall performance and cushion you from the gyrations of the markets. Yes, you can be in a wide variety of stock funds; you can also be in high-grade or high-yield bond funds, in gold stocks, in resource stocks, or in property income funds. Diversified portfolios do better in the long run.        

Dollar cost averaging means investing a fixed amount at fixed intervals of time. That’s a sensible approach, for example, if it means committing yourself to investing a fixed amount of your salary every month toward your retirement. Dollar Cost Averaging is nothing more than the systematic investment of a fixed dollar amount at regular time intervals. However, once you initiate the plan, the key to success is sticking with it and ignoring market fluctuations. This is part of the investing puzzle that allows you to invest with more aggressive and volatile funds such as China, India, Latin America, Eastern Europe etc. as they hold over 2/3 of the worlds population and they will overtake the current leaders but there will be bumps which cost averaging will help you benefit from.  For Example, you could invest $1,000 every month ($12,000 a year) not that much really when you think about it’s about $33 a day. 

(If one did $12,000 a year for 15 years and got 10% return this would be become about US$419,000, however if you then left this for a further 15 years and did not add anything it would grow to become about US$1,750,000 – the power of time and compound interest.)

Please get in touch with us here at Banner and we can start your savings off on the right track. Please get in touch on 03-5724-5100 or info@bannerjapan.com

HealthyTokyo

Posted on 20th March 2015 by Trevor Reynolds in Blog

Recently, we have become aware of an innovative membership service called HealthyTokyo.com.  The folks behind this helpful initiative are long-time expats with experience in healthcare and IT that realized all of us could use some help to find the best English-speaking health and wellness providers in Tokyo and beyond.

HealthyTokyo is a live concierge (you actually get to chat with a human) who assists members to search for the right doctors and dentists in Japan and make appointments for you.  They also have Wellness Coaches (think personal trainers, yoga instructors, etc.) as well as what they call Healthy Partners.  The Healthy Partners include gyms, spas, organic food and other healthy stuff.  Members get significant discounts and special offers for everything from cancer screening to Thai massage.

In short, these guys provide additional peace of mind and help you get healthy and stay healthy.

A one-year membership is just 15,000 yen which gives you access to all services and a member-only website of detailed information.

We definitely know how difficult it can be to find the right places for health and wellness and thought we should pass on this “inside” information to all of our customers.

We met with the HealthyTokyo team and are confident that these guys are passionate, know what they are doing and are providing a long-needed service.  We are convinced and offered to let all of you know about it.

HealthTokyo tri-fold pamphlet

https://healthytokyo.com

 

Sincerely,

Banner Japan.

UK property and CGT tax update

Posted on 12th March 2015 by Trevor Reynolds in Uncategorized

If you own property in the UK you need to be aware that the government has announced that Capital Gains Tax (CGT) will now be payable on UK property sold by overseas residents and offshore companies.

If you own any investment property in the UK or a principal UK residence which you may sell while living abroad, this development will affect you.

The legislation requires the payment of CGT on any gain from 6th April 2015 until the date of disposal of the property. The current CGT rate in the UK is 28% for higher rate payers. However, the CGT is due only on gains in value accrued from 6th April 2015.

In order to protect you against paying tax on gains achieved prior to the introduction of the tax, it is recommended that you to obtain a valuation on the property before 6th April 2015.

Whoever values the property will need to provide a RICS Red Book Valuation Certificate that is accepted by HMRC.

Case Study: UK expat with UK assets and non UK spouse – what happens with IHT?

Posted on 11th March 2015 by Trevor Reynolds in Uncategorized

For expats who still regard Britain as their ultimate home, their worldwide assets remain within the scope of UK inheritance tax even if they are not UK tax resident. UK inheritance tax liability is based on domicile which is different to tax residence. Domicile is a much broader concept of where someone regards as their home. At birth an individual acquires their father’s domicile as their domicile of origin, unless their parents are unmarried in which case they would take their mother’s domicile as their domicile of origin. For those with a domicile of origin in the UK, HMRC argues that it is very difficult to lose your domicile of origin and acquire a domicile of choice elsewhere, and this position is supported by case law.

 

Example 1

Mr English has a domicile of origin in England. He left the UK in February 2000 to work in Dubai, where he met and married his wife who is from New Zealand.

Mr English does not intend to stay permanently in the UAE and intends to retire somewhere else in the world, possibly New Zealand, and does not intend to return to the UK.

Even although Mr English has been non-UK resident for 12 UK tax years, and does not intend returning to the UK, as he does not intend to live permanently in UAE but will retire somewhere else, he will not have acquired a domicile of choice in UAE. Mr English still has his domicile of origin in England. Consequently, Mr English’s worldwide assets remain liable to UK inheritance tax.

 

Increased limit on spouse exemption

Until now the position has been exacerbated for expats who marry (or enter into a civil partnership with) a partner with a domicile outside the UK. Where both spouses are UK domiciled then unlimited spouse exemption applies on lifetime gifts between spouses or where everything is left to the surviving spouse on death. However, where one spouse is UK domiciled and the other is not, spouse exemption was limited to just £55,000 where the UK domiciled spouse died first. This could result in inheritance tax on the first death where the non-UK domiciled spouse inherited assets exceeding £380,000 (being the combined nil rate threshold of £325,000 and the limited spouse exemption). Inheritance tax would be payable at 40% on the excess. Where the non-UK domiciled spouse inherited and held UK situated assets a ‘double whammy’ could result as those assets could then be liable to further UK inheritance tax on their death.

From 6th April 2013, the limit on spouse exemption has increased to £325,000 on assets passing from a UK domiciliary to their non-UK domiciled spouse. This is in addition to their available inheritance tax nil rate threshold, which remains £325,000. A total of £650,000 of assets can now pass tax free to the surviving non-UK domiciled spouse.

 

Electing to be UK domiciled

While the increased spouse exemption limit is helpful, it may not be enough to eliminate the inheritance tax liability for all couples who find themselves in this situation.
In a further change to the rules, where a non-UK domiciliary receives or inherits assets from their UK domiciled spouse, they can now elect to be UK domiciled for inheritance tax purposes. The most likely scenario in which this election would be exercised is when their UK domiciled spouse died and the value of the assets they inherit exceeds the combined nil rate threshold and the limited spouse exemption so that there would otherwise be a UK inheritance tax bill. In these situations, the surviving spouse has two years following the death of their spouse to elect to be UK domiciled. The election applies for inheritance tax purposes only, and does not affect their tax residence, or require them to reside in the UK or to be able to reside in the UK.

The election enables unlimited spouse exemption to apply and would thereby eliminate the UK inheritance tax liability on the first death where everything is passing to the surviving spouse. However, the surviving spouse’s worldwide assets would then be subject to inheritance tax on their death. Previously, as a non-UK domiciliary, it would only be their UK situated assets which would have been liable to UK inheritance tax. Consequently, making the election could result in a larger overall inheritance tax bill in the future on the couple’s combined assets. Electing to be UK domiciled will depend on the value of the couple’s assets, where they are situated and how they are held.

 

The election to be UK domiciled is permanent but would lapse if the surviving spouse is non-UK resident for four complete tax years in the future following the election.

Example 2

Mr English’s assets are valued at £800,000. Mrs English has £300,000 of assets outside the UK. Mr English dies and leaves his assets to his wife. Mr English did not make any gifts in the previous seven years and his inheritance tax nil rate threshold is available in full.

Mrs English inherits £650,000 of assets free of inheritance tax (Mr English’s nil rate threshold plus the limited spouse exemption). There would be an inheritance tax charge at 40% on the balance of £150,000. The total inheritance tax bill on Mr English’s death is £60,000. If Mrs English later transferred all assets from the UK there would be no UK inheritance tax on her death. The total UK inheritance tax on their combined assets would be £60,000.

 

If Mrs English elected to be UK domiciled there would be no inheritance tax to pay on Mr English’s death. Following the election to be UK domiciled, Mrs English’s worldwide assets together with the assets she inherited would total £1,100,000 and all would be within the scope of UK inheritance tax. On Mrs English’s death her nil rate threshold of £325,000, together with her spouse’s nil rate threshold of £325,000 could be transferred and set against her assets, with inheritance tax at 40% payable on the balance. The inheritance tax bill would be £180,000.

 

Here the inheritance tax bill is higher if Mrs English elects to be UK domiciled. A lower overall inheritance tax bill results if Mrs English does not exercise the election and pays the inheritance tax on the first death. If Mrs English elected to be UK domiciled but then remained non-UK resident, four UK tax years following her husband’s death any future UK inheritance tax liability would lapse.


Conclusions

Expats still have to think about their UK inheritance tax exposure even if they have not been UK resident for many years. For expats married to a non-UK domiciliary, the limited spouse exemption could often result in inheritance tax on the first death. The new rules help eliminate potential inheritance tax liabilities on the first death, and, for some couples, will mitigate inheritance tax on the second death as well.

 

While electing to be UK domiciled under the new rules this will eliminate any inheritance tax liability on the first death, but it is important to think ahead to tax liabilities on the second death. Where the non-UK domiciled spouse will remain non-UK resident exercising the election may be a good solution, and it should be possible to insure the potential tax exposure on the second death until this lapsed four tax years later. Where expats return to the UK with a non-UK domiciled spouse then relying on the election could reduce the amount the couple could pass down to their children in the longer term, and lifetime planning would be more important.