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enable clients to manage and optimize their retirement programs.

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NEWS

March 26, 2021
Revision of taxation on retirement benefits was passed by the Diet

The 2021 tax reform bills were passed by the National Diet on 26 March 2021. The bills include the revision of taxation on retirement benefits.


Lump sum retirement benefits are subject to one of the most favorable tax treatments in Japan. However due to this revision, favorable tax treatment of retirement benefits (the 50% exemption of amounts exceeding JPY 3,000,000) will no longer be available for individuals with five years of service or less. Similar revision has already been applied to directors since 2013 and is expanded to non-directors this time.


The new rule becomes effective for income tax on or after 2022.

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January 08, 2021
31.5% of companies with a system to allow employees to work until age 70, an increase of 2.6 points from last year

MHLW (Ministry of Health, Labour and Welfare) released the report of a survey on elderly employment. The law for stable elderly employment requires firms to report the status of elderly employment as of June 1st every year. The results of this year are summarized in this report.


The survey showed that 99.9% of companies have already taken measures to secure employment opportunities for people aged between 65 and 70, including raising the mandatory retirement age, introducing a continuous employment system or abolishing the retirement age. Looking at the breakdown, more than 76.4% of companies have introduced a continuous employment system, whereas 20.9% have raised the mandatory retirement age.


Also, the ratio of companies with a system to allow employees to work until age 70 was 31.5%, which increased 2.6 points from last year. As for companies with more than 300 employees, the ratio was 26.1% (+2.8 points).

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December 23, 2020
MHLW published a review plan of DC contribution limits

MHLW (Ministry of Health, Labour and Welfare) is pushing a review of DC contribution limits that could force a restructuring of some employer' retirement plans. They published its review plan.

The monthly contribution limit of employer-sponsored DC plans is currently JPY55,000 in the absence of an externally funded DB plan and JPY27,500 if the employer also sponsors an externally funded DB plan. MHLW has verified that 50% of limit in the case of providing funded DB is reasonable, and concluded that the limit should be set as total of DB and DC contribution.

The new proposal is to set “JPY55,000 – hypothetical DB contribution” instead of using a fixed amount of JPY27,500.

It is arguable how to set “hypothetical DB contribution”. The proposal suggests setting it as the monthly contribution corresponding to the standard benefit based on the assumption used to calculate normal DB contribution. The proposal also includes some grandfathering arrangements for the employers with combined DC and funded DB.

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October 29, 2020
Dai-ichi Life announced to change fixed guaranteed rate of general account from 1.25% to 0.25%

On October 29th, 2020 Dai-ichi Life Insurance (second largest life insurer in Japan) announced that they changed fixed guaranteed rate of general account* which is their major investment product of pension assets from 1.25% to 0.25%. This rate is historically the lowest and other insurers providing similar products may consider following suit. This movement will surely affect the employers using general account in their pension assets portfolio.


* This is a major investment product unique to Japanese life insurers that returns “a fixed guaranteed rate + policyholder dividends”. It is primarily invested in fixed-interest bearing assets. It becomes challenging to respond to the historically low-interest market.

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