Defined Contribution (DC) Retirement Pension
Investment opportunity for employees; Predictable corporate operation for employers
Under the DC retirement pension, the employer each year reserves over 1/12 of an employee’s annual total wage in that employee’s retirement pension account; then, the employee invests the reserve, and when retiring from the company, receives the sum of the company’s contribution and his investment results, as a lump sum or a pension.
Outline
| Contribution | Over 1/12 of the employee’s annual total wage each year |
|---|---|
| Payer of contributions |
|
| Investment instruction | Employee |
| Limitation on the investment | No direct investment in stocks, ceiling on investment in risky assets |
| Level of retirement benefits | variable according to the employee’s investment results of the reserve (contribution and investment result) |
| Payment method | Lump-sum allowance or pension (pensions will be paid to a subscriber aged 55 or above, whose contribution period is 10 years or more, and the pension payment duration will be 5 years or more.) |
| Collateral loan/early settlement | Should meet legal requirements (house purchase for non-homeowners, over 6 months of medical treatment of the relevant person and his/her family) |
DC system advantageous to the following companies
- Companies with a low wage increase rate
- Advantageous to employees if the return on investment is higher than the wage increase rate.
- Companies which want to reserve the entire retirement benefits for employees in an external bank
- By reserving 100% of the retirement benefits in an external bank, employees’ right to receive the benefits is guaranteed.
- Companies which implement an annual salary system
- The DC system has a fund flow similar to that of a company which each year pays the retirement allowance as an early settlement type.
- If the employee wants to efficiently invest his/her retirement allowance
- Under the DC system, each employee manages his/her assets directly.
- Companies which want to exclude its retirement benefit reserve from its debt items
- The company’s contribution for the year is recognized as a cost, leading the retirement benefit reserve item to be removed from the balance sheet.
