There are many situations in life that require large sums of money, such as purchasing a home. Planning and saving early is important, but without strong willpower, it's easy to keep putting it off.
This article explains how to efficiently save for housing funds, focusing on the advantages and disadvantages of the "Employee Home Savings Plan" available as a workplace benefit. We also introduce other asset-building methods such as NISA and investment trusts, so please use this as a reference.
How Does the Employee Savings Plan Work?
The Employee Savings Plan is a system in which employees of a company save money through payroll deductions with the cooperation of their employer. Based on the Worker Asset Formation Promotion Act, it aims to support employees in building assets through a partnership between the government and companies.
Overview of the Employee Savings Plan
Employees refers to anyone employed by a business regardless of employment type, meaning not only full-time employees but also contract workers, dispatched workers, and part-time workers can use it. However, this is premised on the company having adopted the Employee Savings Plan as a workplace benefit.
The amount deducted from the payroll is paid monthly by the company to a financial institution for the savings plan, and contributions can start from as little as 1,000 yen per month. Interest accrues on accumulated savings, and there is a possibility of receiving more than the amount saved.
Financial Products Eligible for the Employee Savings Plan
Under the Employee Savings Plan, the financial products available are limited by each company or organization, and you choose from the designated products to enter into a contract. Common eligible products are as follows.
- Time deposits / recurring time deposits
- Fixed-amount savings
- Investment trusts
- Government bonds / corporate bonds
- Savings-type insurance / non-life insurance
Types of Employee Savings Plans
The Employee Savings Plan is classified into three types according to purpose.
General Employee Savings
This is a long-term savings plan accumulated over a period of three years or more. There are no restrictions on how the funds are used, and they can be used freely for things like purchasing a car, travel, or wedding expenses. Multiple financial products can be contracted by one person, and it can be started at any age. However, tax-exempt treatment on interest is not applicable.
Employee Pension Savings
This is a savings plan for employees under the age of 55 who make regular contributions for five or more years and receive the funds in the form of a pension from age 60 onwards. The advantage is that the tax-exempt treatment on interest can be received until the pension payments end, even after retirement. The tax-exempt limit is 5.5 million yen in combined principal and interest together with the Employee Home Savings Plan. However, if a withdrawal is made for purposes other than a pension, the tax-exempt treatment will no longer apply.
Employee Home Savings Plan
The Employee Home Savings Plan is a savings plan accumulated for the purpose of funding a home purchase or renovation costs. Employees under the age of 55 are required to make regular contributions for five or more years. Tax-exempt treatment on interest is available if the combined savings balance with the Employee Pension Savings is within 5.5 million yen, but in principle only one contract per person is allowed.
The conditions for using the Employee Home Savings Plan differ for new construction, used homes, and renovations.
[New Construction]
- Floor area of 50 square meters or more
- Occupied by the worker themselves (for those on single-person transfers, the family's home base)
[Used Homes]
- Floor area of 50 square meters or more
- Built within the last 20 years (25 years for fire-resistant structures), or meets certain earthquake resistance standards
- Occupied by the worker themselves
[Renovations]
- Renovation costs exceeding 750,000 yen
- Floor area of 50 square meters or more after construction
- Occupied by the worker themselves after renovation
Worker Asset Formation Programs Other Than the Employee Savings Plan
The Worker Asset Formation Promotion programs include systems related to employees other than the Employee Savings Plan.
Employee Benefit Payment System / Employee Benefit Fund System: A system in which companies pay benefit payments to employees who use the Employee Savings Plan. Companies receive tax assistance, and employees can receive benefit payments simply by using the Employee Savings Plan.
Employee Home Loan Transfer System: A public housing loan available to employees who have used the Employee Savings Plan for one year or more. Loans of up to 10 times the Employee Savings Plan balance, with a maximum of 40 million yen, are available. The repayment period can be set up to 35 years for purchases and 20 years for renovations. However, there are conditions such as requiring a balance of 500,000 yen or more by the application date.
Things Women Should Pay Particular Attention to When Using the Employee Savings Plan
If you take leave for childbirth or childcare, you can suspend the Employee Savings Plan. However, if contributions are suspended for two years during maternity or parental leave, the tax-exempt treatment will be lost, so it is necessary for the company to submit a Savings Continuation Application to the financial institution. After returning to work, resume contributions on the contractual contribution date.
What Are the Advantages of the Employee Home Savings Plan?
The greatest advantage of the Employee Home Savings Plan is that it allows you to reliably accumulate housing funds without much effort. There are five advantages as follows.
Easier to build assets toward purchasing or renovating a home
Since the amount is deducted from your paycheck, there is almost no effort involved and you can steadily build assets. Some products allow you to start from as little as 1,000 yen per month, making it easy to get started.
Tax-exempt treatment on interest
Interest on up to 5.5 million yen of principal is tax-exempt. The tax-exempt treatment means that profits from investment trusts can also be utilized without reducing the tax portion, potentially increasing the amount you have on hand.
Withdrawals are possible even for non-designated purposes
Withdrawals are possible even if a large sum of money is needed for purposes other than home purchase or renovation. This offers flexibility different from iDeCo or individual annuity insurance. In the case of a withdrawal for non-designated purposes, the taxable amount is limited to interest from the past five years.
Access to the Employee Home Loan Transfer System
Loans are available at low interest rates up to 10 times the Employee Savings Plan balance, with a maximum of 40 million yen.
Receive Employee Benefit Payments
Companies contribute up to 100,000 yen per employee, and after seven years, the total of the contribution and investment returns is paid out. Companies also have the advantage of being able to record contributions as losses or expenses.
What Are the Disadvantages of the Employee Home Savings Plan?
The Employee Home Savings Plan has disadvantages such as low interest rates and vulnerability to inflation.
Lower interest rates compared to other financial products
The interest rate on the Employee Home Savings Plan is only around 0.001–0.02%, so even with the tax-exempt treatment, the benefit is limited. For example, if you save 5.5 million yen at an interest rate of 0.02%, the interest is 1,100 yen, and even with taxation, only 223 yen is taken.
Risk of principal loss depending on the financial product
With products subject to price fluctuations such as investment trusts or insurance, there is a possibility of falling below the principal at the time of withdrawal. However, by choosing bank deposits or time deposits, the risk of principal loss can be avoided.
Vulnerability to inflation
Due to low interest rates, it is difficult to cover the decline in monetary value with interest during inflation, and there is a risk that assets will decrease in value.
Who Is the Employee Home Savings Plan Suited For?
The Employee Home Savings Plan is suited for those who want to steadily save for housing funds without much effort, or those who want to borrow at low interest rates.
Those It Is Suited For
- Those who want to save money without much effort: Savings are automatically accumulated through payroll deduction, saving the hassle of saving
- Those worried they might spend their savings: The mechanism that makes it difficult to withdraw easily helps prevent overspending
- Those who want to borrow at low interest rates: Loans are available at low interest rates up to 10 times the balance, with a maximum of 40 million yen
Those It Is Not Suited For
- Those seeking large returns: Due to low interest rates and vulnerability to inflation, returns similar to investments cannot be expected
- Those comfortable with asset building through iDeCo or NISA: These offer greater tax benefits, so the advantages of the Employee Home Savings Plan may be less apparent
What Are the Asset Value and Risks to Know When Purchasing a Home?
The asset value of a home is determined by factors such as location, age of the building, and size, but focusing solely on asset value carries the risk of purchasing a home that does not suit your lifestyle.
Condominiums in convenient areas, near train stations, of appropriate size, and around 20 years old are said to have high asset value, but future land price changes cannot be predicted. When purchasing a home, be careful not to be swept up by the term "asset value."
For those who want to learn more about selecting properties for real estate investment, please also refer to Tokyo Real Estate Market Trends and Their Impact on Investors.
Are There Recommended Asset-Building Methods Other Than the Employee Home Savings Plan?
There are other ways to save for housing funds besides the Employee Home Savings Plan, including recurring deposits, time deposits, NISA, insurance, and investment trusts.
Recurring Deposits
This is a deposit where a fixed amount is deposited each month and accumulated until a target amount is reached. The interest rate is higher than ordinary deposits but lower than time deposits, and many products allow withdrawals before maturity, providing flexible use. It is an effective alternative for those whose workplace does not have an Employee Savings Plan.
Time Deposits
This is a deposit where money is deposited for a pre-specified period. The interest rate is slightly higher than ordinary deposits and recurring deposits, but in principle, withdrawals cannot be made before maturity. Note that early cancellation may significantly reduce interest.
NISA
NISA is a system in which profits earned from investments are not subject to taxation. Normally, a tax of approximately 20% is levied on investment income, but if managed through NISA, it can be received tax-free. The new NISA introduced in 2024 allows the combined use of the "Accumulation Investment Allowance" and "Growth Investment Allowance," and the tax-exempt holding period has also been made permanent.
Insurance
Non-term insurance serves both the role of coverage and asset management. Whole life insurance, educational endowment insurance, endowment insurance, and individual annuity insurance are utilized for asset building. It is also possible to reduce the burden of income tax and resident tax through the life insurance premium deduction. However, long-term enrollment is required and premiums are higher than term insurance.
Investment Trusts
Investment trusts are a method in which funds collected from investors are managed by investment professionals in stocks, bonds, and other instruments. They allow investing from small amounts and risk reduction through diversified investment. However, there is no guarantee of principal, and there is a risk that assets may decrease due to fluctuations in the standard price, so be sure to confirm the risks of each product in advance.
For those interested in rental property management alongside building housing funds, please also see Stress-Free Property Management Methods.
Summary
The Employee Home Savings Plan is a system that allows you to efficiently and reliably save for housing funds through a partnership between the government and companies. While it has advantages such as tax-exempt treatment and low-interest loans, it also has disadvantages such as low interest rates and vulnerability to inflation. Consider combining it with other methods according to your life plan and asset-building goals.
Frequently Asked Questions (FAQ)
What happens to the Employee Home Savings Plan if I change jobs?
If the new employer also has the Employee Savings Plan in place, you can continue by completing the resumption procedure at the new company within two years. If the new company does not have the plan, it will be terminated and will no longer be eligible for tax-exempt treatment.
Can the Employee Home Savings Plan and the mortgage tax deduction be used together?
Yes, they can be used together. If you save a down payment with the Employee Home Savings Plan and take out a mortgage, you can receive the benefits of both as long as you meet the eligibility conditions for the mortgage tax deduction.
Can the contribution amount for the Employee Home Savings Plan be changed midway?
Yes, it is possible to change the contribution amount. You notify the person in charge at your company and complete the procedure. However, the timing and frequency of changes may vary depending on the financial institution's and company's regulations.
Can the Employee Home Savings Plan be used to fund the purchase of a used condominium?
Yes, it can be used to purchase a used condominium if the conditions are met. The conditions are a floor area of 50 square meters or more, built within the last 20 years (25 years for fire-resistant structures), or meeting certain earthquake resistance standards.
Should I prioritize the Employee Home Savings Plan or NISA?
It depends on your goals. If home purchase is a clear objective, the Employee Home Savings Plan offers advantages such as tax-exempt treatment and low-interest loans. If you are seeking higher returns or do not want to restrict the use of funds, NISA offers more flexibility. Using both in combination is also an effective option.
