Japanese employers commonly pay a single lump sum when an employee leaves, not a pension. Like the bonus it is set by the employer, not by statute — but unlike the bonus it has its own, unusually generous, tax treatment.
This page explains the rules. For the numbers — what retirement payouts actually pay — see the benchmark page.
Nothing obliges a Japanese employer to run a retirement allowance scheme. Where one exists, the work rules define it, and once defined it becomes enforceable as a term of employment.
Schemes are steeply back-loaded: the multiplier per year of service rises with tenure, so twice the service is worth far more than twice the payout. This is the mechanism behind the long tenures Japan is known for — leaving early is expensive in a way that a monthly salary comparison hides.
Most schemes pay more when the employer ends the relationship — restructuring, or an early-retirement programme — than when the employee resigns at the same length of service. Japanese restructuring is therefore usually announced as a voluntary early-retirement scheme with an enhanced payout: the enhancement is what persuades people to take it.
Retirement income is taxed separately from ordinary income, after a deduction based on years of service: ¥400,000 per year for the first 20 years, then ¥700,000 per year beyond 20 (minimum ¥800,000). Only half of what remains is treated as taxable retirement income.
So 35 years of service carries a deduction of ¥8,000,000 + ¥700,000 × 15 = ¥18,500,000 before anything is taxed at all — which is why a payout that looks large often produces a modest tax bill.
Short service is treated differently. For five years or less, the halving does not apply to the portion above ¥3,000,000. The Japanese edition of this site has a calculator that applies the full schedule including local inhabitant tax.
From January 2026 the overlap rule got longer. If you took a lump sum from a defined contribution pension (iDeCo or a corporate DC plan) first, and then receive a retirement allowance within the nine years before that year, the overlapping years of service are removed from the deduction (it was four years before). In practice the gap you need to leave went from five years to ten.
The tax treatment above applies to Japanese residents. Whether it reaches you depends on your residence status at the time of payment and on any applicable tax treaty. Treat the figures on this site as the gross market level, and take advice on the net.
Bonuses ・ Retirement lump sums ・ Graduate hiring ・ Paid leave ・ Overtime ・ Parental leave ・ Women in management ・ Reading salary figures ・ Contracts and dismissal ・ Annual securities reports ・ all guides.
Sources: Income Tax Act (Act No. 33 of 1965) / Act on Securing of Payment of Wages. Summarised by Corpus; not provided or endorsed by any government agency. The figures behind the linked benchmark pages come from Japanese government statistics and company disclosure — see all benchmarks.