There is an elephant in the room…
Of the 12 million NISA accounts that have been opened, half of them have not been funded and only few of them have been funded up to the maximum contribution allowance. That doesn’t bode well for the future considering that the premise for introducing a tax-privileged SIPP (self invested personal pension) was to take some of the burden off the Japanese Government Pension Investment Fund which is in dire straits.  If people aren’t taking the bait and starting to take care of themselves, the course ahead still ends at the iceberg.

Presently the “tax free” window for your investments is for a measly 5 years. Annual contributions are capped at 1.2 million JPY. That’s a potential account balance of 6 million yen over the life of the account. Better than a punch in the face, but when it comes to its usefulness as a retirement planning tool it remains as useful as…well, a punch in the face. (Unless the premise is that you are supposed to take your 6 million Yen and then emigrate to Cambodia).

But fear not. There are rumblings in government. Rumblings of change. There may be a 20 year NISA coming to a bank desk near you sometime soon. The annual contribution limit? 600,000 JPY. Great. 12 million yen over 20 years. You do not have to be a financial planner to understand that if your sum total of 20 years retirement savings is 12 million JPY, and you want to retire in Japan, the best retirement gift you can hope for is a terminal illness that will clip your ticket before your retirement savings run out.

So where is the scam then?

I hear you. It’s not a scam. So far, just extremely poorly executed. Its not a 401K, that’s for sure. Where things get sticky is when you understand the small print (which nobody really wants to talk about, and often doesn’t feature prominently in product literature).

If you invest (for example) 100,000 JPY today (during the tax-free period) and your investment goes down to 50,000 JPY (zannen!) you better hope it returns to 100,000 JPY before the end of the tax-free period. Why? Because if the term ends, and your 50,000 JPY then becomes (/goes back to) 100,000 JPY then guess what? You will owe tax for your “gain” of 50,000 JPY.

Business as usual. One hand gives. The other takes away. You have been warned.