The Government Pension Investment Fund's recent shift to more aggressive investment targets could be followed soon by significant reforms to Japan's corporate retirement system.
The eighth annual Global Pension Symposium, sponsored by Pensions & Investments and Nomura Securities in Tokyo Nov. 11-12, began with calls for policy changes to help corporate defined benefit and defined contribution plans become sturdier pillars of Japan's retirement system.
The economic implications — direct and indirect — of pension reforms have given efforts to bolster the system a political tailwind from the government of Prime Minister Shinzo Abe. He swept to power two years ago on the strength of his pledge to do anything needed to lift Japan's economy from a stubborn deflationary spiral, even as it contends with a mid-year recession.
With the ever-increasing burden on Japan's public pension plans, and retirement benefits accounting for as much as 30% of consumption outlays in some parts of the country, “the role of corporate pensions has to expand,” Kiyoshi Murase, president of Japan's Pension Fund Association, told an audience that included 238 representatives from corporate defined benefit and defined contribution plans.
In separate presentations, Mr. Murase and Koji Kakigi, chairman of the pension subcommittee of the Japan Business Federation’s committee on social security, detailed progress of ongoing talks with Japan’s government on topics such as expanding limited tax treatment at present for DC plans.
While a growing number of Japanese companies have added defined contribution plans for their employees or switched to DC from DB over the past year or two, monthly contributions are currently limited to ¥55,000 ($473) for firms that only offer DC and half that total for firms that offer a DB plan as well. That constraint “should be abolished,” said Mr. Kakigi.
Some observers expect that monthly ceiling to be doubled or tripled in the coming months.
Other areas of reform under consideration in Japan include taking steps to promote portability, to reflect the fact that fewer employees now stay with one company throughout their working life, while accommodating the growing number of Japanese working overseas and foreigners working in Japan.
Conference attendees heard from representatives of the ¥126 trillion GPIF about the Tokyo-based giant's Oct. 31 decision to lift its target allocations for domestic equities and foreign equities to 25% apiece from 12% each, while slashing its domestic bond target to 35% from 60%, to meet more aggressive return targets.
Mr. Abe's lieutenants have made it clear this is the direction in which they want the GPIF to move.