JAPAN – The recently authorised Japanese defined contribution (DC) plans will not create a goldmine for foreign fund managers, raising only ¥5trn (e47bn) during their first three years of operations, according to Boston based research and consulting firm Cerulli Associates.

From the start of October, Japanese companies will be able to establish occupational retirement schemes, but the contribution restrictions will hinder the initial DC asset growth, says the consultant.
Members of the schemes are allowed to contribute ¥432,000 a year.

By law, one of the minimum of three investment options in the new plans must guarantee its capital from loss, which probably means that at least three quarters of the contribution assets will end up in capital-protected accounts, Cerulli says.

Following on from this, the consultant believes that the domestic banks and insurers will dominate the marketplace.

Even though the new pension schemes will require a number of foreign fund management products, it is unlikely that all overseas managers will benefit because of ‘gatekeeper’ firms set up by Japanese corporations, says the consultants. These companies have been founded to assist in the creation of the DC schemes and in establishing investment strategies.

In addition, many Japanese corporate executives are interested in hybrid cash balance plans, according to Cerulli, but it is thought that new legislation is required in the country before the plans get the go-ahead.
Japanese defined benefit plans currently hold some ¥50trn according to the consultant.