If Japan’s pension reforms ever get under way in earnest, there could be substantial growth of private defined contribution plans, known as 401(k) after the US system. Japan’s pensions market is already very large. “The total size of the market is a little less than $3 trillion, as at March 2005,” says Shuichi Komori, president and CEO of Daiwa SB Investments Ltd. “Around 70% of our assets under discretionary management come from the pension fund industry, mostly in Japan.”
Komori is a strong advocate of pension reform and hopes to see the 401(k) market prosper. “It started just four years ago,” he says, “but with relatively small amounts due to tax reasons. The [investment] ceiling was lifted somewhat, but the maximum amount you can save each year is about ¥500,000 ($4,370) and still employers aren’t allowed to match employee contributions.”
Despite this, Komori is optimistic about the scheme’s growth prospects. “For the first nine months of his fiscal year, our 401(k) assets grew 2.5 times bigger than in the whole of 2004,” he says. “Plus more and more larger companies are going to adopt 401(k) systems. We’ve prioritized it as a key long-term strategy.”