The story so far

In the long-ago land of 1985 — as the Nikkei index readied for a run that would take it over the 40,000 level five years later — nine foreign trust banks were permitted to do business in Japan. The main attraction for these institutions was the potential fees to be earned from managing pension fund assets.

Two years later the trend-setting Nenpuku, an arm of the Ministry of Health and Welfare which overseas disposition of a portion of the funds contributed to the state pension scheme, said it would not use foreign trust banks’ services because they had insufficient experience in the local market.

This substance-chasing-shadow play continued for a decade although local and foreign Investment Advisory Companies (IACs) were allowed to set up for the first time in 1987.

Then, in a move often attributed wholly to foreign pressure and the resultant US-Japanese Financial Services pact of January 1995, real and lasting moves began to be made.

Behind them was a growing domestic desire for change as Japan faced up to the demographic pressures which by 2025 will give it a maximum of 2.1 workers per retiree compared with 6.4 today; when the return on pensions portfolios managed by life insurance companies is running at under 2%.

The same forces propelled calls from many older households for better returns on their savings than the near-zero rates offered by banks, the falling rewards on annuity policies and the meagre earnings available from domestic mutual funds with the Nikkei index unable to climb much above 15,000.

Meanwhile pensions sponsors are being relieved of some of the burdens which, under Japan's unique three-tier system, they have been obliged to bear for state pensions. And legislation, which may come as early as Spring 1999, could set the scene for a restructuring of the system as well as the introduction of D-C plans.

A chronology detailing the disasters and developments that have quickened the pace of Japan’s financial reform, and gives a wider view than that below of the measures likely to be implemented by 2001, appears as an appendix to the second edition of Asia Agenda’s ground-breaking guide to the nation’s retirement-scheme system Inside Japan’s Pension Market.

The story in future