Morningstar - Q2 2020 - 35

Dispatches

r et D te und

who invest a meaningful portion in investment
tru t o toc bond or et lloc tion und
don t o e rtici nt in e t ore e
common prevailing explanations are that
ne e eo le re e ce i el ri
er e nd
t t t eir ﬁn nci l liter c i lo er t n t t
of investors in other countries. These psychological
and educational explanations may be part
of the answer, though they are not well
supported by evidence. But there are more
plausible explanations.
Primary contributions are made by employers.
Unlike (k) plans in the U.S., the primary
contribution to cor or te deﬁned contribution
plans comes from employers, not from
employees, so employees may not be actively
thinking about investing. A plan sponsor
can choose to allow employee matches up to a
maximum amount, but employee matching
was introduced only recently and only a small
number of plans have adopted it.
Maximum and actual contributions are low.
The maximum allowed contribution per month is
, (about
) for
rather small: P
, for
corporate plan participants and P
individual plan participants. Data from the
DC Plan Administrators Association show that the
average actual contribution per participant
is much lower: P , for corporate plans and
P ,
for individual plans. Participants
may believe that such small amounts are not
meaningful enough to invest.
Workers don't see the tax advantages.
Unlike U.S. workers, most ordinary workers in
Japan (except highly paid ones) do not have
to ﬁle t return e er e r e don t directl
ee t e t d nt e o deﬁned contribution
plans because individual income taxes are
usually withheld from their monthly paychecks
nd d u ted t t e end o e c e r b
their employers.
Other sources of retirement income are available.
The public pension system covers on average
at least
of living costs before retirement
or t o e o id into t e te
t ore
ri te deﬁned beneﬁt l n re o ten

e

ne e l n incre in l o er t e

Total Assets JPY Million

n o tion

% Available in Deﬁned Contribution Plans

50K

93
44.30

40

100
80

34.85
30

60

Deﬁned Contribution & Public

20

Deﬁned
Contribution Only

10

40
6.40

20

Public Only

0
01/2010

01/2012

01/2014

0
01/2016

01/2018

Source: Morningstar Direct.

available for workers at large companies, and
n cor or tion
lu
u retire ent
payment upon mandatory retirement (traditionally
at age but recently extended to age ).
t e n deﬁned contribution l n re o ten
only supplemental.

funds were adopted only by
date funds by plans.

Regardless of the reason, many plan participants
re not
i i in t i beneﬁt n ddition l
explanation, one that also applies to investors in
other countries, is a behavioral one: choice
o erlo d n er e
ne e cor or te deﬁned
contribution l n o er funds, according
to the Pension Fund Association. That may be
too many for most people who have never invested
in stocks, bonds, or investment trusts before,
leading to indecision on fund selection.

r et d te und ere ﬁr t old b b n nd
s, but they
bro er e ﬁr in t e e rl
did not attract much money. However, they have
beco e incre in l
il ble in deﬁned
contribution plans, where assets have grown over
the past decade. As of December, total
et in e ted in t r et d te und e ceeded
P
billion.

Learning from the U.S., the Japanese Ministry
of Health, Labor, and Welfare introduced a
to allow corporate plan sponsors
rule in May
to
e de i n ted in e t ent
il ble
as a default option.

l n

nd t r et

ortun tel t r et d te und
e r du ll
t en o in
n nd re incre in l n o tion
in deﬁned contribution l n

e reco end t t
ne e deﬁned
contribution plans go a step further and introduce
n o t out
ro c
in t r et d te und
the default investment.
Katsunari Yamaguchi, Ph.D., C , C
Ibbotson Associates Japan.

ut ur ri in l t e
orit o l n on or
in Japan that adopted a designated investment
selected safe assets, such as bank deposits
nd in ur nce roduct
cor or te deﬁned
contribution plans surveyed by PFA, only
adopted a designated investment. Among those,
plans adopted safe assets, while balanced

ornin t r co l

ine

, is chairman of
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