Corporate Pension Schemes, Corporate Pension Governance, and State (De-) Regulation in Japan

Abstract

The worries concerning the several millions of US dollars that each of a number of Japan's biggest corporations has had to put into their pension funds should be moderated. These payments may just show the right stance of pro-active corporate pension governance, based on reliable assumptions and simulations. Japan's largest corporations will fully enjoy the benefits from the relaxation of the government rules that until now have provided very little leeway in the field of investment and technical assumptions. Indeed, deregulation of corporate pensions may be another, yet significant, stage of a long-term, government-initiated move toward a newly designed financial services market in Japan. A look at the economic and financial situation which prevailed at the time when the Japanese modem corporate pension schemes were created and how they evolved to their present state clearly helps to understand the need for change. Some may rightly stress that the promised big bang is still due, but the fact is that the big burst of the bubble is still occurring. The authorities may be willing to reach several goals at the same time: phasing out outdated rules and transmitting the urge for asset performance on sponsoring corporations, which in turn may aim for a better performance expected from the new providers of asset management services while putting pressure on their traditional financial partners. The latter, life insurance companies and trust bank are high on the target list of the deregulators. But resistance to change may be rather strong and the free use of the newly granted freedom by the recipients may encounter limitations even tighter than previous Government regulations. The extension of benefits and duties of freedom to the majority of Japanese corporations implies the proper diffusion of corporate pension governance techniques, a competent choice of risk/return profiles and a maximization of performance, thus reducing each sponsoring company's operating costs.