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With an aging population, a decreasing birthrate and the baby-boomer generation about to retire, you’re sure to have some idea of the depth of the AIJ scandal involving the loss of pension funds for some 880,000 Japanese. Just how did something like this happen and what will it mean for these pensioners?
This article will simplify the background of the Japanese pension system and explain how mismanaged funds could produce disastrous results for retirees expecting to live on their pensions.
The Japanese pension system is comprised of both a national pension insurance ("kokumin nenkin") and an employees’ pension insurance ("kosei nenkin").
• National pension system
All residents of Japan (between the ages 20-60) are required to pay into the national pension scheme. This includes foreign residents. The aim of the national pension is to provide a basic pension to all residents, falling into three categories:
-- Disabled – paid under certain conditions when a pensioner becomes disabled -- Bereaved – paid to pensioner’s wife and/or children should the pensioner die -- Elderly – paid, in principal, when the pensioner reaches 65 years old
• Employees’ pension system
This pension system is mainly for those who are employed by private companies. Pension premiums are deducted from his/her salary. When one is enrolled in the employee pension system, he/she is automatically enrolled in the national pension system as well. As such, he/she would be entitled to higher pension payments in the future.
Pension payments are made by the company and the employee to the Japan Pension Service, a government organization administered by the Department of Health, Labor and Welfare (which replaced the Social Insurance Agency in 2010). Companies are permitted to borrow some of the employee contributions to expand their business through investments, with the intention of returning the borrowed funds to the Pension Service so the employees can draw from their pensions in the future. The borrowed money, combined with the company contributions, can then be invested with a fund manager. To increase possible returns, small businesses often join a co-operative, pooling their funds with other small businesses to increase their investment.
In an ideal situation, the funds will return a profit. However, should that fail to happen for whatever reason, the companies would find themselves in dire straits to return the borrowed money to the Pension Service. The repercussions go far beyond that, however. Consider this chain of events:
• The companies cannot repay the Pension Service for the borrowed funds
• The companies are responsible for repaying what was borrowed using their own funds
• The companies are in danger of bankruptcy because they can’t afford to make the payments
• Upon bankruptcy, the company can write off their contributions, which means that employees may be able to collect some of their pension, but not all. What about the responsibility of the co-operatives? They shoulder quite a burden.
• The responsibility to repay the Pension Service is spread across the entire co-operative
• Should a member of the co-operative be unable to make payments and therefore declare bankruptcy, the burden is then shifted to the remaining members, making it more likely that they too, will be unable to shoulder the burden, and end up filing bankruptcy themselves.
This is precisely what happened in the case of AIJ. Asset manager Kazuhiko Asakawa invested the funds from more than 90 corporate pension funds, representing approximately 880,000 people, and because of poor performance, the funds were lost – to the tune of 109.2 billion yen. What’s worse is that Asakawa covered up the losses for almost 9 years, from 2002-2011, producing falsified investment reports inflating AIJ’s asset size and investment results.
Also under investigation is ITM Securities Co, a small Tokyo brokerage that promoted and sold AIJ’s services. Though it is unclear whether or not ITM was aware of AIJ’s fraudulent activity, ITM’s founder, Hideaki Nishimura, has denied having any prior knowledge.
As of this month, the Securities and Exchange Surveillance Commission (SESC) has only been able to locate 8.9 billion of the 209 billion yen in net assets that Asakawa reported to have. Results of this have been almost immediate, with several smaller companies facing bankruptcy and others being forced to dissolve their employee pension funds.
So what can be done to prevent this kind of disaster from happening in the future? Ideas being tossed around include limiting risky investments and, according to the Health Ministry, limiting the percentage of a pension fund’s assets invested with any one manager. It is no secret that many mid- to small-sized Japanese pension funds are handled by fund managers who are both unskilled and lack the professional experience necessary to manage pension funds.
According to a survey by the ministry, 80% of corporate pension funds have no one with experience in asset management. What is surprising to learn is that these managers are often former employees of the Social Insurance Agency – the government agency that was responsible for overseeing national pension policy before it was abolished in 2010 and replaced by the Japan Pension Service. The Japanese Ministry of Health estimates the nation's total population will decrease by 25% from 127.8 million in 2005 to 95.2 million by 2050. Japan's elderly population, aged 65 or older, comprised 20% of the nation's population in June 2006, a percentage that is forecast to increase to 38% by 2055.
Whether or not any new regulations can repair Japan’s pension system is the billion yen question. However, for those 880,000 employees directly affected by the AIJ scandal, these regulations will be too little, too late.
© Japan Today
17 Comments
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tokyokawasaki
We foreigners should have the option to 'opt-out- of the national pension scheme. I mean what % of us have any plans to retire here? Every month we are paying out money which we'll never see again... How is that fair?
Yes, yes, I know we can claim back a tiny % of what we've contributed when we leave.
Evil, anal and totalitarian system.
Greapper1
agreed ^ Can only get 3 years worth of your money back too. Rest is taken permanently by the Japanese government.
sakurala
Tokyokawasaki: I plan to retire here so I pay into the pension plan. If you don't plan to be a long-term resident, I can see why you would opt out but some countries have an agreement with Japan to transfer pensions across boarders.
And anyway, it does not matter the percentage of foreigners...this is an issue that may effect our friends and loved ones in the future. I feel really bad for the people that paid into their pensions for years on end and once they have reached the finish line, there is nothing for them. I hope they fix this issue ASAP as it can be something that will cause serious issues to this aging society.
GW
sakurala,
The problem is ALREADY here in a massive way, combine the poor asset management with the loss of 50million pension records & its a total disaster NOW & from here on in.
The only possible way to "fix" this is to deny or severely cut payments, nothing else will work
tmarie
I would love to opt out of all pensions. Leave me and my money alone and allow me to invest it as I see fit. Those that waste and squander can deal with it when they get old. I hate the system here of how those who haven't contributed a cert personally get covered by their spouses. It is wrong and robs those of us who are working our butts off. Why reward the lazy?
My country has an agreement and I started paying pension when I was about 18. Anyone know how I get those years included in my years here???
Jonathan Hunt
So, Tokyokawaskai, you plan to go back to your own country and retire there, living on the tax dollars that you didn't contribute to? Yeah, sounds like a rip-off alright.
NetNinja
Seems like corporations in Japan are just one-trick ponies. All they do is "lie". Lies, Lies, Lies.
Radiation? Lies Pension? Lies History? Lies
Visually, there are just so many lies here it looks like a game of Jenga with each block representing a lie.
As soon as you start eliminating the lies then you start to realize how unstable Japan really is.
Oh one more thing....almost forgot......Put that same game of Jenga (lies) on top of Japan shaky fault lines and then you've got an accurate picture of what is about to happen.
gurudaimon
simple dont keep in yen and in japan!
globalwatcher
Same here, but it is just about to change after the election.. Some are getting more than two big pensions (military, civil service, and corporate) of spause.
If she has been contributing to Japanese Nenkin, she can transfer or consolidate Japanese Nenkin with her own country's pension upon retirement. There is a website available in English for this. FYI. There are agreements between Japan and most European countries and US. I cannnot speak for other countries. Again, I urge everyone to receive an earning proof before leaving Japan.
Akula
I thank Mr Katlaps for his article.
globalwatcher
i suggest Japan needs to adopt a law similar to E.R.I.S.A to protect employees' pension funds ASAP.. Sounds like there is no protection in Japan at this moment. I sure do not blame anyone who wants to opt out. . .
timeon
I also think that the government forcing you to pay pension money is a socialist scam, and I would gladly opt out of it (of course I can't, it's automatically deducted from my salary). I would like to manage my pension myself, saving those money every month would be more advantageous than giving it to the state. if I understand correctly that's how it works in US (private pension funds).
Akula
Looks like the moderators censored most of my comment re Select Asset Management continually cold calling me despite the fact I told them a number of times I was not interested in their services.
Moderator: Not relevant to the commentary.
tmarie
Same here, but it is just about to change after the election.
Where did you hear this from? Last I heard was that SAHW were outraged (no shockers there) and the parties decided to forget all about this and look the other way of the leeches robbing the system they contribute nothing to.
Timeon, mine is worse. As a PT worker, I actually have to go to a conbini and personally pay - in cash! - how much I owe for a year. Trust me, my 18 man that I just paid would be put to better use and investment by myself...
globalwatcher
@Marie, These two websites will tell you more as listed below.
I forgot to add another important issue for you to do (I assume you are an American). Along with a proof of Kosei Nenkin and Kokumin Nenkin contribution records, you may want to set up an appointment with your local SSI Administrative office in US or US Embassy in Japan. DO NOT wait until you retire. IMPORTANT.
You need to make sure all of your contributions to Japan are correct and going into your US record. My contribution records were not accurate, and it took me years for me to correct them. I hope my info is helping you. I am trying for all Americans on JT to do this. I am glad I kept all voided passports for a proof. Thank God!
1) Motley fool (daily finace) is a part of CNN. http://www.dailyfinance.com/2012/03/23/the-complete-overhaul-social-security-
2) If Romney is elected, he will AGGRESSIVELY try to reduce the debt by some payout cut to SSI and Medicare.
http://www.washingtonpost.com/politics/romney-overhaul-medicare-and-social-security-to-reduce-debt/2011/11/04/gIQAgUHumM_story.htmleds-to-survive/
tmarie
Not American - though thanks for links. Will read them now. I really, really hope it gets done away with as it needs to be!
tmarie
Oh wait, you're talking about the US. I'm talking about the 1.3 million cap here that is bleeding us dry by all those jobless housewives who get to claim pensions and get health care.