¥260 bil. in pension assets of 1.12 mil. people who changed, left jobs remain unmanaged

REUTERS/Yuya Shino
People are silhouetted as they walk on an overpass at a business district in Tokyo, Japan, November 5, 2015.

Wasting away are the funds of 1.12 million people who participated in defined contribution (DC) pensions of the corporate type, where employers pay premiums and employees decide how to manage the investments.

The amount, according to the report compiled by the National Pension Fund Association (NPFA) on Tuesday, reached about ¥260 billion as of the fiscal year ending March 2022.

This has happened because the necessary procedures were not taken by employees when, for instance, they changed jobs.

As a result, investment opportunities are being lost, which might likely affect the building up of assets for retirement.

A 41-year-old who lives in Tokyo changed jobs in August 2021. Six months later, she received a notice informing her that her gains in the corporate DC plan had been transferred to the NPFA.

“I don’t remember receiving any explanation from the company I previously worked for,” she said. “Nor am I satisfied with the explanation why my funds in the plan were transferred without my knowledge, with fees deducted from my account.”

The corporate DC plan was introduced in October 2001. The amount of pension benefits participants receive in the future will depend on the performance of the financial products they have invested in under the plan. Employees cannot receive pension benefits until age 60, in principle.

“As companies contribute to the plan, many people lack the understanding that the gains are theirs, thus failing to go through the necessary process,” said a person at the Health, Labor and Welfare Ministry. “We would like to make this information known thoroughly to those who leave companies by, for example, ensuring that employers are obliged to explain to employees what to do with their corporate DC plans when leaving them.”

Financial journalist Minako Takekawa commented: “At a time when people need to build assets for their old age, it is problematic that individuals’ valuable pension funds are left unmanaged, with their value declining. Measures such as simplifying the procedures for transferring the assets at the time of leaving companies are needed.”

The number of participants in corporate DC plans is increasing every year, reaching approximately 7.8 million nationwide. When employees leave a company, they will lose eligibility in the corporate DC plan, if, for example, their next employer does not have such a plan.

If within six months following their loss of eligibility they fail to take necessary steps to have their gains transferred to the individual-type defined contribution pension plan (iDeCo) or similar pension plans, these assets are automatically transferred to the NPFA.

The assets that are transferred to the association cannot be invested and do not just remain as they are. An initial transaction fee of ¥4,348 is deducted with ¥52 subtracted as a monthly fee to hold the funds.

Even if the people whose gains are held by the NPFA reach the age of eligibility to receive pension benefits, they will not be able to receive these funds without going through procedures such as joining other pension plans such as iDeCo and paying a fee. The period during which the funds are kept at the association are not counted into the total participation time, so when people can start receiving their pension benefits might also be delayed.

According to the NPFA, as of the end of March, there were 1,083,116 people whose funds in corporate DC plans had been automatically transferred to the association, a 47% increase from the 734,243 at the end of March 2018. The total amount of funds transferred to the association reached ¥258.75 billion, up 37% over the four years. As of the end of September, 1,126,145 people’s funds had been transferred to the NPFA.

Lying behind the increase in the number of these cases is the often-complicated procedures at the time of leaving companies and the lack of people’s awareness of the relevant system.

The association sends out a notice once a year to the people whose gains it holds to tell them about the need to take procedures.