Defined Contribution (DC) pensions in Japan, introduced in 2001, will enter their 25th year this October. To mark this milestone, we conducted a consciousness survey targeting 36,000 people.
With the recent market environment and the growing adoption of long-term investment, many participants responded that their asset management was “favorable.”
However, the system’s name recognition remains low. One-quarter of the survey respondents were unaware of the system, and many who did know about it found it “too complex,” leaving them non-participants. Even among active participants, nearly half were unaware of their contribution limits or employer contributions. The survey was consequently filled with declarations of “I don’t know” or “I’m unsure.“
On the other hand, the number of participants responding “I don’t know” was significantly lower among those who had received financial education in the workplace, clearly demonstrating the effectiveness of employee training. Nevertheless, the implementation rate for this training is only 49%, with notable disparities across different industries and company sizes. A prescription is needed to address this gap.
It is particularly concerning that a significant number of participants do not view DC plans as a primary source of funds for their retirement. This figure stands at 40% for corporate DC plans and 30% for individual DC plans (iDeCo). This situation is largely due to low contribution limits, which prevent assets from accumulating substantially.
Due to the tax incentives associated with DC plans, raising the contribution limits is challenging from an equity standpoint. As a result, the system finds itself in a self-imposed dilemma, unable to fully serve as the “trump card” for retirement preparation. Only 25% of participants surveyed actually felt the benefit of the tax incentive. In a country like Japan with low tax awareness, tax incentives alone are unlikely to trigger behavioral change. Alternative mechanisms are necessary.
The survey found some support for proposals such as a mechanism where the government matches individual contributions, and a design that allows contributions exceeding a certain limit while maintaining a cap on tax incentives.
The guiding principle of DC plans is to “complement the public pension system.” To prevent this principle from becoming a dead letter, we must engage in data-driven discussions without establishing any sacred cows.
(Haruka Urata, Representative, Urata Management and Finance Lab)
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