Japan reviews pension system, paving way for new GPIF allocations

TOKYO - Japan's Health Ministry completed an evaluation of the public pension system, paving the way for the world's biggest pension to review its asset allocations, a process set to shift more money into stocks and less into bonds.

The evaluation, announced on Tuesday by the ministry's pension actuary section, will form the basis for the $1.26 trillion Government Pension Investment Fund to raise its targeted returns to 1.7 percentage points over nominal wage increases from 1.6 points.

The government overhauled the GPIF's structure in late April, appointing new committee members in a push towards Prime Minister Shinzo Abe's goal of a more aggressive investment strategy.

Tuesday's evaluation found that under all eight scenarios examined, Japan's public pension payouts will exceed the required 50 per cent of the pensioner's average lifetime salary until the next evaluation in 2019.

The GPIF needs to generate healthy investment returns. Since the 2009/10 fiscal year, it has been paying out more in benefits than it has received in contributions due to the rising number of retirees as Japan's population rapidly ages.

A GPIF working group tasked with reviewing the fund's asset allocation over the next two to three months will hold its first meetings in mid-June, said people familiar with the process.

Yasuhiro Yonezawa, the recently appointed head of the GPIF's investment committee, said the pension fund could raise its investment in domestic stocks to 20 per cent of its portfolio from the current 12 per cent, the Nikkei financial daily said on Tuesday.

The GPIF now allocates 60 per cent of its investments to Japanese government bonds, 11 per cent to foreign bonds, 12 per cent to foreign stocks and 5 per cent to short-term assets.

The ministry and advisory panels examine the pension system every five years by reviewing factors such as the country's economy and demographic assumptions to evaluate whether the system is viable for the next 100 years.