Japan's legislature passed the Pension Security Enhancement Act in August. The new law, which becomes effective January 1, 2012, represents the most significant change to the country's voluntary defined contribution (DC) pension plans since their introduction in 2001. DC plans have grown steadily, with approximately JPY 5 trillion (USD 65 billion) in assets for more than 15,000 employer sponsors and 4 million participating employees.

Provisions of the act will-

- Allow employees to contribute to an employer-sponsored DC plan for the first time. At present, only employers may contribute to a DC plan on behalf of employees. Under the new rules, employee contributions cannot exceed employer contributions. The limit on combined employer and employee contributions (both receiving preferential tax treatment) to a DC plan will remain the same: JPY 51,000 (USD 659) per month if the employer sponsors only one occupational DC plan for employees, or JPY 25,000 (USD 323) if the employer also sponsors a defined benefit (DB) plan.

- Extend coverage to workers aged 65 or younger. Currently workers aged 60 or younger may participate in a DC plan.

There are two types of DC plans in Japan: employer-sponsored plans for employees and individual plans available to the self-employed and to workers of employers who do not sponsor a pension plan. Contributions receive favorable tax treatment. In the case of employer-sponsored plans, contributions are recorded as an expense by the company and are not counted as income for the participant; for individual plans, the entire contribution is tax deductible for the participant up to the contribution limit, currently JPY 612,000 (USD 7,910) annually.

Voluntary private pension plans in Japan (including DC and employer-sponsored DB plans) supplement the country's two-tiered public pension system, which comprises a flat-rate plan for all residents under the national pension program and an earnings-related plan under the employees' pension insurance program.

源: "Proposal for Fundamentally Reforming Japan's Defined Contribution Pensions," Nomura Journal of Capital Markets, Autumn 2009; "New Defined Contribution Limits in Japan," mercer.com, October 5, 2009; "Japan: Employee DC Plan Contributions to be Permitted Beginning January 1, 2012," Global News Briefs, August 2011; email from Towers Watson staff, August 30, 2011.

Legislation date: 08.2011

Implementation date: 01.2012