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Tuesday, April 29, 2003

Gambling with retirement pay


Staff writer

Experts and the media said the writing was on the wall. Just over three years later, the nightmare became a reality.

The Health, Labor and Welfare Ministry announced last month that the Government Pension Investment Fund suffered an investment loss of 2.15 trillion yen between last April and September, bringing accumulated losses to more than 5 trillion yen.

Many had questioned if welfare ministry officials were qualified to manage such a huge fund when the ruling parties rammed through a law to transfer the management of all public pension funds -- now snowballing to 150 trillion yen -- from the Finance Ministry to the Government Pension Investment Fund.

The GPIF, a special corporation affiliated with the welfare ministry, was established in 2001 to replace its predecessor, the Pension Welfare Service Public Corp.

The PWSPC managed 25.73 trillion yen of Japan's total 140 trillion yen in pension assets in 1999.

During a Diet session in December 1999, Naoto Kan, then policy chief of the Democratic Party of Japan, asked, "How can you assure that the Health and Welfare Ministry can do better with the 140 trillion yen, after suffering debts of more than 1 trillion yen?"

The PWSPC was notorious for failed investments in stocks as well as an extravagant leisure complex called Green Pia, which incurred 600 billion yen in losses from public pension assets.

The failed project seriously damaged public trust in the pension system and welfare ministry bureaucrats who hold control over the fund.

Experts and opposition parties were sharply critical that no bureaucrats were held responsible for the PWSPC's lax fund management, and warned this would continue with the GPIF.

DPJ Lower House member Kiyoshi Ueda argued that public pension funds, as is the case in the U.S. Social Security System, should be invested in bonds, which are generally considered a safer financial vehicle than stocks, although returns are also accordingly smaller.

"But it's much better than logging trillions of yen in losses," Ueda said.

The losses in the pension fund, however, only threaten to grow further.

The GPIF has decided to continue investing in the dwindling domestic stock market, although the key Nikkei average has plunged to two-decade lows of under 8,000.

The GPIF now manages 30 trillion yen of the 150 trillion yen fund. It will become responsible for managing the entire fund by fiscal 2008 as the Finance Ministry gradually transfers the role to the GPIF.

Kazuhiko Nishizawa, a researcher at the Japan Research Institute, argues that in the first place the government is not qualified to be a stock investor, given that the manager of the pension funds could be influenced by the will of the government, which can be tempted to try to boost stock prices by intervening in the market.

Despite repeated denials by government officials, rumors of government price-keeping operations never die among market players because often some unknown investor will suddenly buy large amounts of securities when domestic stocks dwindle.

Indeed, some politicians have even blatantly called for injecting public pension funds into the bourse as a measure to help bolster stocks.

At an April 24 meeting of key LDP financial policymakers, some discussed whether to request that the public fund manger buy more stocks, party sources said.

Members of the Council on Economic and Fiscal Policy, a key economic policy-setting panel for Prime Minister Junichiro Koizumi, is in heated discussion over the future form of the public pension system.

During the April 16 session, members from the private sector proposed that a "third-party organization" be established to manage investment of the public pension fund.



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