Nippon Life Insurance, Dai-ichi Life Insurance, Meiji Yasuda Life Insurance, and Sumitomo Life Insurance will cut the combined dividend payments on corporate pensions. This will be the first cut in four years, due to slumping stock prices and a surging yen.
These four players manage pension funds on contract and handle 15,000 accounts that guarantee a return of 1.25%. These accounts have an outstanding balance of around JPY13 trillion (US$119 billion), reported Nikkei.
The average dividend rate for the year ended in March came up to 1.75%, including the guaranteed return. This was roughly a 0.4-percentage-point drop from the previous year. The total payments are estimated at around JPY80 billion. Stocks are the major source of dividend funds. Threats regarding a global economic slowdown have led to a decline in stock prices around the globe since middle of 2015, which has resulted in significant decreases in paper gains.
Pension funds are also managed by trust banks, and they are also struggling to secure returns. Reports show that pension products at major trust banks averaged a return of approximately negative 2.7% for the fiscal year 2015. This would be the first time in five years the figure fell below zero, a far cry from fiscal 2014's roughly 13% yield. The Bank of Japan's negative interest rate policy has made the current environment tougher for fund managers. In April, Meiji Yasuda Life stopped accepting new accounts and also additional contributions to existing accounts. Nippon Life is refraining from taking on new accounts as a rule.
If the current conditions persist, the major players will need to reconsider the minimum guaranteed return of 1.25%. However, any reduction in the returns would affect existing pension funds, which will draw the rage of consumers.
Almost 110 major corporate pensions surveyed by the Rating and Investment Information averaged a return of negative 1.1% in 2015, for a loss of approximately 100 billion yen in asset value. If the financial conditions continue to deteriorate in the future, the companies will have to cover shortfalls to guaranteed returns out of pocket.