Japan: Nippon Life Insurance lowers its corporate pension returns

| 21 Apr 2022

Nippon Life Insurance Co is lowering its estimated rate of return on corporate pension insurance policies. This will be the first time it has slashed its estimated rate in 21 years.

As of April 2023, the estimated rate of return will fall to 0.50% from the current 1.25%.

The move, which reflects a long period of low long-term interest rates, will impact some 5,200 companies which will have to increase their contributions to employee pension programmes.

The reduced estimated rate of return will apply to the defined benefit corporate pension programme offered by Nippon Life Insurance.

About 12,000 companies have purchased these pension programmes which cover about 9.33 million employees and about 23% of all workers at private-sector companies. 

Such pension programs are normally managed by trust banks and life insurance companies.

The total amount handled in the defined benefit corporate pension programmes is 67.5 trillion yen (U$526 billion). While 75% of that amount is handled by trust banks, Nippon Life Insurance has the largest share among life insurance companies, handling some 5.6 trillion yen which is about 10% of the overall total.

During the 1990s, Nippon Life Insurance’s estimated rate of return hovered above 5%. But it was reduced to 1.25% in 2002. The company has been forced to further trim the estimated rate of return because it projected that it would be unable to promise the higher rate of return in the future.

Life insurance companies must receive approval from the Financial Services Agency before lowering their estimated rate of return.

The agency approves the requests if it concludes the companies could not have foreseen changes in the interest rate or economic trends when the contracts for the pension products were signed, according to The Asahi Shimbun.