Japan lacking appropriate retirement products, says report

09 October 2013   Category: News, Japan   By Asia Asset Management

Despite leading Asia in the ageing cycle, products suitable for retirement have not emerged in Japan, according to a report from Cerulli Associates published on October 8. In fact, the situation is getting more urgent by the year, it says. In 2010, 23% of the population was over 65 years of age. The figure is expected to grow to about 30.7% of the population by 2030.
 
One standout characteristic of Japan's mutual fund market is the considerable presence of a greying population of investors. A survey by the Investment Trusts Association of Japan showed that people over the age of 60 years represent more than half of Japanese investors investing in mutual funds. This proportion increases to more than 70% when people in their 50s are included.
 
"One explanation for the omnipresence of the older generation in the mutual fund space in Japan is that schemes that encourage investment in mutual funds by the younger generation are few and underdeveloped," says Ken Yap, head of Asia-Pacific research at Cerulli Associates. "This suggests that all mutual fund product features that are popular in Japan reflect the preferences of older investors rather than younger ones."
 
The most popular types of funds in Japan are monthly dividend-paying funds, making up close to 70% of locally domiciled mutual fund assets, with AUM of 36.4 trillion yen (US$473 billion) as of July this year. The funds first emerged in the wake of the dotcom crash early in the new millennium, and between 2008 and July this year, AUM for these funds rose by about 58.3%.
 
Many of the mutual fund products that are popular in Japan, such as monthly dividend funds and double-decker funds, are not particularly suitable as long-term investments, the report said. But they serve a purpose for asset managers as they ride on the generally short-term mind-sets of Japanese investors, it added.
 
To attract younger investors for the long term, Cerulli Associates thinks that asset managers should offer low-risk and easy-to-understand products. "We believe such investors would be happy to see returns about 1% to 2% more than interest offered by time deposits or Japanese government bonds," notes Mr. Yap.
 
The significance of Japan's ageing society for asset managers does not lie only in targeting products for the elderly. Asset managers also have to ready themselves to provide products that are suitable for a younger generation. "The Japanese retail asset management market is approaching a major turning point. Asset managers have to decide at what point they should change gears," he adds.