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Japan Pensions Are Better Funded Than U.S., Europe Funds

The funding levels of Japanese pension schemes are rising and are now considerably stronger than that of pensions in the U.S. and Europe.

The funding levels of Japanese pension schemes are rising and are now considerably stronger than that of pensions in the U.S. and Europe. This is due to an improving economy and a rebound in domestic equity markets, according to a new research study from Greenwich Associates.

In 2003 the average funding ratio for Japanese corporate pension schemes was approximately 65%. Last year, the schemes were funded at 83% of liabilities and this year the typical Japanese corporate scheme is 96% funded. Consultant Dev Clifford said the strengthening of the Japanese economy has given corporate plan sponsors the breathing room to increase contribution levels.

Additionally, the consultant's recent study shows that in 2005 11% of Japanese plan sponsors expected to close their DB funds to new employees within the next three years. However, that number fell to just 3% this year. This was a clear sign that the anxiety that has long resided within the DB business has been diminished recently by buoyant Japanese equity markets.

Greenwich Associates' 2006 Japanese Investment Management Research Study has analyzed Japanese pension schemes and large financial institutions, covering topics such as asset allocation, funding and closure of defined benefit plans and the use of defined contribution structures.

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