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. Last Updated: 07/27/2016

Japan Delays Tax Breaks for Pensions

TOKYO -- Japanese policy-makers' fears of a yawning budget deficit have caused them to delay introducing a revolutionary U.S.-style pension scheme, analysts said Monday.

A 401(k) scheme exempts employees from taxes on contributions and investment earnings until money is withdrawn, typically after a worker has retired and fallen into a lower tax bracket. Such pension plans have helped fuel the longest-ever bull rally in U.S. stocks by giving employees control over how their retirement funds are invested.

To some Tokyo bank analysts and economists, the reported delay can be seen as part of a broader backtracking on Japanese financial reform.

Ron Bevacqua, chief economist at Commerz Securities (Japan), said the delay adds to the impression that Tokyo is backsliding on painful reforms that analysts say are necessary to get the world's second-biggest economy firmly on a sustainable recovery path.

In recent weeks, policy-makers have postponed a plan to cap what is now an unlimited government guarantee of bank deposits, and the introduction of consolidated corporate accounting.

Bevacqua said the slackening on reform may prove to be simply an election-year ploy, as Prime Minister Keizo Obuchi must call general elections by October. But Bevacqua also suggested the delay may represent more than political expediency.

The welfare, labor, finance and trade ministries have agreed to introduce the 401(k)-type scheme in the first quarter of 2001, rather than the initially expected autumn 2000, local media reported.

The government has never specified a time for introducing the system, except that it is to be launched in the fiscal year starting April 1, a government official said when questioned on the reports.

Most analysts agreed that budgetary considerations may have prompted the delay, as the 401(k) scheme is a short-term government money-loser.

"I catch it more in budgetary terms than in some sort of sinister agenda" to reverse track on reform, said chief economist Chris Calderwood at Jardine Fleming Securities (Asia). "The budget for fiscal 2000 has already been outlined - presumably there isn't much in the way of additional tax giveaways left in the cupboard."

Brian Waterhouse, financial sector analyst at HSBC Securities in Tokyo, said the authorities apparently had not anticipated the drain on tax revenues from the scheme and needed more time to consider its implementation.

The government must specify an introduction date when it introduces legislation for the 401(k)-type system to parliament in a session starting Thursday.

Employers and financial institutions have been preparing for the pensions - plans modeled after 401(k) pensions in the United States - which specify the amount of premiums paid into the scheme, rather than defining the amount of future benefit to policyholders.