The marriage of two of the most powerful keiretsu in Japan has moved one step closer this week. Sumitomo Group and Mitsui Group, once arch rivals at home and beyond, have announced they are forming a joint venture pension consulting business next month, providing pension investment advice to both retail and institutional clients. The new entity, Japan Pension Navigator Co Ltd, will have a start-up capital of Y2.5 billion ($23.2 million).

Eight companies under the two groups' umbrellas will have equal shares in the new company. Under Sumitomo Group, a 25% share goes to Sumitomo Life Insurance, 15% to Sumitomo Bank and 5% each to Sumitomo Marine Fire & Insurance and Sumitomo Trust & Banking. On the Mitsui Group's side, Mitsui Life Insurance will have a 25% share, Sakura Bank 15%, and Mitsui Marine & Fire Insurance and Chuo Mitsui Trust & Banking share the remaining 10%. The two groups have announced earlier that Sumitomo Bank and Sakura Bank are to be merged by 2002.

Initial move

The pension join venture is seen as a preemptive move within a new pension system that is yet to be passed by the Diet. The new system follows America's 401(k) pension system that requires contributions from workers and allows them to make their own investment choices within a boundary prescribed by the government. The new laws are likely to be passed next year and will coexist with the current pension schemes.

Japan's current pension system is a defined benefit one, under which the workers' retirement benefits are not dependent on how much the workers contribute but based on other factors such as the length of their service and their seniority. Consequently, the country's corporate pension fund pool is burdened by mounting, unfunded liabilities.

According to figures released by the Trust Companies Association of Japan, the Life Insurance Association of Japan and the National Mutual Insurance Federation of Agricultural Cooperatives, the outstanding balance of corporate pension funds rose by 7.5% in the one year to March to Y76.62 trillion.