(March 10, 2014) — The world’s largest pension fund has been advised to target annual returns of just 1.7%.
This real return is markedly lower than that of its international peers. The Canada Pension Plan Investment Board and Norway’s Government Pension Fund Global each require a 4% annualised real rate, according to data on the funds’ websites. The Californian Public Employees’ Retirement System targets a 4.75% in real terms.
The total return estimate for the Government Pension Investment Fund’s (GPIF) when including inflation (1.2%) and worker compensation increases (1.3%) is 4.2%.
GPIF’s target was recommended by a Japanese government advisory panel. It said the ¥128.6 trillion ($1.25 trillion) fund should adopt a 4.2% return target as it was suitable under all eight economic scenarios for the country.
However, the return figure may need to be increased if a health ministry review of pension finances finds that it’s not enough, Kazuo Ue da, a panel member, told Bloomberg.
The panel also said the GPIF no longer needs to focus on domestic bonds given quickening inflation.
Japanese bonds accounted for 55% of GPIF’s portfolio at the end of December, the smallest share since the fund was established in its current form in April 2006. GPIF held 17% of its assets in local shares last quarter, another 15% in foreign equities, and 11% in overseas bonds, according to a statement on its website.
The 4.2% target amounts to a 0.1 percentage point increase on its current goal, and comes at a time when GPIF is facing pressure to take more risk to cover retirement pay-outs for the world’s oldest population.
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