Child Trust Fund

child trust fund - Child Trust Fund

One cannot help but be wary whenever the government proposes the creation of a “fund” to benefit people. The state’s track record, at least based on my perception, is less than sterling when it comes to ensuring fund profitability, long-term sustainability, and equitable distribution of benefits. Also, there have been numerous scandals involving corruption and mismanagement.

Through the years, the government has created all sorts of funds to cover pension, retirement, housing, and healthcare, among others. Now, another fund is being proposed: Child Trust Fund (CTF) to cover college-related expenses for those 18 years old and above. This fund is for school-related expenses only because tuition is already free in public schools and state universities.

“The fund can also be managed by either the government [or] part of it can also be cut out to be managed by the private sector. We are still on the exploratory stage and we would like to do a more detailed or granular study on the CTF and [then] to sell it to the [Capital Market Development] Council in the coming meetings,” National Treasurer Rosalia V. de Leon said in a statement.

The proposed CTF can subsidize daily expenses of college students like daily allowance, transportation, lodging, and other fees. Money can be drawn from the fund once a student turns 18, and those from poorer households can get more.

BusinessWorld reported recently that Ms. De Leon cited two possible models for the proposed CTF.

One is the United Kingdom model that created over six million tax-free trust fund accounts to save up for future educational expenses of children born between Sept. 1, 2002 and Jan. 2, 2011. The UK government gave seed capital of £250-500 (P16,000-P32,000) per child to create the trust fund. The UK trust fund ended in 2011.

The other model is Singapore’s Education Endowment or Edusave Scheme. The SG government gave 4,000 Singapore dollars to each recipient child seven years old and above, to cover 10 years of schooling in primary and secondary education. The fund account is closed once the child turns 16, and unused funds are transferred to other accounts.

No other details were given regarding the local proposal, considering it is still basically a concept. I am not surprised that such trust funds were actually successful in the UK and Singapore. Those two countries rank relatively high when it comes to people’s trust in their government; the government providing efficient service; and, in terms of battling corruption.

In our case, however, I am skeptical if such a fund is a good idea. I mean, it can work, and may just be helpful particularly for poorer families. And if the fund is also privately managed, then maybe it can be managed well to ensure profitability and sustainability. But I am always worried when it comes to large sums of money being handled by the government.

One just needs to recall past scandals involving AFP-RSBS and PhilHealth, and how these funds were allegedly mishandled by government appointees in one way or the other. There is always this mistaken appreciation that such trust funds are government money, and that government — through appointees — can do whatever it wants with the money.

The fact of the matter is, as far as I am concerned, such funds are actually owned by members of the fund — and that the government — or its appointees — are just trustees tasked with managing the fund. The goal, of course, is always conservation. Trustees manage the fund for the benefit of beneficiaries. Rules and decisions should thus be made in consultation with fund owners.

Take the case of PhilHealth and Pag-Ibig, and pension systems SSS and GSIS. These entities are funded by “contributions” from “members.” In fact, these funds come from mandatory deductions from workers. Conceptually, these funds should benefit the very people they are collected from. However, in our experience, this has not always been the case.

At times, it is a matter of government appointees heading these agencies making decisions that tend to disadvantage the fund owners themselves. For instance, in the 1990s, mismanagement put the military pension system at major risk. Bosses of AFP-RSBS, which was funded from soldiers’ contributions, opted to imprudently invest in real estate.

When the 1997 financial crisis hit, and real estate tanked, the pension fund lost lots of money, to the detriment of soldiers. It was also later discovered that RSBS bosses allegedly favored companies — and formed joint ventures — with real estate companies identified with senior military officials, extending as much as P2 billion in loans to them. There were also allegations of overpricing land acquisitions.

And then there is PhilHealth, where only recently a whistleblower alleged that about P15 billion in PhilHealth funds were stolen by government-appointed managers through various fraudulent schemes over the years. Allegations include unauthorized release of COVID-19 funds even to hospitals that have not yet recorded COVID-19 cases; overpricing computer systems; and, manipulating operations to block corruption investigations.

Over the years, even funds like SSS, GSIS, and Pag-Ibig have not been spared from allegations of mismanagement, bad investment, corruption, or giving “favors” to “friends” of the powers that be. Even these agencies’ choices of stock investments have been put into question at one time or the other, or how said investments have allowed these funds to impact company takeovers.

I have no strong objection to the creation of a Child Trust Fund, as long as the government can guarantee that such a fund can be free from manipulation, mismanagement, and corruption. And that its creation and operation will truly benefit the beneficiaries. In this line, the first order of the day is a truly extensive study on how such a fund can be operated and protected.

 

Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council

matort@yahoo.com

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