THE corporate pension system may soon face reforms as the Capital Market Development Council (CMDC) is looking at raising the funding requirement for retirement plans of private sector employees.
Finance Secretary Carlos G. Dominguez III on Sunday said the CMDC, which he co-chairs, is studying the recommendation of the Fund Managers Association of the Philippines (FMAP) to require the partial or full funding of retirement plans for private sector workers.
“The CMDC is studying higher levels of funding for pension and retirement pay systems compared to the present situation. This is to reduce fiscal risk in the system as the country ages over the longer term and also as an ancillary measure to make pensions more portable,” he told reporters in a Viber message.
The CMDC, a group of public and private sector representatives tasked to help develop the country’s capital markets, has already consulted the Labor department on the FMAP’s proposal.
In a letter to Labor Secretary Silvestre Bello III, Mr. Dominguez said FMAP’s study showed the law does not require private firms to fund any retirement liabilities that are calculated based on the prescribed benefits.
Under Republic Act No. 7641 or the Philippine Retirement Pay Law, companies with more than 10 workers are required to provide a retirement plan or retirement pay for qualified employees.
However, companies usually provide pension benefits based on the minimum requirements under the law, which “deprives employees of sufficiently-funded retirement benefits.”
The FMAP study also showed pension benefits received by the private employees under the current system are “insufficient” to replace worker incomes. It also noted new workers are “at risk of receiving even smaller pensions later,” while the “low accumulation of pension assets limits the development of capital markets.”
“One of the conclusions in the studies is that this creates a social problem because people in their retirement may not have enough retirement savings. As to [the] economic and capital market aspects, the absence of an effective pension fund system affects the demand side for investments that could contribute to the development of the Philippine capital market,” Mr. Dominguez said.
The CMDC has already created a technical working group (TWG), headed by National Treasurer Rosalia V. de Leon, to coordinate with the Labor department regarding FMAP’s recommendation.
Mr. Dominguez said a mandatory partial or full funding of pension obligation would solve the issues on “insufficient” retirement plans faced by private sector workers, as the funds are invested to generate returns over time.
The Finance chief said promoting a wider adoption of the Personal Equity and Retirement Account (PERA) in connection with RA 7641 will also contribute to the development of the local capital market as it boosts the demand for investments.
“As a fully funded and portable product, encouraging the adoption of PERA accounts helps increase funding levels, but increased funding over the broader pension system, similar to the popularity of the 401K product in the US, is similarly desirable,” he added. — B.M.Laforga