MANILA, Philippines — The Philippines has the fourth worst pension system among 39 countries, according to a study which benchmarks retirement income systems across the globe.
Based on the 2020 Mercer CFA Institute Global Pension Index, the Philippines’ retirement system ranked 36th out of 39 countries, with an overall index value of 43.
The country’s score slightly declined from 43.7 in 2019 due to the study’s change in measure of life expectancy at the state pension age and not at birth, which more accurately reflects the period of retirement.
Last year, the Philippines ranked 34th in the Global Pension Index, also the fourth lowest among 37 countries. This year, Belgium and Israel were added to the list. It is also the second year the Philippines was included in the study.
According to the study, the Philippines ranked 17th for the sustainability sub-index with a score of 53.4. This measures the likelihood a pension system would be able to provide benefits into the future.
With a score of 38.9, the country also placed 36th for adequacy, which looks at the benefits, system design, level of savings and home ownership, among others, to determine a system’s ability to provide adequate retirement income.
The country, however, scored the lowest among all participant economies for integrity at 34.8. This considers factors such as regulation, governance, communication and operating costs.
Meanwhile, the study showed that the Philippines also retained its “D” grade, reflecting a pension system that has some desirable features, but also has major weaknesses and omissions that need to be addressed.
“The overall index value for the Philippines system could be increased by raising the minimum level of support for the poorest elderly individuals along with broadening coverage of employees in occupational pension schemes,” Harold Tan, Mercer’s wealth business leader for the Philippines said.
“These measures would work to grow the level of contributions and assets and permit the Philippines to set aside funds in the public system for the future, reducing reliance on the pay-as-you-go system. In order to preserve long term retirement savings, ‘no cash-out’ options must be introduced and put into place,” he said.
Earlier, Finance Secretary Carlos Dominguez said the Capital Market Development Council (CMDC) was studying reforms in the corporate pension system to ensure that private sector employees get enough retirement funds, while also helping the development of the domestic capital market.
In particular, he said the council was eyeing the recommendation of the Fund Managers Association of the Philippines (FMAP) to require private companies to partially or fully fund retirement plans for their workers.
Last year, the SSS also said the creation of a provident fund would allow Filipinos to increase their retirement savings.
Currently, the government has the Personal Equity and Retirement Account mechanism, which provides a tax-exempt facility to supplement their future pension benefits from the Social Security System (SSS), the Government Service Insurance System (GSIS), and from their own employers.
Meanwhile, Mercer said the economic downturn caused by the coronavirus disease 2019 or COVID-19 pandemic may adversely impact the sustainability of pension systems across many countries.
ogether with increasing life expectancies and the rising pressure on public resources to support the health and welfare of ageing populations, the study said COVID-19 is exacerbating retirement insecurity.
“The economic recession caused by the global health crisis has led to reduced pension contributions, lower investment returns and higher government debt in most countries. Inevitably, this will impact future pensions, meaning some people will have to work longer while others will have to settle for a lower standard of living in retirement,” said David Knox, senior partner at Mercer and lead author of the study.
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Article and Photo originally posted by Philippine Star last October 21, 2020 12:00am and written by Mary Grace Padin.
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