Private sector employers will be required to pay their workers retirement plans once reforms in the corporate pension system are implemented by the government, the Department of Finance (DOF) said.
In a statement, Finance Secretary Carlos G. Dominguez III said they are considering the Fund Managers Association of the Philippines’ (FMAP) recommendation to mandate the partial or full funding requirement of retirement plans for workers in private companies.
Dominguez’s plan comes after FMAP studies revealed that the current pension benefits for private sector employees are usually insufficient, and that the new generation of workers is at risk of receiving even smaller pensions later with the current system.
Based on the FMAP studies, the low accumulation of pension assets also limits the development of capital markets.
FMAP also warned that these issues hounding corporate pensions will become more difficult to solve.
“A mandatory partial or full funding of pension obligation would address concerns on insufficient funding upon retirement of employees as the investment will generate returns to cover the required growth in the fund over time,” Dominguez said.
To begin establishing the plan, Dominguez disclosed that the Capital Market Development Council (CMDC) has begun its consultation with the Department of Labor and Employment (DOLE) regarding the proposal.
Composed of representatives from the public and private sector, the CMDC, which Dominguez also chairs, is a coordinating body tasked to facilitate the development of the Philippine capital market.
In a letter to Labor Secretary Silvestre Bello III, Dominguez said the CMDC has decided to consult the DOLE on this issue, given its regulatory authority on the implementation of the Labor Code and Republic Act (RA) No. 7641 or the Philippine Retirement Pay Law.
Dominguez said in his letter that studies done by FMAP found that RA 7641 does not require companies to fund their retirement liabilities that are calculated based on the prescribed benefits.
Under the law, companies are mandated to pay pension benefits only upon retirement of their employees, usually based on the minimum requirements set by RA 7641.
“This practice deprives employees of sufficiently funded retirement benefits in the absence of a well-funded pension plan that is invested in the capital markets to generate high returns,” DOF said.
Dominguez told Bello that the CMDC has created a technical working group (TWG) for this priority project that will coordinate with DOLE to discuss the recommendation of the FMAP, which was supported by the Asian Development Bank (ADB).
“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,” Dominguez said in his letter to Bello.
“As to 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,” he added.