ARE Filipinos financially ready to retire? Not so if pension schemes remain siloed, the Deputy CEO of the Asia School of Business (ASB) told the BusinessMirror.
Joseph Cherian, also a professor of Finance at ASB, pointed out the differences between the Philippines and three of its neighbors in Southeast Asia: Hong Kong, Malaysia and Singapore.
“These three countries have a single mandatory national social security savings scheme, with smaller supplementary schemes in some cases. All are defined contribution plans,” Cherian told the BusinessMirror. “In contrast, the Philippines has multiple pension and retirement schemes for different population segments; some mandatory, others optional.”
According to the ASB executive, “it would be wise” for Manila “to consolidate these various schemes and ensure the sustainability of the defined benefit plans.”
“Otherwise, transitioning them to a national defined contribution plan may be a better alternative,” Cherian added.
The Philippines has two pension funds: the Social Security System (SSS) and the Government Service Insurance System (GSIS). The country also has several provident funds. The SSS has its Workers’ Investment and Savings Program (WISP) while the GSIS maintains its own as allowed by Republic Act 8291.
Each government agency also has its own PF after then-President Gloria Arroyo issued Executive Order 641 in 2007 authorizing the establishment and administration of PFs in the government.
According to Cherian, he doubts these systems are exempted from the sustainability challenges that most pension plans worldwide face.
He cited that the 2023 SSS annual report revealed that the agency faced severe financial challenges.
On a consolidated basis, the SSS was significantly underfunded, with liabilities amounting to $150.53 billion—far exceeding its assets of just $15.32 billion. Additionally, the system reported a substantial operating loss of $7.66 billion for the year, Cherian said.
Further highlighting these concerns, the Philippines’s SSS received a “D” rating in the 2024 Mercer CFA Institute Global Pension Index, ranking poorly among global pension systems, he added. This low score (45.8) was primarily driven by weak “Integrity” (27.7) and “Adequacy” (41.2) ratings, Cherian said.
The index puts the Philippines below Poland’s and Peru’s in the overall value at 56.8 and 54.7, respectively.
According to the Mercer Index report, the Philippine index value increased slightly from 45.2 in 2023 to 45.8 in 2024, primarily due to the changes in the integrity sub-index. The changes recognized “the growing importance of cyber risk in financial services and the associated need to maintain public confidence in this industry.”
Meanwhile, Cherian believes “it is highly unlikely that the current schemes’ payouts in the Philippines will keep pace with the rising cost of living.”
“To address this, several measures are needed: raising the retirement age to extend working years, encouraging higher savings, and introducing home monetization options such as reverse mortgages,” he told the BusinessMirror. “Additionally, affordable, inflation-indexed life annuities should be made accessible to citizens upon retirement.”
For Cherian, ensuring that income is adjusted for inflation to maintain purchasing power is one of three elements that a citizen can tick off to say he or she is financially ready to retire.
The other two are: accumulating sufficient savings before retirement that can be converted into a reliable income stream to cover living expenses; and, securing access to financial products that provide a steady income for life.
Many workers, nonetheless, remain struggling to save enough for retirement.
According to Cherian, the Philippines should look to its neighboring Asean states that “are exploring several strategies to strengthen retirement security.”
He said these include providing a basic, means-tested safety-net pension for those in need, minimizing leakage from retirement savings by eliminating cash-out options during the accumulation phase, and introducing affordable home monetization schemes dedicated to funding retirement income.
“Additionally, measures such as government top-ups, special matching-dollar programs, and integrating a healthcare component into the retirement system are being considered,” Cherian said.
Originally published by BusinessMirror.