Pre-need fiascos

Another one bites the dust and it is one of the most trusted names in the pre-need industry: Loyola Plans of the once powerful Puyat clan. The victims are this time crying about their retirement plans. Interviewed by ABS-CBN reporters, those senior citizens felt utterly betrayed by Loyola Plans.

It is a pity the later generations are unable to deliver on the promise made by their entrepreneurial parents and grandparents. In the case of CAP, it was the second generation Sobrepenas that destroyed the good name of the father. In Prudential Life, it was also the second generation in command when it failed. The Puyats in Loyola Plans are probably the third generation already.

There was a time when we were so proud of the pre-need industry. We called it a Filipino invention that serves the needs of the middle class and those aspiring to move up to the middle class. The pre-need concept made it easy to save for college within the context of people’s hand-to-mouth incomes.

The pre-need products also helped provide the discipline required to set aside a certain amount each pay day for future needs. My parents, both doctors, bought life plans because they wanted to make sure that when the time comes we don’t have to worry about funeral expenses.

Actually, when my parents died, the value of their life plans had been so overtaken by inflation that we had to upgrade. It made their life plans practically useless. That made me think the pre-need industry is a scam… probably legal, but a scam nevertheless.

I fell for that scam. I had three children to get through college and I thought CAP was a good idea. I am embarrassed now to admit I bought those CAP education plans. In my defense, I was a young father who was insecure about the future. I did what I thought was the easiest way to feel like a responsible father.

With what I know now, I could have done better if I invested the money myself. I would have saved myself the grief of being cheated. I am still entitled to collect over half a million pesos I have invested in CAP plans 10 years after my kids graduate. But that has not, and is not likely to happen.

This is why I am also careful about the statements of this Sobrepena fellow on the MRT-3 deal. He is the same guy I know lives a luxurious lifestyle, but is unable to pay his business obligations. Lucky for him, the government under the current DOTC leadership is more at fault in the MRT case. But that’s another story.

It is so heartbreaking to see all those innocent and needy victims of the pre-need firms. I can understand why those who invested in the Loyola retirement plan need the money now to buy maintenance medicines of old age, among other needs. The throng of pre-need plan holders gathered outside the offices of pre-need firms is a sad thing to see.

In some cases, one can say the victims have themselves to blame for choosing a pre-need company with no track record or reputation required of a legitimate investment company. But big names are falling too, the latest being Loyola the Puyat family managed quite well until now.

Maybe there is something inherently wrong with the pre-need concept. When CAP went under, then Sen. Mar Roxas made a name for himself by introducing remedial legislation. This is why pre-need companies, previously unregulated, are now under the Insurance Commission.

But maybe Mar didn’t do enough or foresee enough, so we have this thing with Loyola now. Or maybe, the Insurance Commission was not that effective in regulating an industry that is not quite in the insurance business.  I am waiting to hear from the Insurance commissioner what went wrong with Loyola.

There are those who say we need better financial literacy education for our people. Maybe there should be a subject in the K-12 curriculum on financial literacy. The BSP is proud of its financial literacy campaign in the countryside but it is apparently not sufficient.

Other than pre-need fiascos, we have too many reports of people being duped by variations of the old pyramid scam. A former official of the Philippine Stock Exchange teaching stock market investing is the latest in the rogue’s gallery of scammers victimizing small investors.

Where can someone who wants to save for the college education of their children or even for their retirement needs go? Frankly, nowhere if you are an ordinary wage earner.

This is the failure of our banking and financial sector. They cater almost exclusively to the big guys. That is why only three out of 10 Filipino adults have bank accounts. And savings accounts pay negligible interest to consider it an investment option. Banks pay one or two percent on money they lend out to consumers at eight percent or more. 

With a growing number of OFWs and BPO workers with disposable income, there has to be a market for a financial product geared for their needs. But the local banks don’t seem to consider doing that worth their while.

The only possible option I can think of is the SSS Personal Equity and Savings Option (SSS-PESO) Fund program. It is a provident-fund scheme that aims to increase savings among SSS members, particularly for building their retirement fund. But it is almost an afterthought given the maximum amount of P100,000 a year a member can invest.

But it is a good idea, specially because this allows SSS members to effectively ride on the back of the investment portfolio of SSS and benefit from the system’s access to information and better rates of return. The problem I see with the SSS is the potential for government corruption.

We cannot be sure the administration will appoint credible and capable people to run the SSS. Erap almost ruined the SSS by pressuring it to invest in stocks of crony corporations. Remember the Best World (BW) scandal of Erap? The story was related in the Sandiganbayan hearing on his plunder case.

Otherwise, the SSS PESO fund is a good option with the apparent failure of Republic Act 9505, which is also known as the PERA Law (Personal Equity and Retirement Account Act of 2008), to take off. A pet project of former senator Ed Angara, it was also designed to help develop our capital markets. It is our version of the 401K in the US.

Last I heard the BIR and the DOF were not too enthusiastic about it. Whatever their objections may be, we still need a system like it to help our workers save properly and safely.

Maybe, if BSP Governor Say Tetangco can work with the local financial sector to develop such a 401k type product, it would be a good legacy that ordinary people can remember the BSP Governor by. Our people do not just need financial literacy education, they need actual investment products. The successful marketing of pre-need firms shows there is a good market waiting to be tapped. 

A World Bank study found out that only about three out of 10 Filipino adults have bank accounts. Our bankers and bank regulators must be sleeping on the job.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.