Revisit pension policies

Many people do not fear the inevitable that is, soon, they will grow old.

But what they fear is the fact that having retired and unemployed, the pension that they receive, and whatever savings they have, won’t be enough for their needs.

While they do not want to be a burden to their family, especially their grown-up children who already have their own families, they oftentimes do not have a choice but to rely on them.

If only the Philippine pension system could address the realities and needs of the aging population.

Unfortunately, while our system is currently one of the most sustainable systems in Asia, it is also one of the least adequate, according to a report from one of the major life insurers in the Philippines.

The report showed that there are marked differences in the development stages of the Asian region’s pension systems. Pension coverage ratios, for example, span from three percent in Cambodia to 100 percent in Japan.

The report also revealed equally huge disparities in private wealth. It noted that in Taiwan and Hong Kong, net financial assets by households accounted for more than 400 percent of total GDP in 2019, while in Sri Lanka, Cambodia, Vietnam, Indonesia, and the Philippines it was only less than 50 percent.

According to the author of the report, these differences matter as they signal only limited access to financial services for some swathes of the population, hindering the necessary buildup of a capital-funded old-age provision to complement pay-as-you-go systems.

The report stated that the main cause of concern with respect to the long-term sustainability of pension systems is the retirement age in many markets, which does not reflect the gains in life expectancy over the last decades.

While Indonesia has already decided to raise the retirement age significantly, other markets are still dragging their feet, it said. Only four markets (China, Japan, South Korea and Taiwan) have already included a demographic factor in their pension formula, while in Singapore the annuity payments are regularly adjusted. A strong capital-funded pillar can be found in just a few markets, for example in Singapore and Japan.

With no Asian market ranking among the global top 10, the report said it is clear that all of them still need some homework to do to make their pension systems demographic-proof. It emphasized that the rapid demographic change does not allow putting pension and financial system reforms on the back burner.

In the report, it was pointed out that in contrast to many of its neighbors, the Philippines already raised the retirement age to 65 for both men and women as a consequence of which it currently has one of the most sustainable pension systems in the region.

However, other challenges remain for the Philippine pension system. The report noted that there is still a marked gap with regards to coverage, with only a good one third of the working population effectively within the public pension system. Meanwhile, in terms of access to financial services, less than half of the population has an account at a financial institution, and thus, hardly the possibility to build up enough savings for old age.

The report stressed that the elephant in the room of pension reform is retirement age, which does not reflect past and future gains in life expectancy.

It showed that due to decreasing fertility rates and increasing life expectancy, Asia’s population will continue to age. And within the next 30 years, Asia’s population aged 65 years and older is expected to more than double from around 412 million today to 955 million in 2050, with the share of this age group to total population set to reach 18 percent by then.

The report added that COVID-19 has made thorough pension reforms even more urgent and has exacerbated existing inequalities. It emphasized that scars will remain not only from the deep recession, rising unemployment, and interrupted education, but also from some of the well-meant counter-measures such as the temporary reduction or suspension of pension contributions or the temporary allowance to withdraw pension fund savings. These short-term fixes, it said, are likely to increase old-age poverty in the years to come.

Meanwhile, a report from prolifeuk.com.ph shows an even bleaker picture of one’s life as a retiree.

It noted that if one remains the breadwinner even during retirement age and given that according to the Philippine Statistics Authority (PSA), the average annual family expenditure for 2018 was about P238,641 per year, one will need to steadily earn P18,166.66 a month to provide for one’s family needs. But personally, I do not agree since P605 a day will not be enough to feed the family, pay for utilities and rent, medicines, and other expenses.

According to Prulife’s computation, the maximum that one can get from SSS in terms of pension is P13,100, but that is assuming one has worked 40 years of his/her life while paying for the maximum contribution amount. Unfortunately, the monthly average SSS pension is at P5,123.

As an example, in addition to the SSS pension, an employee is entitled to receive a retirement pay from the company they work with, and receives P20,000 a month – which is the maximum monthly salary credit, and the employee has been working with the company for 40 years, he or she will receive about P600,300 by the time they reach 60. But given that the total life expectancy of Filipinos is about 71 years, spreading that amount over nine years will only amount to P5,558.33 a month. Add this to the P13,100 SSS pension and it will only amount to P17,541 per month, which is still short of the average family expenditure as determined by the PSA.

Moneymax.ph meanwhile has computed the highest monthly SSS pension at P17,300 (for someone earning P30,000 a month and has contributed to the SSS for 40 years) based on the current SSS contribution table. But even this is not enough to pay for one’s maintenance medicines, not to mention that the computation does not account for inflation.

Meanwhile, according to SSS, the minimum monthly retirement pension is P1,200 if the member has 120 months contribution or at least 10 years creditable years of service (CYS), or P2,400 with at least 20 CYS, plus additional benefits of P1,000 effective January 2017.

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