Reforming the pension system for workers in the private sector is long overdue. It is unfair that our officials made sure government workers get adequate pensions while doing nothing for those in the private sector.

What looks like a pension system for private sector workers is a makeshift and a bahala na si Batman type of thing. Much depends on the generosity of the private sector employers.

There is also no portability in the sense that if a private sector worker resigns before he starts accumulating pension benefits, he loses all those years of service. Only his last employer pays his pension based on just a portion of his working years.

A public sector worker carries whatever pension benefits he has earned from his first day of work through retirement day even if he was employed by different government agencies during his career.

Apparently, the last Congress tried, but failed to fix the private sector pension system. The House, during the last Congress, passed a bill to fix it, but it died in the Senate. It has been passed again by the House, but there is no word when the Senate will take it up.

Actually, it is difficult to see why the bill was ignored given that it helps private sector workers and provides investible funds for the government.

Here is a letter sent Aug. 6, 2021 by then DOF secretary Carlos Dominguez to Sen. Grace Poe who was then the chairman of the Senate finance committee. The Committee is now headed by Sen. Mark Villar.

Dear Senator Poe:

We are seeking your support, through the sponsorship of the Capital Market Development Act (CMDA), a key legislation that aims to enhance the depth of the domestic capital markets through the establishment of a sustainable corporate pension system. This reform aims to improve the deficiencies of Republic Act (RA) 7641 or the 'Retirement Pay Law,' which features a pay-as-you-go structure wherein benefits are paid out-of-pocket by employers only at the time of retirement of the employee.

The issues in the current corporate pension system include the underfunding of pension liabilities and the lack of portability of retirement accounts, which lead to inadequate pension benefits for Filipino workers. Given these issues, the 2020 Melbourne Mercer Global Pension Index ranks the Philippines 36th out of 39 retirement systems around the world in terms of the sustainability of the pension system despite having a young population and healthy public finances.

The Philippines remains to be one of the few countries in the region still adopting a Defined Benefit type of pension scheme. A study from the UP School of Economics shows that fully funded pension systems have a direct positive impact on real per capita gross domestic product growth. That is, pension funds mobilize and channel long-term capital into economic development programs that boost the economy.

The CMDA helps in achieving this goal by establishing a platform that will pool such savings. As a result, our pension asset base increases and maximizes the savings within the capital markets to help fund productive long-term investments of the national government.

With these benefits to the macroeconomy and the labor force, the CMDA has received the full support from the Department of Labor and Employment (DOLE) and the Department of Trade and Industry (DTI).

In particular, the CMDA aims to implement these priority reforms in the current system among its other provisions:

Securing adequacy of pension benefits - The CMDA aims to set up an Employee Pension and Retirement Income (EPRI) Account for employees, similar to portable employee-managed retirement accounts in developed economies. Under this reform, contributions to the EPRI Accounts will be made by both employers and employees, allowing employers to pre-fund their pension liabilities and employees to start building up their savings throughout their employment.

Moreover, in the current corporate pension system, employees will only be entitled to retirement benefits equivalent to one-half of their monthly salaries for every year of service from their final employer upon reaching the age of 60, provided that they have rendered a minimum of five years of service. In a highly mobile workforce, this scheme results in low replacement rates, defined as the percentage of pre-retirement annual income funded by pension benefits. With the CMDA, it will be ensured that benefits are immediately vested at the start of the employment.

Ensuring portability of pension accounts - The EPRI account will also be fully portable, and employees will be able to keep their pool of pension benefits should they decide to move to another employer. This is critical given the current demographics of the Philippine workforce, majority of which are Millennial and Gen Z workers. Studies show that this age group changes jobs 12 times throughout their working lifetime.

The pooled funds from the EPRI accounts will be managed by accredited administrators to optimize the returns of the funds, tailored to the unique risk profile of the employees. This augments the retirement benefits that employees receive from the current state-sponsored benefits provided by the Social Security System, increasing the overall replacement rate to pensioners.

Furthermore, employees, as owner of their respective EPRI accounts, will have full control and discretion over the management, investment, and maintenance of the account. As such, the CMDA also includes provisions to strengthen the financial literacy and investment education among employees to ensure that they make sound decisions regarding the management of their retirement funds…

SGD Carlos G. Dominguez

I asked Sen. Grace Poe why her committee failed to act on such an important bill that would benefit have millions of Filipinos, many of whom voted for her. She said she was busy with a number of similarly important measures and the list is impressive. Besides, she said, 'the Capital Market Development Act was not pushed by LEDAC as a priority measure.'

Hopefully, Sen. Mark Villar will now move fast to pass this bill. Unfortunately, Sen. Mark is from a rich family who is not dependent on a pension fund for his old age. Hopefully, he can overcome that and facilitate the passage of this bill. Senior citizens who toiled in the private sector deserve better.

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