The Department of Finance (DOF) has expressed its full support to the proposal to reform the corporate pension system, as it will not only expand and diversify the investor base of the capital markets, but will also be a major step forward in achieving financial inclusion.
Carlos Dominguez, DOF secretary, in a statement sent yesterday said overhauling the country’s underdeveloped corporate pension system will be “a win-win for all” against the backdrop of the protracted coronavirus pandemic, given positive outcomes expected from this proposed reform.
“The move to reform our corporate pension system, which has been underdeveloped for far too long, presents us with a wealth of benefits that go beyond increasing the efficiency of our capital markets. This creates a vast opportunity for ordinary Filipinos to take part in the development of our financial sector and our economy,” Dominguez said during Monday afternoon’s hearing of the House committee on banks and financial intermediaries.
The bill centers on the establishment of an Employee Pension and Retirement Income Account, which is similar to the portable, employee-managed retirement accounts in developed economies that ensure workers continue to contribute to, and grow, their pension accounts even when they transfer from one job to another.
Dominguez told lawmakers during the virtual panel hearing that corporate pension reform “will democratize wealth by opening access for thousands of small investors to grow their hard-earned savings through investments in the capital markets.”
Dominguez said in other countries, pension systems are active participants in the capital markets and help increase contractual savings that would aid in funding productive long-term investments of the national government and the private sector as well.
“Now is the time to expand the investor base in our capital markets while securing the future of our workers and their families,” Dominguez said.
He added that reforming the corporate pension system has now become even more urgent as the country transitions to a knowledge-based economy and nears its demographic “sweet spot,” or the period when an optimal number of its population are of young working age with few dependents.
The primary beneficiaries of corporate pension reform, particularly its portability feature, are the Millennials and Generation Z workers aged 18 to 35 years old who are inclined to switch jobs and, on the average, hold about 12 jobs in their working lifetime, Dominguez said.
This reform will also benefit the Generation X (those born between 1965 and 1980) and many Baby Boomers (those born from 1946 to 1964) who are nearing retirement age and would require an adequate amount of savings to be able to live comfortably past their working years.
Employers will also benefit from this reform because they will be incentivized to participate actively as a means to encourage employee retention and engagement, Dominguez said.
“With the proposed reform, the workforce is encouraged to potentially increase productivity, knowing that they will have sufficient allocated savings. This would ultimately contribute to economic growth,” Dominguez said.
“Looking at the big picture, this reform will increase the supply of capital in the financial system, encourage more investments, and promote stock and bond market development.
All these will help turbo-boost the competitiveness of the Philippine capital markets,” he added.
The reform will also reinforce the regulatory regime of capital markets to bolster investor protection, he noted.
Dominguez said an Asian Development Bank study found that a one-percent increase in the share of pension assets in the economy corresponds to a one-percent growth in real gross domestic product per capita.
“Therefore, building a truly robust corporate pension structure makes available huge volumes of capital to our financial system. It is among the most efficient ways to fund our long-term growth,” he said.