MANILA, Philippines — The Capital Market Development Council (CMDC) is studying reforms in the corporate pension system to ensure that private sector employees get enough retirement funds, while also helping the development of the domestic capital market, according to the Department of Finance (DOF).
The council, chaired by Finance Secretary Carlos Dominguez, is particularly eyeing the recommendation of the Fund Managers Association of the Philippines (FMAP) to require private companies to partially or fully fund retirement plans for their workers.
He said this recommendation would help provide sufficient funds for the retirement benefits of private sector workers, and at the same time boost the demand side for investments that could contribute to the growth of the Philippine capital market.
“CMDC is studying higher levels of funding for pension and retirement pay system compared to the present situation. This is to reduce fiscal risk in the system as country ages over the longer term and also as an ancillary measure to make pensions more portable,” Dominguez said.
Dominguez has written a letter to the Department of Labor and Employment (DOLE) to consult the agency regarding FMAP’s recommendation.
Citing the studies done by FMAP, Dominguez told Labor Secretary Silvestre Bello that Republic Act 7641, or the Philippine Retirement Pay Law, does not require companies to fund pension plans to cover their retirement liabilities.
He said they are instead mandated to pay pension benefits only upon the retirement of their employees, usually based on the minimum requirements set by the law.
Dominguez said this practice deprives employees of sufficiently funded retirement benefits in the absence of a pension plan that is invested in the capital markets to generate high returns.
“One of the conclusions in the studies is that this creates a social problem because people in their retirement may not have enough retirement savings. As to economic and capital market aspects, the absence of an effective pension fund system affects the demand side for investments that could contribute to the development of the Philippine capital market,” Dominguez said in his letter.