Press Releases

Salceda on PH being ‘nearly the worst’ pension system: Time for massive reforms, save Gen Z from being “retirement plans” of their parents

October 22nd, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) is proposing that both the Executive and the Legislative branches convene high-level task forces to study and enact pension reforms before 2028, or the end of President Marcos’s term, as the country’s pension system “has been steadily sliding and is now among the world’s worst retirement systems in the world.”

This follows the Mercer CFA Global Pension Index report for 2022, which rated the Philippines as only being second to the last to Thailand among 44 countries that account for 65% of the world’s population.

“Among the world’s most populous economies, we have almost the worst pension system. Decades of neglect, bad policies, special treatment for certain sectors, and a culture that is indisposed to saving for the future have all led to this predicament. But now that it has surfaced within our lifetime, it is our duty to solve it,” Salceda said.

The Philippines scored 42.0 in the index, just slightly above Thailand, which scored 41.7. Countries were rated according to adequacy, sustainability, and integrity of their pension systems.

“While the country’s pension benefits are currently still sustainable relative to much of the rest of the world, it is only because they are woefully inadequate for the needs of old age.”

“As a result, if we don’t make reforms within this generation, we will burden our children. Gen Z breadwinners will continue to be the retirement plans of their parents. Instead of saving for homes or for their children’s educations, they will be supporting the living and medical expenses of their elders. And that will keep us from being a rich country.”

“Because the ability of our young to build their own wealth will be hampered by the needs of their dependent parents. And that’s a terrible curse on our children – a curse only my own generation of policymakers can lift. If we ignore this growing problem, we will be truly irresponsible parents.”

According to the Philippine Statistics Authority, only about 20% of senior citizens are covered by pensions either from the Social Security System or the Government Service Insurance System. Philippine pension assets under management represent a measly 16 percent of gross domestic product (GDP) compared with the average of non-OECD (Organization for Economic Cooperation and Development) countries of 36 percent.

Pension contributions to the SSS are capped at a certain salary level. Beyond that cap, those with higher salary levels are not required to pay higher sums. The private pension system is also still managed by individual employers, and a single corporate pension framework does not exist.

Meanwhile, members of the Military and Uniformed Services enjoy a separate pension scheme where they pay no portion of their salary, while having their benefits indexed to the rise in current salaries.

In response, Salceda is recommending the House leadership and the Executive branch create each other’s Select Commissions on Pension Reforms, to recommend sweeping legislation to fix the country’s pension woes.

This, Salceda says, should include a rethink of the administration’s proposed Capital Market Development Act, which will establish a corporate pension framework.

“I am proposing that the House of Representatives create a select commission on pension reforms, with the mandate to work with national government agencies to craft a full appraisal of the size of the country’s pension problem and propose solutions within six months. The Executive Branch should create its own select commission, which can work on executive issuances that will improve pension governance, and also propose legislation to Congress.”

“Although not as immediate, this is just as worrisome as the fiscal cliff that major Philippine economists foresaw in the early 2000s, which led us to legislate VAT reforms. The Arroyo administration then, had limited political room, but got the reforms done, President Marcos has the mandate of the vast majority of this country’s voters. So, I am hopeful that the economic team will wield that rare popular mandate and commit to reform.”

“Neglecting pension reform now will be a sin of omission the next generation would rightly blame us for.”

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