THE House Committee on Banks and Financial Intermediaries has recently approved a proposed bill seeking to establish a new private retirement and pension system.
Quirino Rep. Junie E. Cua, the panel chairman, said the committee passed the unnumbered substitute bill to House Bill 8938 (Capital Market Development Act) subject to style and amendments last Thursday.
The measure focuses on establishing an Employee Pension and Retirement Income Account, which is envisioned to serve as an additional long-term savings aside from the Social Security System and Government Service Insurance System pensions.
The additional savings to be generated from the EPRI accounts would then help finance government projects and services.
The substitute measure now also includes the concept of a “micro-enterprise,” which consists of businesses engaged in industry and in agri-business.
Under the bill, each business should have total assets of up to P3 million and employing not more than 10 employees. The panel unanimously also agreed to revise the inclusion of the “micro-enterprise” to be consistent with the Magna Carta of the micro, small and medium enterprises.
The bill also introduced the creation of a Capital Market Development Council (CMDC). Cua said the inclusion of the CMDC would institutionalize and capacitate the council, which now only exists under a memorandum of agreement between government and the private sector.
Moreover, Cua said he filed the bill to provide retirement and pension system that is fully-funded, portable, more “actuarially fair” and stable “that will enhance the current pension, at the same time, promoting and encouraging national savings and prudential investments on the part of employees.”
He added he also filed the bill as the current private pension system has not further developed.
“It has its own problems. Foremost of which, is the structure of the law and its implementing regulations. Republic Act 7641 doesn’t require pensions to be prefunded, hence, pensions are paid out of pocket rather than built-up over the duration of employment, thus, no pool of investible assets is created,” Cua said in his explanatory note.
He added that the pension benefits do not vest until they are 60 years old and on the last day of their employment.
“Because pension benefits only vest at their final place of employment, pensions are not portable and the employee is at risk in the event of the employer’s bankruptcy,” the lawmaker said. “In addition, many are working in the informal sector which makes it difficult to enforce pension requirements under the current law.”
Earlier, CMDC Co-chairman Benedicta Du-Baladad said the Millennials and Generation-Z are expected to benefit from this proposal.
Citing a “study,” Du-Baladad said people in these population segments jump from one employer to another 12 times during their lifetime of 40 years of working.
“The average of changing their employers is actually 12 times,” she said. “If we follow the current law now nobody can get a retirement pay.”
“The proposal meant to make pension portable and fully funded and adequate so when employees retire they have will have sufficient funds to keep them afloat in their daily lives,” she added.
Under the bill, Du-Baladad said the pension system starts at the time they enter the work force.
“Currently, it is given when you are only about to retire and stay with your employer for about last five years and you are at least 60 years old,” she said. “There is also no requirement for funding so it is a pay as you go and there are so many risks with that.”