PHL’S Global Pension Index ranking drops


THE decline in the country’s economic growth has caused the Philippines to further decline in its ranking in Mercer’s Global Pension Index 2021.

Based on the report, the Philippines ranked 41st out of 43 economies included in the index. In 2020, the country ranked 36th out of 39 economies.

Mercer said the Philippines retained its D-grade with an overall index value of 42.7, a slight drop from its rating of 43 in 2020.

“[The slight drop in its Index value was] primarily due to a fall in the country’s real economic growth rate. For each sub-index, the Philippines scored highest for sustainability [at] 52.5 which was more than the Asia average at 48.1, followed by adequacy [at] 38.9 and integrity [at] 35, which improved 0.2 points from 34.8 in 2020,” Mercer said in a statement.

Mercer data showed the Philippines is ranked 19th globally for the sustainability sub-index, which measures the likelihood of the system’s ability to provide benefits in the future.

It ranked 41st for adequacy, which considers how the country’s system is designed to provide adequate retirement benefits.

However, the Philippines ranked the lowest in the world for the integrity sub-index, where factors affecting the citizens’ confidence level in the retirement system are considered.

“Although there was a slight increase in the integrity score this year, there is still room for improvement. The voluntary direct compensation scheme needs to be reinforced and reinvigorated, while the government has to start looking at ‘no cash-out’ options to preserve savings and benefits for employees when they retire,” Harold Tan, Mercer’s Wealth Business Leader in the Philippines, said.

“In addition, investment of pension assets are not sufficiently diversified outside of the Philippines and hence, return-risk ratios are not fully optimized across a larger and more prosperous financial market. All of these factors can help to build confidence and improve the Philippines’s overall index value,” he added.

The data showed that the Philippines retained its D-grade, indicating that the country’s pension system has efficiency and sustainability issues.

Mercer said this may lead to major weaknesses or omissions in the pension system if these are not addressed.

The grade of the Philippines is the same grade as Asian countries, such as India, Japan, South Korea and Thailand.

The 2021 Global Pension Index found that Asia’s retirement systems continue to lag the world’s. Asia’s overall index value average was 52.2, against a global average of 61.

“For the long-term sustainability of the Philippines’s pension system, there is a need to account for longer life expectancies and ensure there are enough pension savings to see retirees through more years in retirement. Compounding the issue, the gender pension gap presents additional and urgent challenges, with women facing their retirement years with fewer benefits,” CFA Institute Asia-Pacific Research Exchange’s Engagement Committee Chair, Francis Adrian Viernes, said.

“With these concerns in mind, the promise of a secure retirement depends on policy-makers and industry stakeholders taking collective action to examine the strengths and weaknesses of pension systems, with the purpose of delivering better retirement benefits to every individual,” he added.

Apart from this, Mercer’s data showed that while the Philippines was the best ranked among its peers in the World Economic Forum’s 2021 Global Gender Gap report, less than half of women are in the labor force.

Mercer noted that only 49.1 percent of women are in the job market in the Philippines, significantly lower than the 75.2 percent recorded for men.

It added that progress still needs to be made with 69.3 percent of the income gap between men and women in the Philippines closed so far. Women’s caring responsibilities lead more women to engage in part-time work and suffer lower incomes than men.

This, Mercer said, affects women’s access to pension benefits during parental leave, absence of pension credits while caring for young children or elderly parents in most systems, and the lack of indexation of pensions during retirement, ultimately affecting women’s life expectancy.

“Closing the gender pension gap needs to be a multistakeholder undertaking, from employers playing an active role to ensure gender equity in pay, to individuals improving their financial literacy. Our study shows that failure to address the gender retirement savings gap will have long-term costs for businesses, particularly in their ability to attract and retain talent, as well as for society. We need to act now and urgently,” Janet Li, Mercer’s Wealth Business Leader for Asia, said.

“The pension industry can take the lead by removing eligibility restrictions for individuals to join employment-related pension arrangements. This could be expanded to include part-time or informal workers who represent a large population of working women in Asia. Credits for those caring for the young and the old could also be introduced to ensure that individuals who have had to take time out of the formal workforce due to caregiving responsibilities are not left behind,” she added.

The 2021 Global Pension Index reviewed each retirement system through three weighted sub-indices (adequacy, sustainability and integrity) and includes four new systems this year – Iceland, Taiwan, UAE and Uruguay.

Mercer said the MCGPI is a comprehensive study of global pension systems, accounting for two-thirds (65 per cent) of the world’s population.

It benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.

Globally, Iceland’s retirement income system (84.2) has been named the world’s best in its debut, closely followed by the Netherlands (83.5) and Denmark (82).

For each sub-index, the systems with the highest values were Iceland for adequacy (82.7), Iceland for sustainability (84.6) and Finland for integrity (93.1).

The systems with the lowest values across the sub-indices were India for adequacy (33.5), Italy for sustainability (21.3) and the Philippines for integrity (35.0).

The Global Pension Index is a collaborative research project sponsored by CFA Institute, the global association of investment professionals, in collaboration with the Monash Centre for Financial Studies (MCFS), part of Monash Business School at Monash University, and Mercer, a global leader in redefining the world of work and reshaping retirement and investment outcomes.

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