THE PHILIPPINES’ retirement income system is the second worst among 44 economies in Mercer-CFA Institute’s Global Pension Index released on Tuesday, due to inadequate pension for retirees.
The Philippines ranked 43rd out of 44 economies in the index, which benchmarks retirement income systems around the world, ahead only of Thailand.
The country received an overall grade of “D” as its index value slipped to 42 this year from 42.7 last year “primarily due to some minor adjustments.”
The “D” grade means that the pension system that has “some desirable features but also has major weaknesses and/or omissions that need to be addressed.” Other countries that had a “D” grade were Thailand, Argentina, India, Turkey, and Indonesia.
Based on the index, Iceland’s retirement income system is the best in the world with a score of 84.7, followed by the Netherlands (84.6) and Denmark (82). These were the only countries that had an overall grade of “A.”
Among the 10 Asia-Pacific economies in the index, Singapore had the best retirement system, followed by Hong Kong and Malaysia.
The Global Pension Index assesses retirement systems through three weighted sub-indices: adequacy, sustainability, and integrity.
In terms of integrity, the Philippines’ score dropped to 30 — the lowest among the 44 countries — from 35 last year. Integrity considers a retirement system’s regulation and governance, protection for members, and operating costs.
The Philippines scored the highest in sustainability at 52.3, although this was slightly lower than the 52.5 last year and below than the global average at 53.5. The country ranked 23rd globally in this sub-index.
Sustainability measures pension coverage, total assets, demography, public expenditure, government debt, and economic growth.
The Philippines’ score for the adequacy sub-index rose to 40.5 from 38.9 last year, and ranked 41st out of 44 countries. The adequacy sub-index measures benefits, savings, government support, and home ownership, among others.
The country’s retirement income system is comprised of a small basic pension and an earnings-related social security system.
In a report, Mercer said the Philippines’ retirement system can improve by raising the minimum level of support for the poorest individuals, and increasing coverage of employees in occupational pension schemes.
It also suggested “setting aside funds in the public system for the future, thereby reducing reliance on the pay-as-you-go system,” and introducing “non-cash-out options for retirement plan proceeds to be preserved for retirement purposes.”
Mercer said governance requirements for private pension system should also be improved.
David Knox, a senior partner at Mercer and lead author of the study, said policy makers should ensure the retirement systems are supported and well-regulated amid growing uncertainty.
“Individuals have been assuming more responsibility for their retirement savings for some time; amidst high levels of inflation, rising interest rates and greater uncertainty about economic conditions, they are doing so in an increasingly complex and volatile environment. Despite differences in social, political, historical or economic influences across geographies, many of these challenges are universal,” he was quoted as saying in a statement. — Ana Olivia A. Tirona