Philippines, 3 February 2022 – Only one in five companies in the Philippines prepares their employees well for retirement. According to Mercer’s latest Retirement Survey Report1, the lack of pre-retirement support has emerged as a growing area of concern for employers as more employees prefer to work for organizations that also take care of their financial wellbeing.
While the majority believe that education on retirement benefits is important, one in four companies have never conducted any activities on the topic. 31% of companies in the Philippines also do not have a formal retirement plan and only provide their employees with the statutory minimum benefit.
Commenting on the findings, Harold Tan, Mercer’s Wealth Business Leader in the Philippines, said: “While it is primarily the individual’s responsibility to ensure their own retirement readiness, employers can lead by providing essential tools, training and technology to engage employees in their long-term financial wellbeing. This includes offering a more flexible set of benefits so employees can fully maximize them and reduce their out-of-pocket expenses, which can improve savings. In addition, they can also increase personal financial planning awareness during bonus seasons to build a culture for preparing and risk-proofing the future.”
Slow shift from DB to DC plans
While companies in the Philippines have traditionally gone with defined benefit (DB) pension plans, increasing cost pressures, along with the proposed Capital Market Development Act, should see more businesses shifting to defined contribution (DC) plans which give employees greater control and portability over their retirement benefits. According to Bangko Sentral ng Pilipinas, more Filipinos made voluntary contributions to their Personal Equity and Retirement Accounts (PERA) in 20212. While it is encouraging that workers have more investment product choices to grow their own savings for retirement, pension schemes now play an integral role in their decision of whether to stay with their current company or move on.
However, nearly 8 in 10 respondents indicated they have not moved — or are unsure about moving — to a DC plan. About a quarter of the companies surveyed are still on defined benefit (DB) plans where employers carry the burden of saving and investing.
Findings from Mercer’s study also reflected the need for employers to develop a better understanding of investment performance and techniques. 23.5% of companies are unsure of how their investments are performing and 44.1% of them rely on their retirement plan’s bank or trustee to make recommendations to determine the investment strategy of their retirement funds.
Mr Tan added: “Employers should assess the impact of new pension reforms and decide which approach works best for their existing plans and workforce profile. Although pension funds are not required by law, forward-thinking companies know that investing in employee retirement planning pays off. These employers are actively reviewing and benchmarking their scheme benefits against the market, to optimize investment returns, which in turn can help them hire and retain the most qualified workers. With the right pension governance in place, these forward-thinking companies know that they can best position themselves to deliver brighter futures for both their business and their employees.”
Supporting financial wellness
There are many simple and effective steps employers can take to support financial wellness and inspire employees to prepare for life in retirement. More frequent engagement activities can be organized to improve financial literacy through awareness campaigns and via staff communication sessions. Companies can also make use of data and analytics, without violating privacy rules, to measure how retirement options impact the behavior of older workers and spot those who may need more financial education or support, to run customized retirement planning workshops.
Teng Alday, Mercer’s CEO in the Philippines, said: “Employers in the Philippines need to recognize two key trends: first, employees want and need long-term financial planning, and second, the shift from DB to DC plans is accelerating. A well-designed DC plan, with strong governance and a disciplined investment program, will go a long way in ensuring the retirement needs of employees are met. It is now the time to take action.”
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s approximately 25,000 employees are based in 43 countries and the firm operates in 130 countries. Mercer is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 83,000 colleagues and annual revenue of over $20 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit mercer.com. Follow Mercer on LinkedIn and Twitter.
1 The Mercer Retirement Survey Report polled 70 employers in the Philippines to analyze pension scheme trends covering more than 29,750 employees.
2 Bangko Sentral ng Pilipinas, Press Release – ‘PERA Contributions Up 62% to P237-M in September’, 16 December 2021