BSP says Filipinos financially ill-prepared for retirement, offers ‘Digital Pera’

The central bank on Tuesday (Sept. 8) urged Filipinos to take advantage of an “underutilized” law to fatten their pension programs, noting that Philippine citizens were among the most poorly prepared in the region for the financial challenges of retirement.

Speaking at the online launch of the digital Personal Equity and Retirement Accounts (Pera) initiative, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that the law has so far failed to build a critical mass of investors as envisioned by its authors.

“Currently, Pera is underutilized,” he said in his speech, noting that only 1,586 Filipinos have availed themselves of the scheme as of the end of July 2020, with total contributions of a mere P137 million. “Since its implementation in December 2016, the Pera industry has not gained significant momentum.”

Of the total contributors, 1,099 or 69 percent are locally employed, 273 or 17 percent are overseas Filipino workers, and 214 or 14 percent are self-employed. On the average, OFWs have higher contributions at P110,000; local employed workers, P82,000 and the self- employed, P76,000.

“These figures remain regrettably low,” Diokno said.

According to the latest report of the Philippine Statistics Authority (PSA), the Philippines has around 7.6 million Filipinos aged 60 years old and above. Of this group, only 20 percent are covered by either SSS or GSIS, leaving 80 percent of senior citizens with no mandatory pension at all.

Retirees who are fortunate enough to be covered by state-sponsored retirement systems receive an average monthly pension of P5,123 for SSS and P18,525 for GSIS.

“Depending on the lifestyle you would like to have in your senior years, this pension may or may not be enough to meet all your needs,” the central bank chief said, adding that surveys also showed that Filipinos tend not to prepare for their own retirement.

“Specifically, Filipinos only set aside 3.6 months’ worth of income for retirement––way below the regional average of 2.9 years,” he added.

“In terms of expectation, Filipinos believe that savings equivalent to 2.1 years’ worth of personal income would be enough for retirement. This is the lowest expectation in Asia compared with the regional average of 12 years,” Diokno said.

PSA reported that the share of social security benefits — including retirement and survivorship pensions, sickness, disability, death, and other related allowances — to gross domestic product also remained relatively low at around 2 percent from 2012 to 2017.

“As such, voluntary retirement savings plans such as Pera are crucial in supplementing the state-based pension plans to meet retirement needs,” Diokno said.

Tuesday’s launch will allow Filipinos to make pension plan investments through their mobile phones, with the digitalization process allowing Pera-accredited banks and financial institutions to provide convenient and affordable retirement saving products to more investors through more efficient channels.

Under Pera, contributions within a calendar year, up to a maximum of P100,000 for local residents or P200,000 for expatriate Filipinos, shall be entitled to a tax credit of 5 percent, which may be used against income tax liabilities or, in the case of overseas Filipino workers, against any national internal revenue tax liability.

Investment income from Pera investments are also exempt from taxes on investment income.

TSB