Pension Reform: Mandatory Funding and Portability for Employees

A new sustainable corporate pension system was presented by the Congress to further help the domestic capital market gain more investors for the Philippines for the upcoming years. This will help ensure the future of our workforce and their families to give the financial sector more capital that will help in the advancement of our economy.

With the same coverage on the existing law (Republic Act 7641), the new proposed bill (HB 8938) will still be covering all private employees and voluntary for the self-employed individuals. The portability feature explained that an employee can still continue to grow their pension fund even if they will be leaving and working for another employer. 

The workforce demographic of the country is now in transition as the majority of the workforce are young professionals with lesser number of dependents. Thus, this new portability feature on the proposed bill will be beneficial to millenials and Gen Z who work for an average of 12 employers in their working lifetime. Ensuring that there will be an adequate amount for their retirement. This will also ensure Gen X and Baby Boomers a higher retirement fund to be able to live comfortably after their retirement. 

“The measure being proposed by Congressman Junie Cua intends to enhance the depth and liquidity of our capital markets. The participation of large investors, such as pension funds, will help expand and diversify the investor base of our capital markets,” – House Committee on Banks and Financial Intermediaries, Finance Secretary Carlos Dominguez

In line with the proposed reformed pension system, a new law was also signed last March 26, 2021 titled “The Corporate Recovery and Tax Incentives for Enterprises (CREATE)” through Republic Act No. 11534. CREATE law aims to aid the recovery of enterprises that was greatly affected by the COVID-19 pandemic. This is also a way of the government to attract potential investors to do business in the Philippines. 

As we are just waiting for the new law to be effective this upcoming April, the main context of it is about a lowered corporate income tax and systemization of the company’s monetary benefits. Since CREATE is a retrospective type of law, it means that even if the law will be effective this upcoming April 2021, there would still be an impact to 2020 corporate income tax filing. 

“Looking at the big picture, this reform will increase the supply of capital in the financial system, encourage more investments, and promote stock and bond market development. All these will help turbo-boost the competitiveness of the Philippine capital markets,” – Dominguez said. 

Leave a Reply

Your email address will not be published.