Suits The C-Suite
By Josef Pilger and Christian Lauron
(Second of two parts)
If we evolve our thinking about social security, pension, retirement and voluntary savings, could we deliver better socioeconomic outcomes for the Philippines and improve the financial well-being of millions of Filipinos?
In the first part of this article, we discussed the existing social security, pension, retirement, and voluntary savings mechanisms in the Philippines. While these already provide great benefits to many Filipinos, these systems can still evolve to become more modern and efficient. By revisiting our social security and pension frameworks, they hold the potential to grow into powerful savings and economic engines which can proactively support the development of our national economy.
We also discussed the nine key, systemic dimensions that were identified in EY’s global framework for social security, pension, retirement and voluntary savings.
PUBLIC AND PRIVATE SECTOR COLLABORATION CAN LEAD TO BETTER OUTCOMES
Many countries increasingly leverage the experience and capabilities of domestic and global financial services organizations to accelerate the evolution and growth of national savings pools. In the key anchor “faster, better, and cheaper,” outcomes and delivery are often applied to those products and services that the government considers less as core tasks, relegating them to enablement. Employment-based and customer-based voluntary pension, retirement, and savings systems are often delivered by financial services providers in the private sector. But the government’s interest is in the outcomes and conduct of those solutions. They must encourage concurrent development of contextual parameters to ensure that sustainable, predictable values are delivered. Community expectations are high. The government must ensure that the joint delivery of such values is in the best interest of the customers and the overall public.
Some possible areas where private financial service providers could add value: financial inclusion; financial literacy and advice; digital customer and employer retirement platforms; data and payment enablement; investment, life insurance and other similar products and services; operating broader financial well-being ecosystems; and providing access to leading practices, solutions and capabilities supported by relevant experiences in both local and global markets.
Naturally, there are also certain contextual elements that must be established to deliver sustainable value. Examples of this are robust management and governance systems that can handle possible conflicts of interest; meaningful deterrents for poor behavior and outcomes; clearly defined roles with effective monitoring and scrutiny protocols; appropriate incentives that are aligned with reasonable compensation; and a deep and mutual long-term commitment to service.
The collective, direct benefits from evolving and expanding social security, pension, retirement, and voluntary savings solutions will be significant for all stakeholders. The indirect benefits from a deeper and broader capital market can enable the funding of more extensive and long-term infrastructures in the country. However, the transformation process will require effort and three very important steps:
1. A thorough understanding of the current situation;
2. A comprehensive analysis of options and their qualitative and quantitative socioeconomic stakeholder impact to determine the desired next evolution stage; and
3. An implementation road map that systematically converts policy aspirations into member and economic outcomes.
To help us better understand what is needed to evolve our current systems, we should consider some relevant questions, such as:
1. What social contract do Filipinos expect from the government? What are the strategic objectives of our social security, pension, retirement, and voluntary savings systems? What are our measures of success to expand public confidence? How do we measure up today against delivering the objectives?
2. What are the roles of the existing providers and solutions against the strategic objectives? And what oversight, governance, regulatory, and accountability frameworks and mechanisms do we need to effectively align and ensure each piece delivers against short and long-term expectations?
3. How do we systematically expand inclusion and participation in the existing solutions? What additional and refined solutions do we need to achieve our strategic objectives?
4. What are the short and long-term costs, benefits, and risks for the government and the ordinary Filipino citizen to evolve the current state of the country’s social security, pension, retirement, and voluntary savings systems? What are the risks of doing nothing?
5. How could we further improve efficiency and effectiveness of existing providers and solutions? How can we explore collaboration and shared services solutions to future-proof delivery, while enhancing member and employer outcomes and experiences?
6. What would a sustainable plan to gradually close the funding gap of the three, existing government-based solutions to ensure fiscal budget predictability, and long-term financial system sustainability look like?
7. Would the existing systems and mechanisms and their members benefit from Shariah-compliant products? How would we design and implement such products?
These are just some of the initial questions we need to raise, and ultimately address, for our pension mechanisms to grow even more fruitful for the benefit of hardworking Filipinos. Regardless of status and sector, the primary goal of every citizen is to create a prosperous life. The conversation must continue on this front by asking more questions, and raising potential solutions in other related subjects. There is some interest in areas concerning private pensions, as envisaged by PERA (Personal Equity Retirement Account), the rise of digital and micro pensions, the convergence of advice and wealth and pension, and the role of pensions in infrastructure investments. Encouraging collaboration between the public and private sectors may eventually result in productive solutions that can address these and other questions. It is envisioned that a partnership between government and private industry will spur dialogue for a more detailed and developed framework on our existing saving mechanisms.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Josef Pilger is EY’s Global Pension and Retirement Leader. Christian Lauron is an Advisory Partner from SGV’s Financial Services and Government and Public Sectors.