Home Banking & Finance Mandatory retirement plans to boost life insurers
Mandatory retirement plans to boost life insurers
THE DEPARTMENT of Finance’s proposal to require companies to set up mandatory retirement plans for their employees will help expand the insurance market to micro, small and medium enterprises (MSMEs), officials said.
“I think requiring companies to set up a mandatory retirement fund for employees would be a welcome development for life insurance companies as such would create an expanded market via the industry’s potential engagement into limited trust business,” Sun Life of Canada (Philippines) Inc. CEO and Country Head Benedicto C. Sison said in an e-mail.
He said the proposal will benefit employees of MSMEs who do not usually qualify for tax exemptions on their contributions to company retirement plans.
“Generally, only the big companies are able to enjoy tax-qualified retirement plans. MSMEs don’t usually have them because of the challenge of complying with the minimum annual contributions required by universal banks,” Mr. Sison said.
“If given a limited trust license by the BSP (Bangko Sentral ng Pilipinas), life insurance companies could service the underserved MSMEs that account for 99.56% of business establishments in the country at 1.42 million,” Mr. Sison said.
Pru Like UK President and CEO Antonio G. de Rosas said in an e-mail that most life insurers are capable of engaging in this business.
“Currently, they have difficulty in selling tax-exempt retirement products and this amendment to the Insurance Code should help remove current obstacles experienced,” Mr. De Rosas said in an e-mail.
“I think it’s just a matter of timing because of the work and coordination which need to be done by multiple regulators such as the BSP, Insurance Commission and the BIR (Bureau of Internal Revenue),” Mr. De Rosas said.
The officials of the insurers said they hoped the concerned government agencies will soon complete the guidelines for retirement plans of insurance companies.
Finance Secretary Carlos G. Dominguez III earlier said the Capital Market Development Council, which he co-chairs, is studying the recommendation of the Fund Managers Association of the Philippines to require the partial or full funding of retirement plans for private sector workers.
The BIR allows a company to appoint a trustee, usually from a bank, to manage and grow its retirement fund through various investments for the welfare of its employees. The BIR excludes final taxes on interest income from investments based on the type of benefits under the retirement plan and amount of benefits given by the company, among others.
This complies with the Retirement Pay Law requiring private corporations with at least 10 employees to provide them retirement funds.
Meanwhile, under Section 429 of the Amended Insurance Code, insurance firms can also set up a trust entity for retirement and pre-need plans separate from their insurance business. They must acquire a license from the BSP and approval for tax exemption from the BIR before the trustee can operate. — Kathryn Kristina T. Jose