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Article | Global News Briefs

Philippines: New mandatory provident fund introduced

Social Security, health care premium hikes suspended

Retirement|Health and Benefits|Total Rewards
COVID 19 Coronavirus

By Soraya Manaloto and Raph Canillas | April 20, 2021

The move to temporarily suspend increases in retirement and health insurance contribution rates for 2021 aims to provide relief from the COVID-19 pandemic.

Employer Action Code: Act

Due to the economic impact of the COVID-19 pandemic, the government has moved to temporarily suspend (pending presidential approval) scheduled increases in Social Security System (SSS) retirement and National Health Insurance Program (NHIP) contribution rates for 2021 as well as the 10,000 Philippine peso (₱) increase in the maximum Monthly Salary Credit (MSC) for NHIP contributions (see our 2019 GNB: New legislation increases social security contributions and introduces unemployment insurance for more information). The suspension is based on a designated “state of calamity”, currently set to run through September 12, 2021. The scheduled increase in the maximum MSC for retirement contributions (from ₱20,000 to ₱25,000) is unaffected, as is the introduction of a mandatory provident fund (MPF) within the SSS under the Workers' Investment and Savings Program, both effective January 1, 2021.

Key details

  • All employees covered by the SSS with earnings over ₱20,000 per month are automatically enrolled in the MPF.
  • MPF contributions are levied at the same rate as SSS retirement contributions, based on the employee's MSC between ₱20,000 and ₱25,000. Employer contributions range between ₱42.50 and ₱425 per month, while employees contribute between ₱22.50 and ₱225 per month.
  • MPF assets will be managed by the Social Security Commission, based on an initial investment mix of at least 15% in government debt, up to 20% in corporate or multilateral institutions and equities, up to 25% in loans to MPF members, and up to 40% in money market or other approved investments, subject to an initial management fee of 1% per annum charged to all MPF accounts. Investment returns are tax-free.
  • In-service withdrawals will not be allowed, but the account balance will be payable in the event of preretirement death or total disability.
  • At retirement, the accumulated MPF assets are converted into a monthly tax-free pension, amounting to the account balance divided by 180; this pension will be payable for a period of at least 15 years. Upon the pensioner’s death, any remaining balance will be paid to the designated beneficiaries as a tax-free lump sum.

Presumably, covered pay for the MPF will increase in tandem with the scheduled adjustments in the maximum MSC for retirement contributions — to ₱30,000 in 2023 and ₱35,000 in 2025.

Employer implications

The scheduled increases in the SSS retirement and NHIP contribution rates were intended to enhance the system’s long-term sustainability, and any suspension — at maximum for the duration of the state of calamity — is likely to be temporary. Employers are therefore advised to continue to budget for the increases as originally planned. The effectiveness of the MPF as a source of supplemental retirement savings can be expected to improve with time as the level of covered pay expands, but it is not expected to supplant company retirement plans (offered by 64% of companies surveyed) as a major source of retirement income for employees, due to the absence of MPF coverage for lower-paid workers and generally conservative investment options, among other things. Employers may want to review their retirement benefit plans in light of the MPF launch and associated higher employer costs.

Contacts

Soraya Manaloto
Head of Benefits Advisory, Health & Benefits

Raph Canillas
Analyst, Health and Benefits

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