Recently, I came across a post on Facebook that links to a story about a Filipino professional’s dilemma on his pension upon retiring. The story must have caught up with the working population in the country as I saw several posts on social media after, some reacting negatively, while one blog post addressed the topic quite well. But according to the latest Manulife Investment Sentiment Index, majority of Filipino investors are satisfied with their government pension. But that is based on assumptions and a cash-dominant approach to retirement.
Apparently, two-thirds of the survey respondents disclosed that they are confident that their government pension would be enough to meet their needs when they retire. According to Manulife, the result is the highest level of all surveyed markets. In contrast, across all surveyed markets the proportion of confident investors was less than 40 percent, and as low as one-in-ten in some markets.
Such positivity seems okay, but the survey showed it is based on some risky assumptions. First, investors expect to receive about 92% of their current income when they retire. The result is the highest estimate among all surveyed markets (Asia average 69%). Second, they expect their expenses to be low once they retire, just 61 percent of their current income. The figure is at the lower bracket of surveyed markets (Asia average 66%). Third, nearly all (95%) said that in retirement they expect to rely on private healthcare – by contrast, in every other market only a minority expected to rely on private healthcare (Asia average 38%).
Ryan Charland, CEO of Manulife Philippines said, “Filipino investors have high estimates of their retirement income. Even if these turn out to be right, they may not be enough to cover their actual costs. Today, people generally expect their retirement to be active, and that means expenses will likely be much higher than what many realize. In addition, healthcare tends to cost a lot more than people expect. In Asia healthcare costs have risen about twice the rate of inflation over the past 10 years. Of course, it’s even more expensive if you go private.”
The survey proves that Filipino investors have a high degree of reliance on their pension from the government. Reportedly, only one in five owning an additional, private pension plan. A lot expect to rely on other, less assured, largely cash-forms of income, particularly savings (which they expect to make up 37% of their retirement income) and inheritance (12% of their retirement income) – in both cases the highest reliance of any surveyed markets. This cash-dominant approach to retirement is reinforced by the finding that, on receiving their pension, Philippine investors plan to deposit nearly half into the bank, the second-highest level of all markets (Asia average 35%).
“We know that Filipino investors like to hold cash and are among the most cash-heavy investors in Asia. The latest survey shows us they also plan to be Asia’s most cash-reliant investors when retired,” said Mr. Charland. “Keeping cash in the bank provides minimal returns, which may not even keep up with inflation. Their retirement optimism would have a sounder basis with a more balanced portfolio, especially given that retirement today can last 30 years or more.”
The result of the Manulife Investment Sentiment Index is reflective of what the Filipino professional’s expectations when he was still gainfully employed. For a better lifestyle during our retirement, it’s time to take a closer look at other investment vehicles such as insurance, mutual fund, and similar packages to achieve a higher retirement income when that time comes.