By Aaron Michael C. Cy, reporter
Analysts said state pension funds in the Philippines can achieve higher returns while reducing market risks by linking stock investment loan programs to personal equity and retirement account (PERA) structures.
He said the move could encourage long-term investments while bringing new liquidity to the Philippine Stock Exchange (PSE).
GlobalInx Securities & Stocks, Inc. “Although the long-term record of the Philippine stock market reflects periods of cyclical volatility and underperformance, it has delivered positive real returns across market cycles,” Toby Allen C. Arce, head of sales trading at the International Securities and Exchange Commission, said in a Viber message.
“From a feasibility perspective, the Social Security System (SSS) and the Government Service Insurance System (GSIS) can justify limited equity exposure if designed as long-term retirement investments rather than short-term market participation,” he said.
PSE President Ramon S. Monzon said on January 9 that reviving stock investment loan programs could help deepen domestic capital markets.
Linking loans to the Voluntary Retirement Savings Framework, PERA, could make such programs more viable for pension funds while aligning them with members' retirement horizons.
GSIS said it is studying a phased approach and pilot programs to relaunch stock investment loans.
Analysts said PERA offers tax incentives, long-term investment horizons and professional fund management, all of which help encourage disciplined investing.
John Paolo R., a senior research fellow at the Philippine Institute for Development Studies. “Linking it to PERA helps because PERA is long-term, tax-incentivized and regulated, which better aligns with retirement horizons and improves the prospects for disciplined investing,” Rivera said.
Mr Arce said the risk from the program would mainly be credit risk on pension fund balance sheets rather than direct exposure to market fluctuations.
“Loan terms, collateralization mechanisms, repayment structures and borrower suitability should be carefully designed to avoid mounting losses during market downturns, especially if equity values decline when debt obligations are settled,” he said.
Low interest rates for social reasons may further reduce returns if administrative and credit risks are high.
Participation rates in PERA remain modest, potentially limiting economies of scale. Contributions are set to increase 24% year-on-year to P491.4 million by the end of 2024, according to data from the Bangko Sentral ng Pilipinas (BSP).
Mr Arce said limited offtake could slow the scale of linked stock loan programs and reduce the diversification needed to smooth out market volatility.
Analysts also highlighted the importance of security measures. Mr. Rivera said strict loan limits, suitability rules and clear risk disclosures are necessary to protect retirement savings from market fluctuations.
He added that public sensitivity to market movements could still pose reputational and political risks, even if the structure was strong.
Economists see broader benefits beyond returns. Oikonomia Advisory & Research, Inc. Reniel Matt M. Ares, an economist at the International Monetary Fund, said more local participation could encourage the PSE, which has seen weak interest from foreign investors.
“Allowing families to participate teaches saving, investing and better financial management,” he said. “In the longer term, this could shift sentiment toward the financial markets and also encourage greater domestic participation.”
Jonathan L. Reyes, a senior consultant at Tacundong & Co. Ravelas said linking pension fund offerings to PERA could deepen the market without unnecessary risk.
“Done right, this deepens the market without exposing pension funds to unnecessary risk,” he said via Viber. “This makes it an easy choice for investors.”
With careful program design, state pension funds can boost long-term returns, broaden the domestic equity market and support retirement security while reducing the volatility that has historically hindered household participation.