PERA could boost returns for state pension funds

By Aaron Michael C. Sy, Reporter

STATE PENSION FUNDS in the Philippines could unlock higher returns while reducing market risks by linking stock investment loan programs to the personal equity and retirement account (PERA) framework, analysts said.

The move could encourage long-term investing while injecting fresh liquidity into the Philippine Stock Exchange (PSE), they added.

“While the Philippine stock market’s long-term record shows cyclical volatility and periods of underperformance, it has delivered positive real returns over full market cycles,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message.

“From a feasibility standpoint, the Social Security System (SSS) and Government Service Insurance System (GSIS) can justify limited equity exposure if framed as long-term retirement investing rather than short-term market participation,” he added.

PSE President Ramon S. Monzon on Jan. 9 said reviving stock investment loan programs could help deepen domestic capital markets.

Linking the loans to PERA, the voluntary retirement savings framework, could make such programs more feasible for pension funds while aligning with members’ retirement horizons.

The GSIS has said it is studying a phased approach and pilot programs to relaunch stock investment loans.

PERA offers tax incentives, long-term investment horizons and professional fund management, all of which help encourage disciplined investing, analysts said.
“Tying it to PERA helps because PERA is long-term, tax-incentivized and regulated, which aligns better with retirement horizons and improves the odds of disciplined investing,” said John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies.

Mr. Arce said the risk from the program would be primarily credit risk on pension fund balance sheets, rather than direct exposure to market swings.

“Loan terms, collateralization mechanisms, repayment structures and borrower suitability must be carefully designed to avoid amplifying losses during market downturns, especially if equity values fall while loan obligations remain fixed,” he said.

Low interest rates for social reasons could further compress returns if administrative and credit risks are high.

Participation rates in PERA remain modest, potentially limiting economies of scale. Contributions rose 24% year on year to P491.4 million by the end of 2024, according to Bangko Sentral ng Pilipinas (BSP) data.

Mr. Arce said limited uptake could slow the scaling of linked stock loan programs and reduce the diversification needed to smooth market volatility.

Analysts also highlighted the importance of safeguards. Mr. Rivera said strict loan caps, suitability rules and clear risk disclosures are essential to protect retirement savings from market swings.

Public sensitivity to market movements could still pose reputational and political risks even if the structure is sound, he added.

Economists see broader benefits beyond returns. Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., said greater local participation could stimulate the PSE, which has seen weak interest from foreign investors.

“Allowing households to participate teaches saving, investing and better financial management,” he said. “In the long term, this could shift sentiment toward financial markets and encourage even greater household participation.”

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said linking pension fund offerings to PERA could deepen markets without unnecessary risk.

“Done right, it deepens the market without exposing pension funds to unnecessary risk,” he said via Viber. “It makes it an easier choice for the investors.”

With careful program design, state pension funds could boost long-term returns, broaden the domestic equity market and support retirement security while mitigating the volatility that has historically deterred household participation.