Do we really need the Maharlika Wealth Fund? (Or thinking about pensions and retirement in 2022)

"What has life to offer me, when I grow old?" 

 

Lead vocalist Wency Cornejo asked this question around thirty years ago when the song "Next in Line" ruled the local radio airwaves. And now this question is top of mind because for the past month, the source of public uproar is the Maharlika Wealth Fund, which this Department of Budget and Management PR describes as "a sovereign wealth fund which will be used by the government to invest" in, among other things, "foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, commercial real estate, and infrastructure projects."

 

First off, the name itself is sus (as young folks say). "Maharlika" is technically the feudal warrior class, but the ordinary Pinoy understands it as the nobility class -- or the alta and elite in our society. What's more shady though is its association with the elder Marcos: it's the title of the 1970 film which stars his mistress Dovie Beams and detailed the supposed (and fictional) exploits of Soldier Marcos' bravery during World War II -- a sham that's been proven several times over, but has been dusted and peddled anew to rebrand the Marcos years as the country's "Golden Age." (Interestingly, "Maharlika" has apparently been re-released in 1987, after the dictator has been ousted. The poster above is from the Video48 blog.) Who's behind this scheme?

Now we get the younger Marcos' cousin Ferdinand Romualdez, his wife Yedda and another same party list cohort, Bongbong's son Sandro, a representative from Zamboanga who is probably is also a close "family" associate, and a surprise stooge in "Teacher" Stella Quimbo of Marikina---sooooo disappointing, btw--pushing the HB6398 proposal in Congress and that they want to certify as "urgent." 

Then there are the government shills. In the DBM's PR piece, current Secretary Mangandaman, shares her "optimism" on "behalf of the Economic Team." Joey Salceda and Finance Secretary (and former BSP Governor) Benjamin Diokno want us to believe that this fund that wants to "invest" the GSIS and SSS pension funds of our citizens in a scheme that doesn't have enough checks and balances that could leave destitute our future senior citizens, hardworking ordinary folks who are counting on these pensions in their old age. 

How the fund proposes to earn is by putting our hard earned money in derivatives (a complicated financial instrument that played a role in the 2008 financial crisis), "alternative investments" like unlisted equities, which are "shares from a company that are not registered in the stock market." Later on, the proponents even said that they would use MWF to "take back control" of our National Grid because it was being run or controlled by the Chinese -- which are actually the Sy (of SM) and Coyiuto families. 

There are already many articles online that explain in more detail why the Maharlika Wealth Fund is dangerous. Vera Files has an amazing fact sheet. Ricardo Saludo of the Manila Times asks, "What's in it for the poor?" Something that was "hardly asked in the debates," he noted, as it mostly focused on investment risks and transparency issues. Saludo asserts that the MWF is not a "strategic" thing to do for a "less endowed country" such as ours. Sovereign wealth funds are usually "what prosperous, progressive nations do." Is the MWF the right thing to do when your country is battling inflation, doesn't have sustainable pensions for its senior citizens, and insists that P488 is enough for a bare minimum nochebuena of 5 people? There are many things the Philippines should be considering before establishing a sovereign wealth fund.

Heck, even the immortal Enrile remarked that we should "carefully review" the MWF. 
 

One of the more shocking (or maybe shouldn't be shocking) pieces of information I found out in the course of following the Maharlika debacle is that only 20% of senior citizens (defined as age 60 and over) in the Philippines benefit from a retirement fund system. This presentation by Christian Mina and Faith Cacnio, which I found through the PSA website, asks if Filipino senior citizens are financially protected, and they presented evidence based on a consumer finance survey. Their survey and data set is from 2014, but I think it's still relevant for the purposes of this post. 

Mina and Cacnio found out that social security in the Philippines was linked with the "formal employment," so basically people with regular jobs. Mina and Cacnio's main takeaway from this survey is that the vast majority senior Filipino citizens (or around 75%) who were their family's breadwinners (or "economically dominant persons" according to the document's preferred jargon) were not covered by retirement plans. 

Of the 20% who receive pensions, the split was 15-16% from SSS (or the private sector) and 4% from GSIS, or those with government jobs. But they also characterize SSS pensioners as belonging to the "poorest 40%" and were likely to be receiving monthly payouts of P4,000 or below. Meanwhile, only 4% (we're assuming these are the GSIS pensioners) are getting Php 30,000 or more, an amount that's more likely to cover their consumer expenses. 

There's a real divide between the economic situations of SSS and GSIS members in retirement, with those who worked in government jobs more likely to own a house with 3-4 bedrooms and built with sturdy materials, own a business, smaller number of dependents -- most of whom are old. The SSS pensioners are more urban, poorer, have smaller houses built with less durable materials, and are likely to be supporting younger dependents. 

It's also worth noting that those 60 years old and older in 2014 were born 1954 and earlier -- so definitely Boomers. They worked hard and are getting something but still not enough. 

And we're not even considering those who are NOT covered by either the SSS or GSIS. Mina and Cacnio characterized them as having had little education ("some elementary"), no real properties, and their homes have "0-1 bedrooms" made of light materials, have no deposit accounts, no emergency money at home, supporting more dependents, and most likely male. These are the manongs who worked "casual" or contractual jobs, but most likely they belonged to the "gray" or informal economy, who made the most diskarte. The DSWD does support indigent senior citizens, but that's a measly Php 500 a month. But guess what, even that is not enough when you go down the line. 

And what about us who are currently part of the labor or workforce? Can we still depend on the GSIS or the SSS in, say, 2040? Boo Chanco's Philstar column from December 12 ("Pension funds") stated that last October, the Philippines was declared to be the "second worst among 44 economies in Mercer-CFA Institute’s Global Pension Index." The main reason: retirees not getting sufficient pensions. Mercer's Global Pension Index evaluates funds according to three criteria: adequacy, sustainability, and integrity. The Philippines ranked last of 44 countries in the integrity criteria, which looks at how a retirement system is regulated, how members are protected, and how much it costs to operate the fund. In terms of sustainability, remember when the late PNoy vetoed adding Php1,000 to pensions, citing the danger that it would cut the fund's life shorter by 7-12 years? Then Duterte shrugged and said, "Give it." That meant the fund can only last until 2047. 

If life permits, I would be among those retiring (or retired earlier, yeah?) in 2048. But by then, THERE. WOULD. BE. NO. MORE. FUNDS. 

So paano tayong mga nagbabayad ngayon? Nganga na lang? Will you still want to contribute to your SSS (and even Philhealth!) if you know you will most likely end up broke even if nag-ipon ka naman? Yes, I understand that the point of these funds is that the current working population is supporting those who worked before and are retired now, and the future generation will support us. Pero paano nga kung di na sapat ang funds? Or if the House of Representatives, the Senate and the current admin's stooges all have their way and use the Maharlika money (our money!) to somehow fund their misguided vendetta against "the Chinese" running our National Grid? Or if they invest in the companies of cronies? Do we get a say then? 

What's remarkable is that the millions of SSS and GSIS current and future pensioners voiced out their anger and that allowed for a few backtracking bits. But if the Speaker of the House wants this bill certified as "urgent" so his cousin can sign it, what now? What then? 

It's no wonder that retirement and familial support is froth with tender wounds and difficult decisions. In online discussion boards and even social media, the current generation of workers and breadwinners is starting to push back against the widespread belief and practice that the "anak as retirement fund." It's so bad that there are "Panganay Support Groups," with a very specific "eldest daughter in an Asian household" slant. The ongoing narrative is that of greedy and abusive parents basically gaslighting their children into "giving back" more and more support, of asking the elder child to finance the education of younger siblings, of funding the family expenses, that it is the child's responsibility to lift the family out of poverty ("iahon sa kahirapan"). (If you want tea of this kind, just search for online gamer H2WO's problem with his mom. It's a long read, but typical of the parent asking excessive financial support from their kid narrative.) 

But really, when you really look at it, it's not entirely the fault of the previous generation. Filipinos are "indisposed" to saving -- maybe because we don't even have enough for the day to day to begin with. How can you think of the future if today's hunger has to be fed? This is where the government steps in. The State should take care of its people. Not just its own. But everyone. But if certain people get their way, all that is ours is theirs.

2019 Financial Goals

Image from  InspireCast. 


Not gonna lie: 2018 was an annus horribilis for me. 

Recognized that things were bad and spent early 2018 asking for help, and the rest of the year trying to get better. Partly explains why I’ve been AWOL from blogging for the latter quarter of 2018. It’s been a very busy couple of months at work. I went away for a vacation in mid- to late- December. New work schedule started. Everyone’s complaining that they haven’t even finished work from the last term and yet here we are. 

On money matters: I usually list my expenses down. I even made a Google Sheets Template dedicated to this. When I opened it to tally how much I have spent for 2018, that’s when I realized that I have stopped updating the sheet in August. August! Yikes! That actually coincides with when I upped my medication. (Still haven’t posted about this. It’s an ordeal but I’m getting better. But also, health care is expensive and my meds are ~200 a pop per day. No joke). I think I got disheartened with the amount and subconsciously stopped updating my list. 

My investment portfolio briefly touched 7 digits. Then I didn't sell anything and it got wiped out by nearly 40%. Remember kids: Never leave money on the table. That's a hard lesson learned. But also: don't panic. The stock market is bound to go back up, you just have to be really patient. 

I'm still going to be on medication for ~5-6 more months. It takes a whole chunk of change that should be going on a retirement or investment account, but if smaller savings means that I'll get better, I'll take it. 

I don’t really want to do resolutions this year, mostly because I sucked at it. My goal this year mostly the same as last year’s: save for retirement and get a clear picture of expenses/where my money goes. 

I did not invest in PERA last year, despite my January 2018 resolution. Most of what would have been my savings went to doctor fees and meds. Would love to remedy this soon, what with PERA investing via BDO is now apparently easier as an online banking option. 

Started updating my excel list of expenses as well. Will probably try to tally 1H2018 and approximate for the latter half given my half-assed list. 

The only new addition is probably this: be consistent. Not just with the money stuff but with all other kinds of behavior. I was talking with a friend who said she read somewhere that forming new habits take 21 to 28 days. It’s now January 20 and I have so far listed my day to day expenses. I know where I’m at—expenses are bigger than pay, boo! But that is due to a parent going on a trip and I had to fund the expenses. But I do plan to discuss it and ease up on other spending categories. Plus, it’s not all lost as I have some still uncashed paychecks coming my way. 

Perhaps an additional finance goal: Get busy with a side hustle opportunity that came my way last year. I haven’t maximized it yet and will hopefully get to do that this year. 

When you think about it, it wasn't really all *that* bad. Sure there were times I felt I was at an an all time low. But I spent most of 2018 trying to climb out of it. There were some successes: My strategy was to keep pitching things out into the universe. I managed to do a few things. Applied for and did not get in some other things. That's still a bummer but there will be other opportunities out there. 

That’s it. Hopefully will be more consistent with the blog posting this year. How was your financial 2018? 

The Philippines: Best Place in the World to Retire

Got this from an online forum. Credits to the owner.

It's been a few months since Infinity War was shown, and yet memes about Thanos landing in the Philippines keep on coming. This one is extra funny because it's financial life related. Sure, the Philippines is the best place in the world to retire---if you're coming from the third first world and actually have the benefit of a 401k, a retirement package or a pension coming from your employer. 

Tropical third world countries in general come up top as the best places for (usually) white people to retire in because for one, winter is tough for old people. Got to keep them bones and achy joints warm. Two, their euro/dollar/etc go very far in our shores. Like what my aunt used to tell her foreigner husband: lets go back to the Philippines and you'll live like a king. True enough. They get to live in a condo with the supermarket and all the possible amenities nearby. They get vacation time for weeks and months on end. They get relatives who live nearby to run some of their errands. What's not to like? 

But if you're Filipino, retirement in your own country sounds like a scary idea. You can't even run off to other third world countries unless you have saved up and really prepared for your retirement. One option though is to move to the provinces where the quality of life is better compared to Metro Manila. In the city, traffic and air pollution will probably be bad for aging lungs---or just plain bad for everyone, period. If you own land in the provinces, you can probably garden and grow some of your own food. Bonus points if you have relatives in the area to keep you company and to help out, just in case. The one drawback is probably that healthcare is concentrated to capital city hospitals. Can't say much about the state of healthcare in the provinces, but the sheer distance from barrio to the city is going to be worth an hour's travel at least? A compromise could be worked out though: live in the provinces, but choose places where a good hospital is within a reasonable travel frame. If an emergency comes up, god forbid you don't want to be trapped in an island with no ferry to the mainland. 

Prospects about my own future retirement are scary. For one, you really can't depend on the government pensions to fund your old age. My mother's pension from the SSS is a measly Php1,200 per month--granted that she stopped working after my siblings were born. She gets this Senior Citizen Fund of Php5k per year. So that's not really much and us siblings have to pick up the slack for whatever's left. This is how most Filipino families take care of their older members. 

I really hope this changes and there's more awareness about preparing for retirement with people my age and younger. Because we can't keep on going on like this. Just the news of the SSS hiking pensions again will mean that the fund life will be cut to 2026---there really won't be anything left decades before I (and my cohort) will be ready to retire. 

The message really seems to be: don't depend on anyone for your retirement. Not the government, not your children (if you have any). Because unlike Thanos, we don't have Infinity Stones and the Banaue Rice Terraces to fall back on. You're the only one responsible for your own future self. So do yourself a favor and prepare for your old age now. Don't buy unnecessary stuff to show off. Stash part of your income in a fund--mutual, stocks, VUL, PERA, pension funds---do it now. Your future self will thank you. 

Preparing for retirement with PERA

In a previous post, I looked at how the TRAIN would affect my take home pay. 

TRAIN promises to cut the withholding tax. From my previous effective rate of 32%, it will go down to ~9.2%. That savings will go a long way to fund my retirement. So while it might be tempting to use that "free" money to live the best life now, I'm opting to invest it for my best life in the future. 

Although I contribute to the SSS--it is mandatory, after all--I'm giving it the side eye. For one, there's the talk that the SSS assets would be depleted in 28 years if crucial reforms are not implemented. Which means the SSS is possibly not  around by the time I'm retiring. So I thought I should prepare for that bleak future scenario. At any rate, no one should be counting on just the government pension. I mean, the minimum pension right now is pegged at Php1,200. Who could live with just that money? 

Anyway, I was still working in government when the PERA law was approved in 2008, but implementation is another matter. There was buzz in 2016 that it would go live, and it did in December 2016. But the only two approved entities--BDO and BPI--only had mentions of it but no actual product yet. 

Even before the approval of the TRAIN, I was already thinking of seriously saving for retirement. In the international (mostly American) finance blog circles, it's all about ETFs or index funds. So I was looking at index funds. And then I thought of PERA to at least get a 5% tax credit for saving.  

I made inquiries with BPI already. I knew from other posts that one has to go to the head office to open a PERA account. However, when I checked with the BPI website, this FAQ states that starting January 2017, there should be several branches aside the main office that could facilitate opening a PERA account. I went to my local branch to ask if that policy had changed. The girl at the accounts desk called the head office to confirm and to ask for the requirements as well. 

This is how you open a PERA account with BPI: 

1. Yes, you need to go to BPI's main office in Makati. Go to the 17th floor, Assets Management. 
2. You need to bring your TIN ID. In the event that you don't have an ID, bring your ITR as it would have details they need to open a PERA account. 
3. You must have a BPI savings or checking account. 
4. a valid government ID. 
5. Fill up their form, which gauges your investment risk profile 

BPI offers 4 kinds of PERA accounts, which are very similar to mutual fund or UITF offerings. They have a money market, government bonds, corporate bonds and an equity fund. 

Of course, there are fees: BPI asks for a 1% administrator fee based on the amount contributed. There are also "transactional and annual fees from the Cash Custodian as well as trust fees from the respective PERA UITFs." The Equity Fund lists a 1.5% per annum trust fee. I wonder if this is the same as or probably on top of the 1% admin fee. 

Meanwhile, BDO's PERA Equity Index Fund lists a 1% p.a. "management fee." Again, will need to clarify if this is on top of or the same as the admin fee. But I still need to inquire with BDO.  

If we go by fees alone, I'm partial to whoever is offering a lower fee. Then there's the matter of who offers an index fund. There's also the ease of transacting. BDO is attached to my payroll account, that would make it easier for me to transact. That matter of only having one administrator for your PERA accounts certainly has to be considered. 

All in all, I still need to check with BDO and then weigh which one between the two banks will get my retirement money. But even then, BSP Deputy Governor Espenilla acknowledges that the slow rollout is because there are only ~100 professionals dealing with PERA.  It would certainly give the investing public more breadth of choices if other entities would come in and offer their own PERA funds. Until that day comes, it's a coin toss between these two candidates. 

Ang Larawan: Can investing in art be a valid retirement plan?

The MMFF entry "Ang Larawan," (Dir. Loy Arcenas, 2017) which was based on the musical, which in turn was based on the play by Nick Joaquin and translated by Rolando Tinio,  poses quite a financial situation still relevant to a lot of Filipino families. How does one prepare for retirement and old age, particularly if one is (a) an artist and (b) a single and unmarried female dependent on other family members. Of course, there is also the question of how Pinoy society values art. But at the moment, I'm interested in how can art be a vehicle for retirement. 

The painting in contention was created by Don Lorenzo El Magnifico, supposedly a contemporary of Juan Luna. He crafted an obra maestra in his old age, and mostly everyone observed that The Portrait of the Artist as Filipino did not appear to be Pinoy at all in terms of imagery. It showed a scene from Virgil’s Aeneid: Aeneas carrying his aged father Anchises away from the burning city of Troy. The painting was said to be a self-portrait: it was effectively a young Don Lorenzo carrying his old self away from destruction.

After painting this obra, he suffered an accident—fell from a second storey window and down into the courtyard. He was checked by all the doctors and nothing was wrong with him, and yet he refused to leave his room. 

The painting got people interested in an old master that they thought was already dead. A Frenchman raved about it; an endless stream of students, journalists, photographers and critics trooped to the Marasigan house to view the painting—much to the consternation of his two old maid daughters Candida and Paula, to whom he has bequeathed this masterpiece. 

Similar subject by Italian painter Pietro Testa. 

The daughters face a difficult situation: they are dependent on padala of their two elder siblings Manolo and Pepang for their expenses and the house’s upkeep. Candida and Paula have even taken in a boarder whom they despise: Tony Javier was a vaudeville piano player. Unschooled but ambitious, rakish and brings home rowdy women, drinks chocolate lecherously from someone else’s cup. But his rent brings them money, so they tolerate him. 

But even that doesn’t seem to be enough as Candida and Paula do not have enough to pay the bills from the kuryente, the tubig. The sisters have a plan: Candida considered a newspaper ad where one would get paid to catch and kill rats just so they could pay bills. Paula could put up a signs outside the house announcing that she could tutor females how to play the piano, and males on how to speak Spanish—frankly a skill that was disappearing in 1941, on the edge of a war and a Philippines that has been under American rule for decades. Manolo and Pepang didn’t like this plan: they asked the sisters to take down the signages outside the house (Nakakahiya!). They planned to sell the house, take the furniture for their own children who are about to get married and start families of their own. What’s worse is they planned to separate the women, take one each to care for their own households. Such is the fate of dependent elder unmarried women at the time. 

The one thing that could save Candida and Paula from financial ruin was The Painting which their father told them to do as they pleased. Tony Javier has a ready buyer, an American willing to pay $10,000 plus his commission for convincing the sisters to sell. The sisters are unwilling, but Tony lists all the things even he could do with his own commission: go wherever he wanted, to go to Europe, to South America, finally formally study the piano, breathe in some culture. It would buy him decency away from his very precarious situation. 

Tony Javier enticed the sisters with this possibility of financial freedom, of no longer worrying about the bills, what the neighbors would say, doing whatever he wanted without fear. All this for ten thousand dolares in exchange for a painting done by their dear old dad. So a question: How much was Don Lorenzo El Magnifico's painting worth? Can art be a valid nest egg for retirement and financial freedom? 

In the movie, the price of the painting was $10,000 in 1941, which was something like Php20,000 at the time. So there was a 1:2 ratio in the exchange rate. I tried to find out what the painting could cost now. 

calculator.net computes for inflation using US CPI data. I plugged in $10k in 1941 and that amounts to $172,216.04 in 2017. At the current exchange rate of Php49.94:US1, it means that $172,216.04 (49.94) = Php8,600,469.04. 

Ronald Ventura's "Grayground" was sold for nearly Php47M.

Php8Million for the work of an old Philippine master seems like peanuts. It should cost more, specially taking into account that even relatively young Philippine artists are topping out at USD1Million per work. There’s Ronald Ventura’s “Grayground” for Php46.9M or Geraldine Javier’s “For She Loved Fiercely” which sold for HKD 1.46M or Php8.8M. A Fernando Amorsolo painting done in his prime sold for Php20M at an auction. National Artist BenCab’s “Sabel” fetched Php20M. The biggest “Sabel” was priced at Php46.7M.

For comparison, I looked up the price of a Juan Luna painting in the market. That same article which sold the “Sabel” mentioned an “untitled Luna” featuring a lady dressed in the fashion of the time sold for Php14M. Perhaps the most controversial Luna piece in recent memory was “Parisian Life,” which was purchased by the GSIS at an auction in 2002 for Php40M. It caused an uproar at the time, and for which the GSIS caught flak for “wasting the public’s money” for an artwork. But the painting is now valued at Php300M, which was 650% higher. 

Juan Luna's "Parisian Life," bought by GSIS for Php40M in 2002.

In the film, Manolo and Pepang brought in the women’s godfather, a senator of the republic, to convince them to sell the painting to the government. It seemed like an echo of the government trying to buy the painting to preserve culture and memory, and at the same time, the sisters could have funds to care for themselves.

Juan Luna's "Espana y Filipinas" was worth Php156M. 

Don Lorenzo’s self-portrait was smaller than Luna’s “Spolarium" but bigger than “Parisian Life.” It should be priced similar to a rare Luna "¿A Do...Va la Nave?” that sold also at a bidding for Php46.7M or to a version of "Espana y Filipinas," which was auctioned off for HK$25.88 million or Php156.52 million. 

At its bare minimum, the work of an old master who was Luna’s contemporary should be priced in the vicinity of a “rare Luna” at Php8M minimum, to an intermediate price of USD1M similar to a young contemporary auction star. Or if we follow the auction for old masters, a major work should fetch anywhere from Php46M maximum or Php156M.

So anywhere from Php8M, 46M or 156M. 

Even if “devalue” it by saying Don Marasigan was *not* Luna and slash the price by half, that would still be a decent Php4 to 20M, that should buy Paula and Candida a modest but secure retirement in their old age. But at 46M or 156M or even “Parisian Life” levels at 300M could buy them and their family financial security for generations. 

ART FOR RETIREMENT

So is art a valuable and valid piece of investment for retirement? If it’s the work of an established master, yes. Just going by the appreciation of Luna’s “Parisian Life” from Php40M to 300M in 15 years is proof of that. Even a minor and rare Luna that sells for Php8 million is a godsend. But how many obras of old masters do we have lying around? 

If you are young and can go “speculative,” I would probably get a major work by a relatively young and upcoming artist and hope he does well in the future so that the value of my purchase could appreciate in the decades ahead. Better if he becomes a National Artist. 

SPOILERS AHEAD: 

All the hypothetical pricing seems wasted as Paula decided to destroy the painting so they could be “free.” As in start from scratch.  I could imagine Paulo Avelino's Tony Javier quaking in desolation as his future was destroyed just like that. But it wasn't his painting.