Polytechnic University of the PhilippinesCollege of Accountancy and FinanceSta. Mesa, Manila

The Effectiveness of the Investment StrategiesEmployed by the Employees of selected companyin Makati City in achieving their Retirement Goals.

Submitted by:Abon, Jhoanna MayCarranza Jr., JoeyFlores, Dan AceyorkPalmes, Fleurdilize Ann

IntroductionBeing poor is not a sin, but remaining as one is. This is one of the values that are being lived by most of us. People are striving to excuse themselves from poverty, so at an early age they are starting to work hard and earn. But many are just focusing on the present and are neglecting for the future. So one of the solution of the government is the pension plan. A pension is a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life. However, social protection in the Philippines has historically been weak and fragmented, and has mainly supported small segments of the population in the formal sector. The country lacks effective social protection schemes, where, ironically, the greatest number of people lives in absolute poverty. Philippines is a home to an ever-increasing number of older people or people aged 60 and over. As of June 2014, there are 979, 319 pensioners in SSS and they receive a monthly pension of P 2,988 on average. Many of these older people do not receive enough pension to support their subsistence needs and meet their mounting medical expenses resulting them to rely on their families and informal social networks for survival or worst just ignoring their needs. In its report, the National Statistical Coordination Board (NSCB) said the average pension a senior citizen receives from the Government Service Insurance System was only P7, 768 in 2008, P8, 359 in 2009 and P8, 586 in 2010. GSIS, the state-owned pension fund for government workers only approved a 1.5 percent increase in pensions effective January 2010. However, average increases of prices of all items between 2009 and 2010 are 3.6 percent and 3.8 percent among all income and bottom 30 percent households, respectively. Thus, during this period, the average monthly GSIS pensions did not increase as fast as prices of general commodities. This means that pension cannot catch up with the rapid growth of inflation, so the researchers would like to find another type of investment, which could be more enough to support the financial need of retirees.

The researchers will be conducting the study by using the descriptive survey method in a form of a questionnaire, to be answered by 50 participants. Since the research is dealing with the preferred investment of the employees, the researchers need to use a descriptive method to show the relevance of the result in the given research question. The researchers will apply the method to provide systematic, accurate and factual data that will answer the research questions of this study. The data gathered will be analyzed through tallying and comparing the mean of each gain in different investment.

After this study, the researchers expect to know the most preferred investment for retirement by employees. To identify how much money these employees would like to have for retirement. And how they are planning to attain the said amount.

Statement of the ProblemThe researchers conducted this study to know the most preferred investment for retirement by employees. Specifically, this study sought to answer the following questions:1. What are the demographic profiles of the respondents as to:1.1. Age1.2. Civil Status1.3. Occupation1.4. Monthly Income1.5. Gender2. At what age does the respondent want to retire?3. How much money would they like to have for retirement?4. What actions did the respondent has taken to achieve the money they want to have?4.1. How much money did they invest?4.2. How frequently are they investing?4.3. How long did they invest?5. Awareness on the following:5.1. Inflation5.2. Investment options like:5.2.1. Stocks5.2.2. Bonds5.2.3. Mutual Funds5.2.4. Other investment optionsHypothesisNull The investment strategies employed by the employees are not effective on achieving their retirement goal.

Conceptual FrameworkInvestment strategies of the selected companys employees.INDEPENDENTDemographic profile of the respondents.The amount of money they are investing.The length of time and frequency for investing.The respondents desired age of retirement.Final amount of money for retirement.DEPENDENT

Significance of the studyThe information gathered from this study serves as a guide in determining the employees preference on investment for retirement to find out an alternative plan for a not enough pension by evaluating and interpreting the results.To the future investors. The researchers hope that this study will help future investors to determine what types of investments are more efficient for retirement. This research will guide or give them information about retirement planning. This will also tell information on how much is the target amount of investors and how the employees plan to achieve it.To the investment houses. This study will help investment houses to know what type of investment to offer to employees planning for their retirement.To the government. This will help to inform the government about the proper need of its citizen for retirement. To the future researchers. The research can be used as reference for future researches. It can be used as a basis for more improved researches on how employees think or plan about their investments

Scope and delimitationThe study will focus only on the investment strategies as basis for an alternative plan for a not enough pension of the selected companys current employees therein from the time the researcher will conduct the survey. These will be the chosen parameters of respondents on the said companies.However, the research will not cover the board of directors, the clients, the visitors, and other non-employed personnel of the company. Also, their other investment not for the purpose of retirement.

Definition of termsFor the purpose of this study and to facilitate an understanding of this work, the terms indicated below are defined according to their operational use. Investment - An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.Investors - Any person who commits capital with the expectation of financial returns. Pension - a regular payment made during a person's retirement from an investment fund to which that person or their employer has contributed during their working life.Pension Fund - A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees.Pensioners a person who receives or lives on a pensionRetirement the period after you have permanently stopped your job or professionRetirees someone who has permanently stopped working in a job or a profession Senior Citizens a person who is at least 60 of age.

Chapter IIReview of related literatures and studiesThis chapter presents the literature and studies reviewed by the researchers that have significant bearing on the present study.Local LiteraturesPensions in the Philippines: Ways ForwardCarmelo Mesa-Lago, Verna Dinah Q. Viajar, Czar Rolly Castillo, 2011AbstractDescription, analysis and evaluation of several public pension schemes in the Philippines with emphasis on old-age, disability, survivors and occupational hazards. Major schemes assessed are: civil servants (GSIS), private sector workers (SSS) and the armed forces (AFP-RSBS). The evaluation is based on six social security principles: unity; universal coverage; sufficiency of benefits; social solidarity and gender equity; efficiency, moderate administrative costs and social representation; and financial-actuarial sustainability. The system is highly segmented with 12 separate schemes that lack coordination. Coverage of the labor force and the elderly is low due to large informal sector and poverty incidence as well as other factors. Entitlement conditions and benefits diverge significantly among schemes but tend to be generous; the real pension has declined due to lack of automatic adjustment mechanism. Elements against social solidarity and gender equity prevail over those favoring those features. Efficiency has improved with use of computer/software tools; administrative costs are high but declining; poor social representation in the administration of the schemes. Innovative channels to pay contributions by informal workers and similar groups; employers pay most of the contributions; current contribution rate is high by Asian standards; only 22-35% of members contribute; rising financing surplus and reserves; real annual average capital returns are lower than in other Asian countries; investment portfolio not well diversified, mostly concentrated on government debt and loans; ratio of contributors to one pensioner rapidly declining due to population aging and schemes maturity; SSS actuarial valuation projects fund depletion in 2039 and GSIS in 2051, AFP-RSBS is unsustainable. Detailed recommendations are given in each section to improve the system. Comprehensive statistical tables and figures, as well as bibliography and legislation sources.

Primer on Savings and Investment in the PhilippinesEpra 2011AbstractMany Filipinos aim for financial security by setting aside a portion of their disposableincome to be placed in better yielding instruments. This primer discusses places toaccumulate savings and identifies common investment options. It also lists factors toconsider when selecting savings and investments. In an attempt to describe the basicfeatures of savings and investment instruments currently available in the market, thisprimer will hopefully educate the public, particularly the small savers, on the risksand opportunities involved in saving and investing.

Foreign LiteraturesRetirees May Find They Need Less Retirement Income Than ExpectedBruce A. Tannahill, 2014AbstractIncome replacement ratios are often used as a guide to how much clients should save for retirement. A recent survey studied people who have been retired for less than 5 years; they averaged significantly less than commonly suggested replacement ratios but were generally satisfied. Financial professionals can use the survey results in working with their clients.

The Lifetime Sequence of ReturnsA Retirement Planning ConundrumWade D. Pfau, 2013AbstractIndividual investors are extremely vulnerable to the sequence of market returns experienced over their investing lifetimes. Individuals who behave exactly the same over their careers, saving the same percentage of the same salary for the same number of years, can otherwise experience very different outcomes based solely upon the specific sequence of investment returns that accompanies their careers and retirements. The vulnerability reaches its peak at the retirement date, as this is the point at which a return to employment becomes increasingly difficult and a postretirement market drop can be devastating. Actual wealth accumulations and sustainable withdrawal rates will vary substantially for different retirees, as these outcomes depend disproportionately on the shorter sequence of returns just before and after the retirement date. This article quantifies the nature of this vulnerability and outlines some potential ways in which advisors can help protect clients from the sequence of returns risk.

Making Better (Investment) DecisionJones, Robert C., 2014AbstractThis article covers a non-financial topic that is nonetheless vital to investment professionals: how to avoid common cognitive errors and make better investment decisions. It reviews the extensive academic literature on how people actually make decisions and how they can make better decisions. It also provides recommendations about how analysts and managers might apply these findings to active investing.

Local StudiesRetirement Plans Preferences in the PhilippinesMa. Belinda S. Mandigma, 2014AbstractThis paper examines preferences of Filipino workers and retirees for employer retirement plans.In particular, it assesses the relationships of retirement plan preferences to variables such as attitudes towards retirement savings, financial literacy, behavioral biases and demographic/socioeconomic characteristics through inferential statistics. A total of 343 usable questionnaires were received and analyzed. Results indicate that the most important plan attribute is a non-financial factor, Socially Responsible Investing (SRI). Interestingly, the participants retirement plan preferences are not significantly correlated to savings attitudes, financial knowledge, behavioral biases and demographic/socioeconomic variables. Results of this study could serve as a powerful platform for business and policy proposals from practicing actuaries and government institutions on areas like adoption of retirement programs and evaluation of their effectiveness.

Retirement Under R.A. 7641: Issues and Prospects for Social DialogueCelia V. Cabadonga, 2011Abstract Republic Act 7641 or The New Retirement Law in the Philippines, is originally conceived by the Department of Labor and Employment to give ample protection to workers, particularly, those that are not covered by retirement contract. This Act provides that, all private sector employees, regardless of their position designation or status and irrespective of the method by which their wages are paid are entitled to retirement benefit upon compulsory retirement of sixty five (65) years or upon optional retirement at sixty (60) years or more. The minimum retirement pay due to covered employees shall be equivalent to one-half month salary for every year of service. The Act mandated that retirement pay should be shouldered by the last employer. The study attempts to assess and analyze the impact of R.A. 7641 to both labor and capital in a globalized business setting. The study examined both the policy content and the policy impact by looking at the relationship of age group to the incidence of workers termination, the bulk of retrenchment cases decided by NLRC and Supreme Court, and a workplace scenario in analyzing a specific case of one company who had volumes of retirement cases in court. The paper posit a hypothesis that the continued mandate of the law will only cause trigger to capital, to terminate employees approaching retirement age, just to avoid the giving of benefits. This can be manifested through legal and illegal options. The legal option is through the use of labor flexibility, which they termed as companys best practices while; the illegal options results to illegal dismissals. The study concluded that the implementation of the Act has the logical implications on the increasing trend of termination/retrenchment of workers, especially when workers are approaching the age of retirement. The companies response to the mandate of law can be shielded by management prerogatives and globalization pressures to the detriment of old age loyal employees. The paper suggested some amendments to the Act to make it effective and implementable. This is in order to carry out the Constitutional wisdom of law for the workers to have a just share to the companys fruit of production, which is their investment during the best years of their lives.

Foreign StudiesAt What Age Do You Expect to Retire? Retirement Expectations and Increases in the Statutory Retirement Age.Coppola, Michela and Wilke, Christina Benita, 2014AbstractWe analyse the extent to which an increase in the statutory retirement age affects individuals' retirement expectations. Understanding how individuals adjust their expectations is crucial to the evaluation of this policy, since retirement expectations directly affect other important decisions such as labour supply, engagement in (further) education and, of course, savings and investments. We consider the 2007 German pension reform that legislated an increase in the statutory retirement age from 65 years to 67. Our analysis is based on a longitudinal study that directly asks respondents at what age they expect to retire. Using a difference-in-differences approach, we look at the changes in subjective retirement expectations over time and estimate the extent to which they can be attributed to the 2007 reform. We find that the reform shifted the retirement expectations of the younger cohorts, although there is some heterogeneity in the way individuals adjusted. While there are no significant differences between men and women, lower-educated individuals failed to revise their expectations. As these individuals usually acquire both lower pension claims and lower private savings, the fact that they have been slower in updating their retirement expectations causes concern regarding their income security after retirement.

The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension PlansNing Tang and Olivia S. Mitchell, 2008Abstract Few previous studies have explored whether defined contribution retirement saving plans offer sufficiently diversified investment menus, though it is likely that these menus significantly shape workers accumulations of retirement wealth. This paper assesses the efficiency and performance of 401(k) investment options offered by a large group of US employers. We show that most plans are efficient compared to market benchmark indexes. Three performance measures underscore the fact that these plans tend to offer a sensible investment menu, when measured in terms of the menus mean-variance efficiency, diversification, and participant utility. The key factor contributing to plan efficiency and performance has to do with the types of funds offered, rather than the total number of investment options provided.

Participation and investment decisions in a retirement plan: the influence of colleagues choicesEsther Duflo , Emmanuel Saez, 2002Abstract

This paper investigates whether peer effects play an important role in retirement savings decisions. We use individual data from employees of a large university to study whether individual decisions to enroll in a Tax Deferred Account plan sponsored by the university, and the choice of the mutual fund vendor for people who choose to enroll, are affected by the decisions of other employees in the same department. To overcome the identification problems, we divide the departments into sub-groups (along gender, status, age, and tenure lines) and we instrument the average participation of each peer group by the salary or tenure structure in this group. Our results suggest that peer effects may be an important determinant of savings decisions.

SynthesisAccording to the article Pensions in the Philippines Ways Forward the schemes used by the government lacks coordination, so the coverage of the labor and the elderly are low. Furthermore, 22 35% only of the members contribute and the aging population increases that result to a low proportion on the number of contributors to the number of present pensioners leading the government to have debt and making them to have difficulty, funding the pensioners. Knowing that the pension isnt enough, people are now finding ways on how to be financially secured for the future. On Epras article on 2011, he listed down some of the common investment options to educate and help people to save. According to the article of B.A. Tannahill (2014), income replacement ratios are often used as a guide to how much clients should save for retirement. Individuals who behave exactly the same manner of investing over their careers can experience very different outcomes based only upon the specific sequence of investment returns that accompanies their careers and retirements (W.D. Pfau, 2013). Both articles can be useful for financial professionals in advising a better investment decision for their clients.According to the study of Coppola, Michela, et.al, (2014) the statutory age of retirement affects one individuals retirement expectation. Since retirement expectations directly affect other important decisions such as labour supply, engagement in (further) education and, of course, savings and investments. While there are no significant differences between men and women, lower-educated individuals failed to revise their expectations. As these individuals usually acquire both lower pension claims and lower private savings, the fact that they have been slower in updating their retirement expectations causes concern regarding their income security after retirement. Another study by Ning Tang and Olivia S. Mitchell in 2008 indicates that most investment plans are efficient compared to other market benchmark indexes. The key factor contributing to plan efficiency and performance has to do with the types of funds offered, rather than the total number of investment options provided. Another study by Esther Duflo , Emmanuel Saez in 2002 indicates that the peer effects or the influences of colleagues choices in the participation and investment decision of a retirement plan is one important determinant of savings decisions. The article examines the Retirement Plan for workers in the Philippines. Several factors affect the preference of workers on choosing Retirement Plans, such as retirement savings attitude, financial knowledge and demographic variables. However, according to M.B. Mandigma (2014), theres no significant correlation between the retirement plan preference and the savings attitude, financial literacy and demographic variables to give ample protection for workers who are not covered by retirement contract. The government implements RA 7641 or the New Retirement Law. Furthermore, according to the study of C. V. Cabadonga (2011), that the implementation of the act has the logical implications on the increasing trend of termination of retirement of workers, especially when workers are approaching the age of retirement. The companies response to the mandate of law can be shielded by management prerogatives and globalization pressures to the detriment of old age loyal employees. Cabadonga suggested amending The Act to make it effective and implementable.