The country’s economic managers have recommended to President Duterte that the congressional proposal for a two-step, across-the-board increase of P2,000 in the Social Security System (SSS) monthly pension be made contingent on a corresponding adjustment in the contributions of employers, employees, self-employed individuals and volunteer members to save this pension fund from bankruptcy.
In a Dec. 15 memorandum to the President, Secretaries Carlos Dominguez III and Benjamin Diokno of the Departments of Finance (DOF) and of Budget and Management (DBM) along with Director-General Ernesto Pernia of the National Economic and Development Authority (NEDA) fretted that without an accompanying “upward adjustment or restructuring of the contribution rate,” the proposed pension hike would unduly jack up the unfunded liabilities of the SSS from P3.5 trillion to P5.9 trillion.
If approved, this congressional proposal “may adversely affect the Republic’s credit rating,” said the three Cabinet secretaries in their memo to Mr. Duterte, and the “SSS would be bankrupt and left with no funds for other members in the future.”
Although the government is ready to keep the pension fund viable by way of a subsidy in case the SSS finds itself in dire financial straits, the three secretaries stressed that this should merely be a “last resort,” because it remains the primary responsibility of member-employees and their employers to keep it afloat not only for their benefit but for future generations of members as well.
Given that “government subsidy only introduces undue fiscal burden to taxpayers,” they pointed out in their joint memo that “the public must not be made to carry the burden of the increase which benefits only privately employed individuals.”
The three secretaries were reacting to a proposal by the Congress, as contained in Joint Resolution No. 5 of the Senate and Joint Resolution No. 10 of the House of Representatives, for the SSS to implement a staggered P2,000 across-the-board increase in its monthly payments to member-pensioners now numbering 2.2 million—the first tranche of P1,000 to be given starting in January 2017 and another P1,000 in January 2019.
Without a corresponding increase in member contribution, the three secretaries said the congressional proposal would cut the actuarial life of the pension fund by 14 to 17 years from 2042 to 2025-2028 because the SSS will have to cough up an additional P32 billion annually to cover the initial P1,000 hike and P62 billion for the entire P2,000 increase in monthly payments.
“While we recognize the thrust of the joint resolution to promote the well-being of the country’s private sector retirees……any increase in pension without increasing member contribution and expanding its membership base would introduce severe fiscal issues, and should be discouraged,” they said.
“We strongly recommend that any improvement in pension benefits be accompanied by an upward adjustment or restructuring of the contribution rate from employee members and their employers, as well as self-employed and voluntary members,” they said. “We do not believe it is unfair to ask for this increase as pensions have increased 22 times while the contribution rate has only increased three times since the establishment of the rates in 1980.”
“This proposed resolution is foreseen to cut the actuarial life of the fund by 14 to 17 years from 2041 to 2025-2028 and will result in approximately P64 billion additional pension every year” to an estimated 2.2 million pensioners, they said. “This has detrimental effects to the financial position of SSS and the viability of its business model.”
According to the House resolution proposing the P2,000 pension increase, there are at least 33 million members of the SSS and 2.2 million retirees currently receiving pensions.
To save the SSS from going bankrupt and enable it to continue providing the mandated benefits to other members who are not yet entitled to monthly retirement payments, the three secretaries recommended to President Duterte an increase in the member contribution from the current 11 percent to 17 percent upon the implementation of the Congress-proposed across-the-board pension hike.
And to cushion the effect of their proposed adjustment in the monthly contribution of SSS members, the three secretaries recommended to the President that the first tranche of the P2,000 monthly pension increase be moved back and carried out once the Congress approves the first package of the Comprehensive Tax Reform Program, which provides for sizable cuts in the income tax payments of low-income workers.
This tax reform package on income tax cuts with accompanying revenue measures was submitted by the DOF to the Congress last September.
“We suggest implementing an increase in benefits when we launch the personal income tax reform,” they said. “This is the ideal way to move forward as it will be the correct time to consider an increase in benefits to ensure that the financial burden of additional contribution by members will be offset by a decrease in the personal income tax.”
“We believe matching additional benefits with increase in contribution is the best action Government can take from a fiscally sound and equitable standpoint,” they said in noting that the proposed pension hike would “benefit only 2.2 million pensioners while the rest of the taxpayers will need to bear the fiscal burden that it will result to.”
The three secretaries informed the President that “an initial P1,000 across-the-board increase to P4,200 will result in a 31.25 percent increase in the average basic monthly pension of SSS pensioners.”
“This is equivalent to more than P32 billion additional pension benefits that SSS has to pay,” they said. “Moreover, a P2,000 across-the-board pension increase to P5,200 will result in a 62.5 percent increase in average basic monthly pension and is equivalent to P64 billion additional pension benefits.”
Citing an SSS study, they said “the SSS Reserve Fund which is tapped when contributions of SSS members are not enough to cover the benefit payments made to its members, is currently projected to last until 2042 (26-year life). This proposed resolution is foreseen to cut the actuarial life of the fund by 14 to 17 years from 2042 to 2025-2028.”
As provided in Section 21 of Republic Act No. 8282 (SSS Act of 1997), the Republic of the Philippines “accepts the general responsibility for the solvency of the SSS, but while Government accepts this as a contingent liability, it is important that members and their employers take primarily responsibility for making SSS stable and viable not only for the immediate generation of pensioners but also for the next generations.”
“Government subsidy, while ready to make our social system viable when it fails is primarily a fund of last resort—not to be used as an excuse for projects or regulations that are financially unsustainable and unviable to begin with,” they added.
