Staggered pension increase proposed by new SSS chief

The new chairman of the state pension fund Social Security System (SSS) has revived, with some changes, the proposal to stagger the implementation of the long sought-after P2,000 pension increase for SSS retirees without depleting the fund.

The original offer for a “staggered implementation” of the proposed P2,000 pension increase came from Congress, in an effort to mollify the public after then-President Benigno S. Aquino III vetoed the pension hike. Aquino said then that without any complementary legislation replenishing the cash outflow, the pension increase would dissipate the state pension fund by 2025 if the contributions were not raised.

SSS Chairman Amado Valdez proposed to carry out the pension hike initially with a P1,000 across-the-board pension (ATBP) increase next year.

This would be followed by another P1,000 ATBP in 2022—or earlier—but that this should be accompanied this time by legislative interventions to replenish the fund.

Valdez presented the proposal to members of the House Committee on Government Enterprises, chaired by North Cotabato 1st District Rep. Jesus Sacdalan, during a new hearing on the proposed pension increase for retired SSS members.

SSS officials said that based on consultations conducted by the pension fund, some sectors were amenable to the implementation of a P1,000 ATBP plan. The Social Security Commission, the agency’s highest policy-making body, also expressed support for the initiatives to grant the pension increase, Valdez said.

During the hearing of the House committee hearing, Valdez said the SSS was leaning toward the P1,000 initial pension increase while he urged Congress to pass “impact legislations” to shore up the pension fund.

Valdez said that without a funding support, Congress could be accused of appropriating funds that are private in nature through a legislated pension increase.

Valdez, a former dean of the University of the East College of Law, said the constitutionality of a legislation “appropriating a private fund” might be questioned by SSS members for whom the current funds are obligated.

“We understand the need for higher SSS pensions. However, merely mandating to grant an across-the-board pension increase without any mention of how exactly the system will sustain it over the long term may not suffice,” Valdez said.

A total of 19 different bills have been filed in the House and the Senate, 13 in the former and six in the latter, on the proposed SSS pension hike. But none of the bills offered any source of funding to sustain the additional benefits that are estimated to amount to billions of pesos every month.

“SSS is a defined-benefit system so the current fund is obligated to its present members who are entitled to six types of benefits based on qualifying conditions. Widening the base for contribution collection is a short-term solution but the fund will eventually dry up by 2025 because right now, the return for every peso of contribution is P16 on the average,” Valdez said.

“As trustees of the pension fund, we have a contractual obligation to our members to ensure that they would receive the benefits that they are entitled to any time during their membership with the pension fund,” Valdez said.

Valdez told the House committee hearing that the SSS was committed to address the gaps in the implementation of its benefit program.

Implementing the P2,000 pension increase, for instance, would cost the fund an additional P56 billion on the first year alone to pay for the 12 monthly pensions and the 13th month pensions of more than 2 million SSS pensioners.

SSS pension releases grew at an average rate of 8 percent annually for the last five years.

Based on results of actuarial studies presented during the legislative meetings, SSS recommended the corresponding increase in contribution rate, government subsidy or a combination of both as options for funding the pension increase.

Unlike the Government Service Insurance System (GSIS), which applies its 21-percent contribution rate on the entire income of public-sector employees every month, SSS implements a much lower 11-percent contribution rate that covers a maximum monthly income of only P16,000.

“From 1980 to 2002, SSS pension increases of up to 20 percent were implemented a total of 19 times, sometimes even twice within the same year, while the contribution rate remained pegged at 8.4 percent for the same 23-year period that shortened the life of the fund,” Valdez said.

He cautioned against repeating the mistakes of the past.

Valdez added the SSS was looking at investing in infrastructure as a source of additional revenues to allow higher pensions and benefits as its membership and beneficiaries grow.

Valdez said SSS members, who comprise the working class, would have the opportunity to take part in the investment economy and experience owning a road-development project that would generate lifetime earnings.

Valdez added that individually, SSS members have financial limitations that prevent them from participating in investment activities.

“But through the pooled contributions of SSS members, we harness a powerful tool to empower them to become vital players in investing for road-development projects that have been largely dominated by large companies,” he said.

The SSS charter allows the agency to allot up to 30 percent of its investment reserve fund for domestic infrastructure projects such as roads, bridges, ports and telecommunications as long as these come with a government guarantee and would prioritize SSS in the distribution of earnings.

“Beyond our primary aim of enhancing SSS revenues so that the fund can provide higher benefits, investing in infrastructure also has a multiplier effect that can boost national economic growth. Having better roads in terms of quality and reach helps promote local tourism and commerce,” Valdez said.

SSS took its cue from a similar move by the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan, two of the largest Canadian pension funds, which earlier this year partnered with a Mexican infrastructure company for a toll-road development project in Mexico.

Valdez said the SSS is open to a public-private partnership (PPP) arrangement that fully complies with the requirements set by the Social Security Act of 1997, which is also known as the SSS charter.

The law provides strict guidelines to ensure the safety, liquidity and good yield of SSS investments.

“We plan to make it compulsory for PPP proponents to reserve for SSS the right of first refusal to 25 percent equity participation,” Valdez added.

Valdez said the SSS charter also needs amendments like the reassessment of investment-ceiling limits to allow more flexibility and enable SSS to be more responsive to the current market landscape, as compared to two decades ago when the Social Security Law was enacted.

“Finding more ways to further improve SSS financial viability and giving more meaningful benefits are among the reforms we plan to pursue under the current administration,” he said.

He added that generating revenues from innovative investments is one of the options being considered “especially now that the challenge to improve the administration of our pension program is being discussed.”

SSS manages an investment portfolio valued at P470.14 billion, as of September 2016. Government securities account for the largest share at 39 percent or P180.46 billion, followed by equities at 24 percent or P111.22 billion and member loans at 18 percent or P85.93 billion.

Apart from enhancing the fund’s long-term viability and benefit levels, SSS also aims to improve the automation of its procedures and other aspects of SSS operations to deliver better services to members. LUIS LEONCIO