Economic execs block SSS pension hike plan

THE issue of the planned Social Security System (SSS) pension increase for retirees is not over yet.

Latest reports showed that the administration’s economic managers are against the proposal for a two-step, across-the-board increase of P2,000 in the SSS monthly pension which Congress, through a joint Senate and House resolution, has approved for launch next month.

The economic officials in the Cabinet, it was learned, want the pension increase made contingent on a corresponding adjustment in the contributions of employers, SSS employees, self-employed individuals and volunteer members to save the state pension fund from bankruptcy.

Without an accompanying “upward adjustment or restructuring of the contribution rate,” the
 proposed pension increase would unduly hike the unfunded liabilities of the SSS from P3.5 trillion to P5.9 trillion, and push the state pension fund to bankruptcy, said Finance Secretary Carlos Dominguez III, Budget Secretary Benjamin Diokno and Socio-economic Planning Secretary Ernesto Pernia in a Dec. 15 memorandum to President Duterte.

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 memorandum recommended an increase in member contributions from the current 11 percent of a monthly salary to 17 percent, upon the implementation of the Congress-proposed across-the-board pension hike.

Social Security Commission (SSC) Chairman Amado Valdez said the SSS management had identified several measures to mitigate the impact of the benefit increase, which it hopes to implement starting with the P1,000 initial across-the-board pension increase targeted for 2017.

Valdez said the present SSS management has a game plan to ensure that the pension fund can absorb the initial P1,000 pension increase.

He said the SSS welcomes the idea of raising the SSS contribution rate that the economic managers had sought but stressed that its impact on contributing SSS members and employers should be minimized.

Plans to raise the SSS contribution rate “should be implemented in stages, raising it by only 1.5 percent at a given time.”

As for the maximum monthly salary credit (MSC), we support increasing it to P20,000 to better reflect the present wages of SSS members and enable them to save up more for their retirement, Valdez said.

SSS members currently contribute 11 percent of a maximum MSC or income of only P16,000 per month.

In comparison, public-sector workers covered by the Government Service Insurance System (GSIS) contribute at a much higher 21-percent rate applied to their entire monthly income.

Valdez said increasing the 11 percent SSS contribution rate and raising the P16,000 maximum MSC are just part of the various measures that the institution was considering to strengthen the fund’s capacity to absorb the impact of the P2,000 pension increase.

“With the guidance of the SSC, we urge SSS management to work on increasing the present rate of return on investments (ROI) to 15 percent to 20 percent from the current six percent through innovative investments to bolster SSS income and give additional buffer for implementing the pension increase,” Valdez said.

SSS is looking at investing in infrastructure projects such as toll roads and railways under Public-Private Partnerships (PPP) to provide SSS a stable and safe source of income that will be covered by government guarantees.

These investments will also help spur economic development in the country.

“SSS seeks to gain ownership of up to 25 percent in utility corporations, so that even in times of power and water rate hikes, our members who comprise the working class will still benefit from the revenues generated from such increases,” Valdez said.

SSS is also eyeing joint ventures with developers to maximize the gains from SSS-owned assets such as its five-hectare property at the corner of EDSA and East Avenue in Quezon City.

“Given the property’s prime location, we can generate regular earnings from building a high-rise structure with residential and commercial units for sale and lease. We can also earn from charging fees for the use of parking space in the same building and simultaneously help ease heavy traffic in the area,” he said.

To cushion the effect of their proposed adjustment in the monthly contribution of SSS members, however, the three secretaries recommended to the President that the first tranche of the P2,000 monthly pension increase be moved back and carried out only after 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 Finance department 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,” they added.

“We believe matching additional benefits with increase in contribution is the best action the government can take from a fiscally sound and equitable standpoint,” they said in noting that the proposed pension increase would “benefit only 2.2 million pensioners while the rest of the taxpayers will need to bear the fiscal burden that it will result in.”

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,” according to the economic managers.

The 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.”

In the previous administration, the economic managers also prevailed on then-President Aquino to veto a bill raising the SSS pensions on the same argument.

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 letter stated 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 that benefits only privately employed individuals.”

The three secretaries were reacting to a proposal by the Congress, as contained in Joint Resolution 5 of the Senate and Joint Resolution 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 the other P1,000 in January 2019.

Without a corresponding increase in the members’ contributions, the memo 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 increase 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,” the three officials 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,” they added in the memo.

“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,” they added.

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.

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 the 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. Luis Leoncio