Pricier premiums for social security

Talk of the proposed increase in Social Security System’s contribution rate from 10.4 percent to 11 percent begins to gather steam, with mounting objection from members and businesses; and amid soaring prices of basic commodities and rising unemployment.

Announced early last year, the plan to collect more from its members and employers via increased contribution rate and maximum salary credit is necessary, the SSS claimed. Doing so “would add seven years of SSS fund life and enable the SSS to provide higher benefit amounts to its members and pensioners,” SSS explained in its 2011 year-end report.

Discounting other factors such as the size of SSS assets, operational efficiency, and returns on investment using the SSS fund – the foregoing may appear to be a plausible justification, except that SSS chief Emilio de Quiros Jr. has been making bolder assertions.

De Quiros Jr. believes that the only way to increase or enhance member benefits (pensions included) is by increasing premium payments by fund members and employers.

“Since SSS members currently pay a pittance in premiums, so they get a pittance in benefits…You want more benefits, pay more premiums. It’s as simple as that,” de Quiros Jr. was quoted as saying recently.

Such pronouncement by the SSS chief may be construed as contrary to the law on social security.

Section 4(b) of R.A. 8282, or the Social Security Act of 1997 empowered and put the SSS to task “…to provide for feasible increases in benefits every four years, including the addition of new ones,…Provided, That the actuarial soundness of the reserve fund shall be guaranteed: Provided, further, That such increases in benefits shall not require any increase in the rate of contribution.”

Nonetheless, de Quiros Jr. suggests that once approved, the increase in the contribution rate and MSC should raise pensions to members by at least 10 percent of the current levels.

Fund overview

The ILO defined social security as “the protection which society provides for its members, through a series of public measures, against the economic and social distress that otherwise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment, injury, unemployment, invalidity, old age and death; the provision of medical care; and the provision of subsidies for families with children.”

The SSS is but one of such social insurance mechanisms, along with GSIS and PhilHealth, from a pool of contributory and non-contributory social security government programs.

The Social Security Law of 1957 created the SSS “tasked to implement social security protection for workers in the private sector in times of contingencies such as death, disability, old age, sickness and maternity.”

“In 1997, Republic Act 8282 further strengthened the SSS and enabled it to give substantial increases in social security benefits, expanded its coverage, increased its flexibility with respect to investments, provided for stiffer penalties for violators of the law, and established a voluntary provident fund for members,” wrote Dr. Rosario Manansan in her 2009 paper.

As of end-November 2011, the SSS reported a total of 29.2 million members, with P79 billion in contribution collections; P76 billion of which went to benefit payments for the same period. It said it was managing P320 billion worth of assets, with income from investments amounting to P27 billion. SSS said 2011 was another landmark year in terms of financial performance, as its net revenue already hit P23 billion.

Its income and benefit payments have been steadily rising since 2004; with positive net results totaling P115.79 billion for the years 2004-2010, based on Commission on Audit reports.

“For almost a decade now, the SSS has slowly but surely treading the path towards reforms that will effectively extend the life of social security fund to perpetuity,” it said.

The need to collect more

Despite these positive developments, SSS contends that the current estimated actuarial life of the pension fund is 27 years or up to 2039, when ideally it should reach 70 years. The proposed measure will add but seven years to the fund’s actuarial life.

In a letter-reply to Employers Confederation of the Philippines, de Quiros Jr. cited the improved life expectancy among SSS members, the declining ratio between contributors and pensioners, and trends in social security programs abroad as grounds for the proposal.

The SSS may have 29 million members, but SSS said only about one-third are paying their contributions on a regular basis.

The recent spike in unemployment as revealed by the Social Weather Stations survey in December 2011 only aggravated the scenario as it could possibly result to a decline in collections of member contributions.

Meanwhile, 2009 estimates by the Organization for Economic Cooperation and Development pegged “the contribution rate required to maintain the system in steady equilibrium (in balance over the next 40 years) to be about 20 percent,” according to Manansan; virtually the same level required by the GSIS from its members at 21 percent.

The SSS said it is targeting a contribution rate of 15 percent, to be implemented in small increments, and to be equally shared by the employer and employee.

Objections, skepticism

The planned increase in contribution rate and MSC has elicited mixed reactions from members and employers.

Retirees naturally welcomed the idea of increased monthly pension, but many were not as receptive, especially those at the lower income spectrum. Probably unaware of the fund’s income-redistribution feature, they see the initiative less of a welfare and more of a burden; just another deduction to their meager incomes.

Employer responses, on the other hand, have been more uniform and predictable, especially since the burden of the 1-percent contribution rate increases in 2003 and 2007 were both absorbed wholly by the employers.

ECOP has expressed its “strong reservations on any increase in contributions given the volatile economic situation, the capacity of employers and employees to absorb the increases, and its overall impact on the economy and viability of businesses.”

Same employer sentiments were reported elsewhere in the country, as the measure will raise their cost of doing business, and could further pull down the country’s competitiveness.

Ron Sumera, a mid-level officer in a business process outsourcing unit, shares his views:

“Personally I think [the increase] is fairly reasonable. Let’s face it, my father used to receive a pension not even adequate to cover his basic needs. I don’t want to be in that predicament, assuming I get to live that long,” said Sumera.

“But they [SSS] should better manage the members’ money well. No corrupt or unethical practices please. Those at the top, will you please stop raising money for yourselves using the people’s money? Can you please invest our money wisely so as to maximize the returns?” he asked.

Sumera said he appreciates the social dimension of the SSS fund use, such as investments in public infrastructures; but unable to hide his disdain over reports “that the fund is sometimes politicized and used in sweet deals in favor of another individual, party or entity separate from the members of SSS.”

Still years from retirement, Sumera finds it odd though that he has “to borrow his own SSS contributions and pay charges and interest for it.”  –Christian Cardiente, Manila Standard Today