Pension amount depends on the monthly salary credit and number of contributions

MY good friend Manong Max Edralin, a well-known pillar in the public-relations industry, once asked me how come he was getting a modest retirement pension from the Social Security System (SSS), considering that he was once a high official of Citibank N.A., where he worked for almost 20 years before retiring in 1991.

When I explained to him that the amount of pension a person receives is highly dependent on the monthly salary credit (MSC), which is the basis of his or her contributions and the number of contributions that one has paid, he fully understood and advised me to encourage members to contribute based on the highest salary credit and for as long as they can if they wish to receive higher pensions in the future.

The SSS charter provides three ways to compute pensions, and the highest resulting amount is the one granted to the claimant. The three methods are:

P300, plus 20 percent of the average MSC, plus 2 percent of the average MSC for each year in excess of 10 years.
Forty percent of the average MSC.

Minimum guaranteed pension of P1,200 if the credited years of service (CYS) are greater than 10 years, but fewer than 20 years; or P2,400 if the CYS is at least 20 years.

As can be observed from the formulas, the critical factor is the MSC: the higher the MSC, the higher the pension amount will be. There was a time when the highest MSC was only P1,000, even though salaries were much higher than that. The maximum MSC was then raised to P3,000 in 1987, then gradually increased by P1,000 starting 1991 until it reached P15,000 in 2003 and P16,000 in January this year. This means that a worker, whether he or she earns P16,000 or more, will only be assessed on the basis of the P16,000. As such, the pension, as computed by the above formulas, will be a specific amount, increasing only by the additional percentage due to the length of the service.

The rationale behind the move for an increase in the MSC was to allow pension amounts for future pensioners to become significantly bigger. The P1,000 increase in the MSC will require higher contributions now, but will undoubtedly improve benefits by at least 7 percent. This is expected to affect some 2 million SSS members and provide opportunity for others who will gradually be moving up the higher MSC levels.

Going back to Manong Max’s case, the MSC during the last five years of his employment ranged from P3,000 to P4,000 only, which accounts for his rather small pension amount. Considering that he has been receiving his pension for more than 20 years now, he has long beaten the system and has gotten much more than his money’s worth. –Susie G. Bugante, Businessmirror