Pension pains

More than a month ago, President Benigno Aquino III vetoed House Bill 5842 which proposed to increase the monthly pension of Social Security System pensioners by P2,000. The President defended his decision stating that supporting the bill will result in shortening the system’s fund life.

This unpopular decision caused the outrage of retirees even prompting them to protest for the override of the veto. They could not believe the institution cannot afford such a meager increase. How much exactly does a pensioner receive from the SSS?

For a member to start receiving retirement benefits from the SSS, he must be at least 60 years old and separated from employment. Underground mineworkers can retire earlier at 55 years old with at least five years of underground work. The member must have also paid at least 120 monthly contributions prior to the semester of his retirement.

The amount of monthly pension depends on the member’s paid contributions, credited years of service (CYS) and the number of his dependent minor children that must not exceed five. Allowances for dependents are computed separately. For purposes of computing the monthly pension the member-retiree will receive, the SSS will obtain the highest resulting amount among the following formulas:

1. The sum of P300 plus 20 percent of the average monthly salary credit (AMSC) plus two percent of the AMSC for each credited year of service (CYS) in excess of 10 years

2. 40 percent of the AMSC

3. P1,200, if the CYS is at least 10, but less than 20 years or P2,400, if the CYS is 20 or more years

The reality for many of today’s retirees is receiving the fixed minimum pension of P1,200 or P2,400, as they have completed paying the 120 monthly contributions at the minimum rate. Retirees who were employed or were self-employed for a longer period of time are likely to have varying amounts of pension, depending on how long they have been contributing to the system.

Take this for example: Member A is employed by a private company and has been paying the maximum contribution of P1,790 since he was 21 years old. By the time he retires at 60 years old, he would have contributed the total of P837,720 (P272,048.40 paid by him and P565,671.60 paid by his employer). Using the formulas above, he will receive P12,780 in pension.

Member B, who is self-employed, has also been paying his contributions voluntarily since he was 21 years old. However, he started by paying only the minimum contribution and gradually moved up the salary credit brackets until he reaches the age of 55 when he will start paying the maximum amount. When he retires at 60, he would have contributed the total of P168,410 and would also receive P12,780 in pension.

Members A and B contributed to the system for 39 years which is also the total number of their CYS. Even though the members differed in salary brackets for the first 34 years, it did not matter in the computation of pension as the AMSC considered for both of them is only the last five years at the maximum salary credit bracket of P16,000. This resulted in the same amount of pension for both members.

Not even considering the portion paid by member A’s employer, there is already a significant difference in the contributions of members A and B, yet they receive the same amount of pension. On the one hand, this could be an area of evaluation for the Social Security Commission if they are keen on increasing collections and ensuring that members receive retirement benefits equitably but on the other hand, would-be pensioners who are self-employed can also use this loophole in the system to work for their benefit.

An essential component in the formula is the AMSC which at the moment is pegged at P16,000. The basis for the AMSC is the last 60 months of a member’s contribution. Thus, contributions made prior to the last 60 months have no effect on the final computation of pension.

As the majority of us would agree that the monthly pension of P12,780 would not be sufficient for a comfortable retirement, it would be sensible to have another retirement plan to rely on. However, for members who do not have this option, the crucial action is to pay attention on the basis of the AMSC and ensure they are contributing the highest that they can in order to receive the best possible retirement benefit the SSS can provide at its current capacity. –Jozette Issel Dizon (The Philippine Star)