DOF backs planned overhaul of military pension system

by Czeriza Valencia (The Philippine Star), 9 May 2021

MANILA, Philippines — The Department of Finance (DOF) will rally support this year for the passage of proposed reforms in the pension system of the military and uniformed personnel (MUP).

Finance Secretary Carlos Dominguez has directed the department’s Strategy, Economic and Results Group (SERG), led by Finance Assistant Secretary Juvy Danofrata, to assist the Treasury in gathering support from stakeholders and lawmakers for the revamp of the MUP pension system.

“This year, Secretary Dominguez directed SERG to assist the Bureau of the Treasury (BTr) in providing and generating support for the DOF’s proposed reforms in the military and uniformed personnel pension system,” DOF said in a statement.

The SERG extends technical support to lawmakers in tax reform measures and in pandemic response measures such as the two Bayanihan laws and the Small Business Wage Subsidy Program.

The BTr, which led the drafting of the pension reform bill, said reforming the MUP pension system would ensure its fiscal stability while sustaining the provision of fair retirement benefits for those covered by the system.

The bill has been filed in the House of Representatives by Albay Rep. and House Ways and Means Committee chair Joey Salceda.

The current MUP pension system is non-contributory, and as such, retirement pensions and benefits are fully funded by the government through annual appropriations.

According to an actuarial study conducted by the Government Insurance System (GSIS), the system needs a total funding requirement of P9.6 trillion to cover future obligations to active members and current pensioners.

If the system fails, the government will be required to allocate around P850 billion to the pension fund for the next 20 years.

Adding pressure to the sustainability of the fund is the option to avail of early retirement after at least 20 years of service, ahead of the mandatory retirement age of 56.

Monthly pension of retirees are also automatically indexed to the salary of the next in rank in the active service. Hence, salary adjustments for active personnel increase the funding requirement for retirees.

The proposed reform imposes a mandatory contribution of 27 percent of the base pay plus the longevity pay.

The minimum age for accessing pension benefits will be raised to 56 years.

Also proposed is the automatic indexation of pension payments but this will be reviewed periodically and may be adjusted to a maximum increase of 1.5 percent annually.

To ensure the judicious use and management of the retirement fund, a new entity will be established to serve as the fund administrator, while the GSIS will serve as the fund manager.

As an additional source of funding, proceeds from the sale and lease of assets of the MUP will go to the pension fund.