Salceda bill pushes pension reforms for uniformed services

By Julie M. Aurelio, 2 May 2021

A House official has filed a bill to fix the pension system for military and other uniformed personnel (MUP) as it faces an “imminent existential threat” because its current funding will be “unsustainable” if no reforms were made soon.

Albay Rep. Joey Salceda, the House ways and means panel chair, said the MUP pension system would likely have a P9.6-trillion unfunded reserve deficit, which is the difference between the required and the current funding levels.

“Because of long-standing issues in the design of the system, however, the MUP pension is facing an imminent existential threat,” Salceda said in the explanatory note to his House Bill No. 9271, which he filed on April 29.

“The possibility that the State will be unable to meet the funding requirements of the MUP pension is real, and its signs are now evident,” he added.Since 2018, funding for MUPs in the national budget has exceeded the maintenance and other operating expenses for the uniformed services, he said without providing comparative figures.

System ‘weaknesses’

One reason for the deficit, he said, was that MUPs were not making mandatory contributions for their pension, unlike civilian government employees, who contribute monthly to the state pension fund, the Government Service Insurance System (GSIS). The MUP pension fund is subsidized through annual appropriations in the national budget, Salceda said.The money set aside in the national budget for pensions for MUPs and veterans amounted to about P90.9 billion in 2018, P87.6 billion in 2019, P81.2 billion in 2020 and P129.7 billion in 2021.MUPs refer to uniformed personnel in the Armed Forces of the Philippines, Philippine National Police, Philippine Coast Guard, Bureau of Fire Protection, Bureau of Jail Management and Penology, Bureau of Corrections and the hydrography branch of the National Mapping and Resource Information Agency.

Salceda said the P9.6 trillion figure came from an actuarial study by the GSIS which showed that that amount was needed to cover future obligations to active MUPs and current pensioners.

He said the pension system’s “most significant weaknesses” were that the amounts of pension were indexed to the salaries of active personnel; that MUPs were entitled to a retirement pension at 20 years of service, even before reaching retirement age; and that the pension fund was noncontributory.Adding details, Salceda on Saturday told reporters that as of December 2019, there were 402,086 active MUPs, 196,004 regular pensioners and 93,172 survivorship pensioners, or beneficiaries of those who had died.

The average regular pension was P39,520, nearly the same as the average salary of P39,687, an amount that is nine times the average pension under the Social Security System and three times the average GSIS pension, he said in a Viber message to reporters.

The government raised the monthly base pay for a private in the armed forces and the lowest ranking police officer to P29,668 from P14,834 effective on Jan. 1, 2019.

Looming crisis

In his explanatory note, Salceda said there was “a looming fiscal crisis” ahead for the MUP pension system.

“Without reforms, funding the pension scheme will become fiscally unsustainable, shrinking the economy by as much as 7.2 percent in the long-run. This is worse than what the economy sustained in the 2004 fiscal crisis and the 2008 global financial crisis,” he said.

If the reforms are not implemented, “chances are we won’t have salary increases for uniformed personnel because the pension is linked with their salaries.”

“It’s unfair to our active service members that we can’t guarantee their pensions. Inaction on this matter will be very bad for everyone… We have to act now, while Congress has the resolve to do it,” Salceda said.

HB 9721 or the “Saving the MUP Pension Act of 2021 proposes several key reforms, which are supported by the Department of Finance (DOF). These are:

• Mandatory contribution of 21 percent of the MUP’s gross salary, similar to that of civilian government employees.

• Setting the pensionable age to 56 years old, regardless of years of service, instead of the accumulation of at least 20 years of satisfactory active service.

• Discontinuation of automatic indexation of pension payments, which can be periodically reviewed and increased to a maximum of 1.5 percent per year.

• Basing MUP pension on the actual rank upon retirement.

• Using assets of the military and uniformed services and other government properties to supplement the budget for pension;

• Creating the MUP trust fund committee to govern the fund and designating the GSIS as manager of the trust fund;

• Allowing tax exemptions on the trust fund and applying all GSIS tax exemptions on the trust fund, as long as the GSIS remains its fund manager; and

• Authorizing the trust fund committee to create insurance products that specifically cater to the unique risks that uniformed personnel take.

Two options

In addition, retired MUPs are eligible and may choose from two optionsʖa gratuity pay worth one month of base and longevity pay of the permanent grade level for every year of service, payable in one lump sum or a monthly retirement pay worth 2.5 percent for each year of active service, but not exceeding ninety percent of the monthly base and longevity pay of the permanent grade level last held.

The bill also provides for survivorship benefits for qualified survivors of deceased, retired MUPs worth 75 percent of the MUP’s monthly retirement pay; benefits for death, total permanent disability in line of duty, battle casualty, disability pension, etc.

The Trust Fund Committee, which will govern the pension fund, will be composed of the DOF secretary as chair, and secretaries of the Department of Budget and Management, Department of the Interior and Local Government, Department of Justice, Department of National Defense, the GSIS president and general manager, and the executive secretary as members.

“My proposal will help ensure that those killed in action or hurt in the line of duty will get bigger compensation. That’s the benefit of having contributions. We can compensate risks better,” Salceda said. —WITH A REPORT FROM INQUIRER RESEARCH INQ