IN EXCHANGE to the proposed P2,000 two-step, across-the-board increase in the Social Security System monthly pension, its members should raise their contributions from the current 11 percent to 17 percent.
The Department of Finance said this was the recommendation of the economic managers to President Rodrigo Duterte in order to save the pension fund from bankruptcy should the proposal get congressional approval.
In a December 15 memorandum to the President, Finance Secretary Carlos Dominguez III and Budget Secretary Benjamin Diokno, along with Director-General Ernesto Pernia of the National Economic and Development Authority (Neda), fretted that without any accompanying “upward adjustment or restructuring of the contribution rate,” the proposed pension hike would unduly jack up the unfunded liabilities of the SSS from P3.5 trillion to P5.9 trillion.
If approved, this congressional proposal “may adversely affect the Republic’s credit rating,” said the three Cabinet secretaries in their memo to Duterte, and the “SSS would be bankrupt and left with no funds for other members in the future,” the DOF said in a statement.
Although the government is ready to keep the pension fund viable by way of a subsidy in case the SSS finds itself in dire financial straits, the three secretaries stressed that this should merely be a “last resort,” because it remains the primary responsibility of member-employees and their employers to keep it afloat not only for their benefit but for future generations of members as well.
Given that “government subsidy only introduces undue fiscal burden to taxpayers,” they pointed out in their joint memo that “the public must not be made to carry the burden of the increase which benefits only privately employed individuals.”
The three secretaries were reacting to a proposal by the Congress, as contained in Joint Resolution No. 5 of the Senate and Joint Resolution No. 10 of the House of Representatives, for the SSS to implement a staggered P2,000 across-the-board increase in its monthly payments to member-pensioners now numbering 2.2 million—the first tranche of P1,000 to be given starting in January 2017 and another P1,000 in January 2019.
Without a corresponding increase in member contribution, the three secretaries said the congressional proposal would cut the actuarial life of the pension fund by 14 to 17 years from 2042 to 2025-2028 because the SSS will have to cough up an additional P32 billion annually to cover the initial P1,000 hike and P62 billion for the entire P2,000 increase in monthly payments.
“While we recognize the thrust of the joint resolution to promote the well-being of the country’s private sector retirees…...any increase in pension without increasing member contribution and expanding its membership base would introduce severe fiscal issues, and should be discouraged,” they said.
“We strongly recommend that any improvement in pension benefits be accompanied by an upward adjustment or restructuring of the contribution rate from employee members and their employers, as well as self-employed and voluntary members,” they said. “We do not believe it is unfair to ask for this increase as pensions have increased 22 times while the contribution rate has only increased three times since the establishment of the rates in 1980.”
“This proposed resolution is foreseen to cut the actuarial life of the fund by 14 to 17 years from 2041 to 2025-2028 and will result in approximately P64 billion additional pension every year” to an estimated 2.2 million pensioners, they said. “This has detrimental effects to the financial position of SSS and the viability of its business model.”
According to the House resolution proposing the P2,000 pension increase, there are at least 33 million members of the SSS and 2.2 million retirees currently receiving pensions.
To save the SSS from going bankrupt and enable it to continue providing the mandated benefits to other members who are not yet entitled to monthly retirement payments, the three secretaries recommended to the President an increase in the member contribution from the current 11 percent to 17 percent upon the implementation of the Congress-proposed across-the-board pension hike.
And to cushion the effect of their proposed adjustment in the monthly contribution of SSS members, the three secretaries recommended to the President that the first tranche of the P2,000 monthly pension increase be moved back and carried out once the Congress approves the first package of the Comprehensive Tax Reform Program, which provides for sizable cuts in the income tax payments of low-income workers.
This tax reform package on income tax cuts with accompanying revenue measures was submitted by the DOF to the Congress last September. (SDR/Sunnex)