Meet set as DOF chief warns vs ‘unsustainable’ pensions

Benjamin Diokno —PHOTO FROM DOF FACEBOOK PAGE

MANILA, Philippines — Finance Secretary Benjamin Diokno, Defense Secretary Carlito Galvez Jr., Interior Secretary Benhur Abalos, representatives from the Office of President and the Department of Budget and Management are set to meet this week to fine-tune proposals to overhaul the increasingly “unsustainable” pension system for the military and other uniformed personnel (MUP).

“We are determined to come up with a reasonable proposal in consultation with the concerned agencies and stakeholders,” Diokno said. “Open dialogue will be key to coming up with a reasonable solution to this monumental problem and providing a level of predictability for current and future MUP pensioners.”

Diokno had sounded the alarm over an imminent fiscal collapse stemming from the ballooning pension payments, with total payouts to MUP expected to breach the P1-trillion mark by 2035 from P213 billion this year.

At a press briefing on May 5, Diokno pointed out that the MUP pension system was funded solely by the government through internally generated revenues and borrowings, with no contribution at all from the pensioners themselves.

MUP include the officers and enlisted personnel of the Armed Forces of the Philippines, Bureau of Jail Management and Penology, Bureau of Fire Protection, Philippine National Police, Philippine Public Safety College, Philippine Coast Guard and the Bureau of Corrections.

The finance chief said that based on data as of 2022, retired MUP were receiving an average monthly pension of P40,049 while members of the Social Security System (SSS) and the Government Service Insurance System (GSIS)—who do make contributions—respectively receive an average monthly pension of just P4,528 and P13,600 each.

“Compared to other pension systems, this amount (received by retired MUP) is 8.8 times higher than under the SSS and 2.9 times higher than under the GSIS,” Diokno stressed.

Pay hike under Duterte

This was also due in no small part to the significant increase in the salaries of cops and soldiers under the law signed by former President Rodrigo Duterte in 2018. Under the Congress joint resolution modifying the Base Pay Schedule for Military and Uniformed Personnel, salaries across all ranks increased over two years by an average of 72.18 percent.

With the pensions automatically “indexed” against the current salaries, in that pensions increase in step with the increase in the salaries of active MUP, payouts correspondingly surged.

Over the last decade, the MUP pension system has been repeatedly identified as a fiscal risk, with pension payments growing at an average of 12.3 percent a year from 2010 to 2019, such that the military and uniformed services sector spent more on pension than capital outlays as well as maintenance and other operating expenses.

In 2021, the spending for MUP pension reached P160 billion, which was 38 percent more than the P116 billion spent on maintenance and other operating expenses (MOOE) and capital outlays (CO).Similarly, in 2022, the P164 billion spent on MUP pension was 31 percent higher than the P125 billion spend on MOOE and CO.

‘Existential threat’

Diokno said that under a status quo, pension expenses are projected to “increase tremendously” in the coming years based on initial estimates conducted by Congress, particularly by Rep. Joey Salceda.

In May 2021, Salceda filed a bill to fix the pension system for MUP as it faces an “imminent existential threat” because its current funding would be “unsustainable” if no reforms would be made soon.This is mainly because a big chunk of the payout is “unfunded,” which means the government borrows funds so that retirees will receive their pension.

In 2021, the government had to borrow P127.3 billion at a cost—or interest expense—of P6.2 billion to cover unfunded pension liabilities.

For the same purpose, in 2022, the government borrowed P133.1 billion at a cost of P6.8 billion.

If the current system is left unchanged, the estimate is that unfunded pension liabilities will rise progressively each year to reach P252.4 billion in 2025, P536.8 billion in 2030, P1.07 trillion in 2030 and P1.47 trillion by 2040.

The corresponding expense on interest for such borrowings was pegged at P14.8 billion in 2025, P39.6 billion in 2030, P99.2 billion in 2035 and P171.3 billion in 2040.Extreme challenge

For comparison, the Philippine government’s total outstanding debt from both domestic and foreign lenders stood at P13.42 trillion as of the end of 2022.

“If the current (MUP pension system) is allowed to continue in the years ahead, the whole system is fiscally unsustainable,” Diokno stressed.

“If we do not address the huge and rising unfunded liabilities of the current MUP pension system now, securing sufficient resources to provide for the benefits of future pensioners and their dependents will be extremely challenging,” he added.

Thus, the finance chief reiterated that reforming the MUP pension system was urgent to avoid a “fiscal collapse.”

The plea was heard by President Marcos who had since ordered a review of the pension system and by members of the Senate, who are evaluating pending bills to ensure a sustainable and equitable pension scheme for current and future members of the military and uniformed services as sought by Diokno.

The finance chief is pushing for a unified separation, retirement and pension system for the MUP, which means a reformed pension system “should apply to those in the active service and new entrants, and members across all MUP agencies.”

Differentiation

Also proposed is a “significant increase” in disability pension on top of other benefits, in recognition of “the unique hazards and risks” that MUPs assume in the performance of their duties.

Diokno acknowledged that MUP put their lives at risk during their years in service. “Then maybe we should differentiate between combatants and noncombatants (among MUP),” he said.

In March, when Diokno warned of a “fiscal collapse” resulting from the MUP pension problem, he also pointed out that pensions can be received after 20 years of service without a minimum pensionable age requirement. This means that those recruited at the age of 20 would be eligible to retire at the age of 40.

“Military people, they live longer than us, OK, some at the age of 90, OK. So, they retire at 40 to get their pension up to age 90. Isn’t that ridiculous?” Diokno asked.

 

MUP are also automatically promoted one rank higher upon retirement, which means that the pension to be received will be equivalent to the salary of the next level.

Considering these, he said the government proposes that MUP should receive their pension starting at 57 years old.

Also, Diokno said there should be mandatory contributions from active personnel and new entrants similar to GSIS pensioners.

—With a report from Inquirer Research

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