IN the past week, talks about the fund life of the Social Security System (SSS) hogged the business news. Some started computing their age as against the life of the pension fund, which is projected to last until 2042. This means that SSS can pay all its obligations up to 27 years from today.
Some would think that 27 years is a long time. But international standards dictate that pension funds must aim for a life of 70 years or perpetuity.
Why aim for perpetuity?
Social-security institutions like the SSS is a long-term proposition. It deals with commitments that extend many decades into the future. All 32.1 million members need to be assured that the SSS is implementing a solid financial plan to back up all its commitments for both short-term and long-term benefits.
At the forefront of the implementation of financial safeguards is the SSS chief actuary. Any proposed changes, say, in the benefit structure, or in the amount of pensions, perhaps, is carefully evaluated by the chief actuary as to its financial impact.
Recently, the SSS said that structural reforms, such as a contribution-rate hike or an increase in the statutory cap for SSS contributions, are required to improve its fund life.
Based on latest actuarial valuation, the social-security fund regained a life of four years from the previous valuation of 2039 as a result of the increase in contribution rate and monthly salary credit ceiling that took effect in January 2014. Shortly after the new contribution rate was adopted, SSS pensions were raised by 5 percent in June that same year, causing a one-year decrease in the fund life, which is now projected to last until 2042.
SSS Chief Actuary George Ongkeko Jr. explained that while SSS investments are performing significantly well, the pension fund could only invest and earn so much. So, if the contribution rate remains unchanged while benefit payments continue to swell, he said that the SSS’s reserve fund will be exhausted by 2042.
It took SSS three years to inform and make employers and workers understand the importance of increasing contributions to lower the unfunded liability or the amount of future benefit obligations that requires funding given the present value of contributions and assets.
Prior to the contribution hike in January 2014, the unfunded liability was reported at P1.1 trillion. It went down by 16 percent to P908 billion with the increase in the contribution rate and salary ceiling. But the figure will still add up overtime as SSS membership grows, the top official explained.
To illustrate, a member who has paid the minimum contribution for 10 years and will receive his monthly pension for 10 years would have a return of P156,000 from his P13,200 paid contributions. Obviously, his contributions redounded much to his benefit.
The SSS needs to close the wide gap between benefit and contribution payments in order to support the guaranteed benefits of all members.
The SSS disburses about P7 billion in pensions monthly for retirement, death and disability under the SSS regular program. To date, the SSS has 1.9 million pensioners, and reported P444 billion in total assets as of March 2015.
Social-security schemes are dynamic. Safeguarding the solvency and long-term viability of the fund while remaining sensitive to the needs of its members is a tough balancing act for the SSS. Some relationships may not have “forever,” but some are committed to “forevermore” just like the SSS is.
For more information about the SSS and its programs, call our 24-hour call center at (632) 920-6446 to 55, Monday to Friday, or send an e-mail to member_relations@sss.gov.ph.
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Susie G. Bugante is the vice president for public affairs and special events of the Social Security System. Send comments about this column to susiebugante.bmirror@gmail.com.