A fiscally-sustainable version of the military and uniformed personnel (MUP) pension-reform law must be urgently passed, the Development Budget Coordination Committee (DBCC) asked Congress last Tuesday.
“Keeping MUP-pension liability growth at controlled levels is crucial to the country’s fiscal stability,” the DBCC members said citing that actual MUP pension spending has grown at an average rate of 12.3 percent from 2010 to 2019.
“As a result of this rapid growth, MUP pension spending has now also exceeded spending for capital outlays and the Maintenance and Other Operating Expenses (MOOE) of the military and uniformed services,” the DBCC added.
Last week, the House ad hoc Committee on the MUP approved the substitute bill overhauling the MUP pension system to make it more fiscally sustainable.
Committee Chairman Rep. Joey Sarte Salceda (Albay, 2nd District) emphasized the importance of the passage of the bill as the current MUP pension scheme has accumulated unfunded liabilities amounting to P9.6 trillion or 53.4 percent of the 2020 gross domestic product.
Salceda expressed gratitude to the DBCC “for highlighting the urgency of the situation and for clarifying the figures.”
The growth in actual MUP pension spending, according to Salceda, “is too fast for our fiscal resources to accommodate without reform.”
Serious risks
IN a statement, the DBCC said that sans funding sources to support this growing expenditure, the MUP pension system, as well as the fiscal stability of the national government, is at serious risk.
The statement was signed by Budget Secretary Wendel E. Avisado, Finance Secretary Carlos G. Dominguez, Socioeconomic Planning Secretary Karl Kendrick T. Chua and Banko Sentral ng Pilipinas Governor Benjamin E. Diokno.
“The ability of the government to compensate active personnel and invest resources to keep MUP in fighting shape is also in jeopardy,” the officials said.
“Maintaining automatic indexation of pensions to salaries of active personnel is also a significant threat to the sustainability of the pension system as MUP salaries have grown at an average of 19.63 percent from 2008 to 2019,” the DBCC statement said.
According to the DBCC, the Duterte administration has taken significant steps to address this issue.”
As part of Joint Resolution 1 issued in 2018, which increased salaries for active MUP, the DBCC said the administration insisted that the indexation of MUP pensions to base pay be suspended pending the review of the current pension system by the Executive and the Legislative.
“Following the suspension of indexation, the Government Service Insurance System (GSIS) conducted an actuarial study completed in 2020,” the DBCC said.
Exacerbating factors
THE GSIS study found that the current system, which is currently funded almost exclusively by the national budget, entails a total funding requirement estimated at P9.6 trillion to cover the future obligations pertaining to existing active members and pensioners of the MUP, according to the DBCC.
“To protect the gains made with these reforms and to avoid the potentially dire fiscal fallout from maintaining the status quo, we urge Congress to pass a fiscally-sustainable version of the MUP Pension Reform bill when session resumes,” it added.
Salceda has said that the pension system has an unfunded reserve deficit primarily because uniformed personnel do not have a contribution system and that MUP pensions are much higher than that of civilian personnel.
“The situation could further be exacerbated by growth in MUP salaries. The DBCC is right to emphasize that maintaining automatic indexation of pensions to salaries of active personnel is also a significant threat to the sustainability of the pension system,” he added. “As the DBCC reiterated, MUP salaries have grown at an average of 19.63 percent from 2008 to 2019.”
The key features of the committee report include the following: removal of automatic indexation but retention of the no-contribution scheme; pension increases based on a cost-of-living adjustment; rationalizing pensionable age at 56 years old; allowing optional retirement at 20 years; higher risk insurance coverage for those wounded or killed in action; and, the creation of a military and uniformed services trust fund, with leeway to initiate a credible defense posture.
Proposed bill
The MUP pension reform bill earmarks proceeds from the disposition and use of MUP assets, the Ninoy Aquino International Airport and the New Bilibid Prison for the modernization of the Armed Forces of the Philippines and the revitalization program of the Philippine National Police.
“If we are to modernize our uniformed services into a credible and advanced defense force, we must have the fiscal space to hire personnel, purchase state-of-the-art military equipment and invest in their training and protection. A strong fiscal framework for the MUP pension system will also help free up fiscal space for our Covid-19 recovery,” the statement said.
Meanwhile, Salceda said the House leadership is committed to getting a version of this reform approved in the plenary when session resumes next month or on July 26.
“This much is clear with the Speaker’s decision to create a ‘supercommittee’ of House leaders to tackle this measure. The choice is between some pain now, or plenty of pain in the future,” he said. “The DBCC statement today [June 15] makes that clear.”