THE Department of Finance (DOF) expressed the hope that the implementation of Philippine Financial Reporting Standards (PFRS) 4 will enlighten lawmakers about state pension funds.
Finance Secretary Carlos G. Dominguez III said this after members of the press asked him about the possible impact on the Government Service Insurance System (GSIS) fund life of “populist” bills filed in Congress.
PFRS 4 is the current and interim accounting standard imposed on insurance entities in the Philippines. It was adopted from the International Financial Reporting Standards or IFRS, which provides guidance on the proper financial accounting of insurance contracts.
“I hope the 2020 audited F/S (Financial Statement) which is now compliant with PFRS 4 provides enlightenment to the legislature,” Dominguez told reporters.
Among the bills filed in Congress is the lowering of the compulsory retirement age of GSIS members to 55 years old from the current 65 years old.
Based on the base case estimates in the Fiscal Risks Statement for 2022, the GSIS Fund Life Scenarios showed the optional retirement of 60 years old and the compulsory retirement of 65 will lead to October 2041 as the end of the GSIS fund life.
However, under Scenario 1—when optional retirement is adjusted to 56 while keeping the compulsory retirement age at 65 years old would mean GSIS fund life will end in November 2038.
This scenario, which also assumes that 100 percent of those aged 56 to 59 will be subjected to optional retirement, will require additional reserve requirements of P332.36 billion.
Scenario 2—when those aged 56 to 59 optionally retire by assuming a 50 percent availment—would spell an end to fund life by May 2039. This requires a lower additional reserve requirement of P255.37 billion.
“Lowering the optional retirement age from 60 to 56 while maintaining the compulsory retirement age at 65 would decrease the fund life by about 2 years and 11 months for Scenario 1 and about 2 years and 5 months for Scenario 2,” the report from the Bureau of the Treasury stated.
“Any lowering in the retirement ages, or any benefit enhancement for that matter, especially those involving pensions which are long-term liabilities, would increase costs. Such costs will necessarily be absorbed by the program, making the program more expensive for those members who will still be contributing, as they will bear the brunt of the costs; and for the GSIS as administrator, since it will increase the SIF’s unfunded liabilities,” the report explained.
Meanwhile, Dominguez gave assurances the government is moving to address fiscal risks stated in the report for 2022 including the “ballooning” Military and Uniformed Personnel (MUP) pensions.
Dominguez also assured the public that the GSIS “is not in any danger of not floating” despite the report’s recommendation for it to be tapped “to serve as fund administrator” instead of creating an MUP Fund Authority.
The BTr report said, quoting an actuarial study by the DOF, that the creation of an MUP Fund Authority means an additional requirement of P45 billion annually.
“As CFO of the Government, it is my duty to clearly define the financial issues facing the country and one sure way of doing that is to make certain that all our liabilities, including contingent ones, are recognized and understood by all so they can be rationally addressed by this and future administrations,” Dominguez said. He also hoped these issues would be resolved before the end of the President’s term.
The BTr said Senate Bill 1419 and the House bills on the MUP Retirement and Pension Reform seek to provide all MUP with adequate remuneration and benefits by revamping the current retirement benefits and pension scheme.
The Department of Budget and Management (DBM) has recommended as of August 2020, that the financial sustainability of the proposed contribution of the national government be revisited.
The contribution rates vary across bills but would generally fall within the range of 18 to 27 percent monthly. This is significantly higher than the 12 percent monthly civilian rate.
“This will result in the ballooning of retirement and pension requirements over the next few years, without the correlative funding sources to support them,” the report said.