A brand new world of misery awaits Filipino workers in the informal sector when they reach retirement age and are no longer economically productive. That’s the “ticking time bomb” scenario described by University of the Philippines School of Labor and Industrial Relations (UP-SOLAIR) Professor Emily Christi A. Cabegin, who warned that the government may have to spend millions of pesos to take care of thousands of informally employed workers that are not covered by a pension scheme once they retire.
“Because of our demographic transition, there will be more elderly people in the coming years than there are now, so the government will have to allocate more funds in order to keep them at least out of the poverty level,” Cabegin told the BusinessMirror in an interview last week. (Read, “Millions sans pension a ‘ticking time bomb,’” in the BusinessMirror, May 15, 2023)
She said eight of every 10 workers are informally employed and therefore not covered by labor laws and mandated to become members of the Social Security System (SSS).
While the informally employed may opt to become voluntary members of SSS, they would have to do so at great cost since they would have to pay on their own without the share from employers, which their formally employed counterparts enjoy.
Cabegin said a possible remedy to this terrible future situation is the inclusion of a provision in the latest version of the Magna Carta of Workers in the Informal Economy bill to create a social security scheme for the informally employed that will be partly funded by the government. Unfortunately, the MACWIE bills have been pending in Congress for over a decade.
Cabegin said such legislation will allow more informally employed people to afford SSS membership, granting them not only pension in the future but also a much-needed social security coverage to boost their current productivity such as sickness benefit, maternity benefit, unemployment benefit, among others.
“If you are going to cover them right now under the SSS, you don’t have to worry about covering them in the future because they already have a pension,” Cabegin said, stressing that the “window” for the government to implement the reform should be in the coming years, when most of the informally employed are still in the working age.
Based on the latest Census of the Philippine Statistics Authority (PSA), over 69 million of the country’s 108 million population are below the 65-year-old retirement age as of 2020.
With the country’s declining fertility rate, Cabegin said the country’s pension system will eventually be strained by shifting demographics. “It will be more difficult for a lower working age population to support a bigger elderly population,” she said.
The current administration is already engaged in a similar pension reform as it tries to fix the “unsustainable” pension for military uniformed personnel. Finance Secretary Benjamin Diokno explained that the MUP pension is automatically indexed to the salary of the personnel of the same rank, which means that if the salary of the incumbent is doubled, retirees would see their pension jump by 100 percent.
“Right now, the situation is so bleak that if you compare the current operating expenditures of the whole AFP and the capital outlays, it is actually much less than the amount of pension that we are allocating for the retirees,” Diokno said.
The average pension of a retired military uniformed personnel is around P40,000 a month, which is almost nine times more than the P4,528 a month that an average SSS pensioner is receiving. It is also three times higher than the average GSIS pension of P13,600. Under the SSS and GSIS, people contribute a part of their income for the fund. Military personnel do not contribute a single peso in the current system. Taxpayers shoulder their pension funds through appropriations in the annual budget.
There are big challenges facing the country’s pension systems that the Marcos administration is trying to fix. For example, Diokno suggested a key reform on the pension system of the military, which will gradually require MUPs to contribute for their pensions to reduce government expenses. On the other hand, there’s a pressing need to increase the minimum level of support to the workers in the informal sector to avoid the “ticking time bomb” scenario described by Professor Cabegin.
It would do well for our lawmakers to approve a Magna Carta of Workers in the Informal Economy bill that creates a social security scheme for informally employed Filipinos. This life-changing legislation will help avert a catastrophic situation where millions of retired informal sector workers remain economically insecure.