The Department of Budget and Management (DBM) said more military assets may be sold, leased or developed under a joint-venture agreement with private firms, to fund the P7-trillion pension program of the military.
Budget Secretary Benjamin E. Diokno said the Bureau of Treasury (BTr) is now in the process of identifying which military assets could be sold, leased or developed before the program is transferred to the Government Service Insurance System (GSIS).
“The BTr is updating the valuation of the military pension fund because the estimated P7 trillion to P8 trillion was based on an older valuation. We are starting to discuss the assets of the military during our Cabinet meeting. They have a lot of land,” Diokno told reporters in an interview.
Selling, leasing or developing military assets would ensure a steady stream of revenues for the pension program, according to the DBM chief. “But all of those assets or part of that, under the law, should be used to modernize the Armed Forces [AFP] of the Philippines. Part of it [proceeds] will be for modernization and part of it will be for the pension reform,” he added. The Bases Conversion and Development Authority (BCDA) charter already indicates that proceeds from the disposal of military assets will go to the modernization of the AFP. However, a new law would be needed to allow the government to use the proceeds for the military pension program.
Diokno said most of the assets of the AFP are outside of Metro Manila. “They have a property in Fort Bonifacio, that’s close to 200 hectares. And then they also have some in the Visayas, and Mindanao in the Bukidnon area.”
Earlier, the DBM said it will file a bill before the end of the year to amend the pension scheme for uniformed personnel.
Under the current system, members of the military are not required to make contributions to their pension fund. This forces the government to set aside provide P90 billion annually for their retirement.
Diokno noted that if problems in the pension program will not be immediately resolved, the AFP would be forced to allocate around 70 percent of its budget to fund it.
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The POBs can be designed as non – interest bearing, non – redeemable Peso denominated – Perpetual Pension Obligation Bonds (PPOBs). 2. Next, the PPOBs will then be sold to the BSP. 3. Then the proceeds of the sale of PPOBs can now be used to deficit finance the AFP’s UAAPL.Simple, elegant and to the point. Ola!
PENSION OBLIGATION BONDS: Here is our innovative hybrid – synthetic Indirect Tax Gap Momentary Financing, as follows: 1. The BoTr can issue Pension Obligation Bonds (POBs) to the GSIS for assuming the AFP Pension UAAPL.
We have a query: 1) Why does the current administration have to consider the fire sale of military assets, instead of BoTr – BSP Monetary Financing of the AFP Pension Payroll Tax Gap Deficit via monetization of Pension Obligation Bonds?
Instead of fire sale of military assets, we can avail and make use of Indirect BSP – BoTr Monetary Financing of the AFP Pension deficit (payroll tax gap).
May we propose a simple Thought Experiment for the DBCC to consider. We entitled it as “Indirect BoTr – BSP Monetary Financing of the AFP Pension Payroll Tax Gap Deficit via a State Pension (GSIS) monetization of “Pension Obligation Bonds (POB)” Model, using a Consolidated Public Sector Accounting Entity of BSP, BoTr and State Pension (GSIS) Model.
Pension obligation bonds (POBs) are typically secured by either a general obligation (GO) or annual appropriation pledge of the issuer and are on parity with outstanding GO or appropriation debt. Bond proceeds have been most frequently used to shore up pension funded ratios (UAAPL), effectively substituting a debt for a pension liability.
In addition to making payments toward any UAAPL, the government is required to make payments to the pension fund each year in respect of the present value of the benefits being earned by the current employees covered by the pension fund (that is, the amount being earned by those employees with each paycheck necessary to pay future retirement benefits, based on assumptions of mortality rates, salary increases, assumed rate of investment income and the other assumptions referred to in the preceding paragraph), generally referred to as the “normal annual contribution.”
The government is obligated to amortize the UAAPL over a period established by law or agreement with the pension system, typically at an assigned interest rate established by the pension system, which assigned interest rate is usually the same as the actuary’s assumed rate of investment return on pension fund assets (sometimes referred to as the “Actuarial Rate”).
The UAAPL is based on assumptions (in some cases established by the actuary and in some cases by the pension system or by the government) as to retirement age, mortality, projected salary increases attributed to inflation, across-the-board raises and merit raises, increases in retirement benefits, cost-of-living adjustments, valuation of current assets, investment return and other matters. In order to avoid volatility in the UAAL based on swings in market valuation, the investment gains and losses on assets in the pension fund are often recognized (sometimes referred to as “smoothed”) over a 3 to 5 year (or longer) period.
Unfunded Accrued Actuarial Pension liability (UAAPL): The unfunded accrued actuarial pension liability (“UAAPL”) is determined by the actuary for the pension fund to be the amount by which the pension fund is short of the amount that will be necessary, without further payments from the government, to pay benefits already earned by current and former employees covered by the pension system.
The national government is also trying to tap the Bases Conversion Development Authority (BCDA) to provide the assets to be sold to pay the liabilities under the military pension program – The AFP’s Unfunded Accrued Actuarial Pension liability (UAAPL).
The Government Service Insurance System (GSIS) is said to need as much as P7 trillion in additional funding for taking over the management of the military’s pension program.