Doable increase

First the rosy promise, then the sad reality. Such is the case with President Duterte’s vow to raise the monthly pension of members of the Social Security System. The House of Representatives and the Senate have passed two joint resolutions aimed at granting the pension increase on a staggered basis at P1,000 each in January 2017 and January 2019. The resolutions will now be transmitted to Malacañang for approval before the adjustments can take effect.

But last week the Department of Finance disclosed a Dec. 15 memorandum to the President signed by Finance Secretary Carlos Dominguez III, Budget Secretary Benjamin Diokno and Socioeconomic Planning Secretary Ernesto Pernia warning that without an accompanying “upward adjustment or restructuring of the contribution rate,” the SSS’ unfunded liabilities would balloon to P5.9 trillion from P3.5 trillion now. What they are saying is that Mr. Duterte should approve the P2,000 increase in the SSS monthly pension only if there is a corresponding increase in members’ and employers’ contributions to the fund.

Allowing the P2,000 pension increase will not only adversely affect the Philippines’ credit rating but also bring the SSS to bankruptcy, the economic managers warned. They cited actuarial studies showing that without a corresponding hike in contributions, the proposed increase would cut the life of the pension fund by 14-17 years, or from 2042 to 2025-2028 because the SSS would have to spend an additional P32 billion a year to cover the initial P1,000 increase and P62 billion for the entire P2,000 increase in monthly payments.

The other proposal for the government to subsidize the pension fund is similarly unfair. The economic managers are correct in arguing that the public must not be made to carry the burden of the increase that benefits only privately employed individuals.

But Bayan Muna Rep. Carlos Isagani Zarate and former Bayan Muna Rep. Neri Colmenares also have a point in criticizing the proposal. Zarate, one of the principal authors of the House resolution granting the increase beginning January 2017, pointed out that SSS Chair Amado Valdez had explicitly stated in congressional hearings that raising membership premium was the least, even last, of their options.

Still, allowing the increase in pension benefits to proceed without raising members’ contributions remains doable. At most, assuming nothing will be done, the pension hike will shorten the SSS fund’s life by 14 years to 2025-2029. Colmenares reasoned that this still gives the government and the SSS enough time to find ways to prolong the fund’s life. In 2001, he pointed out, SSS declared that it had a fund life of only five years and yet it was able to extend this to 2042 in just 14 years. If SSS previously survived a predicted five-year fund life, then surely it could also survive a shortened fund life if the pension increase were to be allowed next month.

Among the suggestions for SSS to do this are:

1) improve its collection efficiency from the employers of its 31 million members; 2) collect the billions of pesos in contributions that delinquent employers failed to remit in the last 10 years; 3) cut down on the bonuses and perks for its board members and collect the more-than-P200-million retirement package in 2009 that was disallowed by the Commission on Audit; and (4) collect the fines imposed by the courts against employers who violated the SSS law.

At this point, it is best for the Cabinet to support the pension increase and, together with the new SSS leadership and Congress, look for means to increase its fund life. SSS’ Valdez earlier suggested numerous reforms to the SSS Charter, including giving the pension fund the mandate to acquire at least 25 percent of new toll roads and be given first crack at public-private partnership projects for additional income.

The economic managers’ memorandum is somehow an admission that Mr. Duterte’s promised pension increase would be difficult to fulfill when economic realities are considered. But it will be doable if the Cabinet backs measures to make it economically viable and think hard of ways to fund it, aside from the no-brainer solution of raising contributions.