Friday, September 21, 2018
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Learn lessons from the RSBS

/ 05:11 AM February 19, 2018

The Armed Forces’ Retirement and Separation Benefits System (RSBS) is a classic example of how a pension fund should not be run.

It was such a monumental failure that the Aquino administration finally decided to abolish it in 2016.


Its dissolution was based on Malacañang’s Memorandum
Order 90 dated April 8, 2016, which also called for the privatization of its subsidiaries — Monterrosa Development Corp. and Southern Utility Management and Services.

Some 120,000 soldiers will be refunded some P15 billion in contributions over a three-to-five-year period. The RSBS is estimated to have assets amounting to P17 billion.

President Duterte, who just recently upped the salaries of military and police personnel, now wants a new pension system for them.

Budget Secretary Benjamin Diokno announced last week that a new pension scheme for the uniformed personnel would be established within the year.

It will be managed by the state-run Government Service Insurance System (GSIS), which indicated that the new scheme would be separate from its pension fund for state employees and would cover only new entrants to the military and police service.

Before they do so, we hope the President’s economic managers would study the sad experience of the RSBS long and hard and draw lessons from it so as to ensure the success of any new pension scheme for military and police personnel.

The RSBS was put up on Dec. 30, 1973, to take over from the GSIS the payment of retirement and separation benefits of soldiers once it had become financially self-sufficient.

However, it never attained such sufficiency and could never do so because of an inherent flaw: Its primary source of funding was the contribution of its members.

The contribution rate of the RSBS was 5 percent, coming only from the members.


In the case of the GSIS and of the private pension fund Social Security System, the contributions come from the employees and the employers at 21 percent (12 percent from the government agency employer and 9 percent from the employee) and 11 percent (7.37 percent from the employer and 3.63 percent from the employee), respectively.

The RSBS took center stage during the term of President Gloria Macapagal Arroyo: Soldiers belonging to the Magdalo group mounted a mutiny and accused military officials of corruption and mismanaging the retirement fund.

A subsequent inquiry concluded that the RSBS, “in its present conception and structure, was fundamentally flawed and had not discharged its mandate” after years of operation.

At the outset, according to Diokno, the new pension fund being crafted by the Duterte administration will be different in that it will be partly funded by the proceeds from the planned development of 100 military properties with private sector partners.

GSIS president and general manager Jesus Clint Aranas has also made known that the state pension fund would be willing to handle the planned pension project if it would cover only newly installed uniformed personnel.

He pointed out that the GSIS could not absorb the existing retirees, who did not contribute to the state pension fund in the first place.

Another word of caution: Ordinary soldiers would not want a repeat of the RSBS, which is serving as a reminder of how some officers took advantage of their position to dip their hands into the fund for their personal gains.

The RSBS may have failed because of underfunding and certain investments that folded during the financial crisis of 1997, but to the minds of ordinary soldiers, it is mismanagement and corruption that did it in.

President Duterte cannot let military officials again take charge of any pension fund for the military and police personnel.

The GSIS option — instead of military people managing the fund — should be a better alternative because fund management expertise will be present.

It is also hoped that the pension coverage would fully benefit low-rank soldiers and police personnel so they will have something to look forward to when they retire. The high-living generals can more than take care of themselves.

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TAGS: AFP RSBS, Inquirer editorial, pension fund
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