Reforming the MUP pension system

For the longest time, military and uniformed personnel (MUP), which include soldiers and members of the police force, have enjoyed privileges denied others in government service. Aside from being exempted from monthly contributions to the state pension fund, they are automatically promoted a rank higher upon retirement and are entitled to a lifetime pension equivalent to the monthly base pay of active personnel of equivalent rank.

It’s a privilege that has exacted a steep price on public funds. As noted by Arroyo finance secretary Gary Teves in his Inquirer commentary, the budget spent on the pension of MUPs has doubled in 10 years, from P64.2 billion in 2013 to P128.6 billion in 2023, and is currently bigger than the budget required to fund the day-to-day activities of active personnel. With the base salaries of active MUPs doubled in 2018, the retirees’ pension has been doubled as well.

Earlier this year, Finance Secretary Benjamin Diokno and President Marcos himself warned of the possible collapse of the MUP pension fund in five to six years unless reforms are initiated.

Thus was approved last month by a House ad hoc committee a substitute bill on pension reforms that, among other provisions, required MUPs to contribute to the pension fund a graduated percentage of their salaries, from 5 percent to 9 percent in six years’ time, with government completing the 21-percent total contribution. The bill, however, retains the provision allowing MUPs to retire one rank higher, fixes their mandatory retirement age at 57, and creates two separate trust funds—one for the military and another for nonmilitary uniformed personnel.

While the reform bill is definitely an improvement over the current MUP pension system, Teves’ suggestions on how to make it more sustainable while also recognizing the needs of retirees, bear looking into.

Aside from making mandatory the MUPs’ contribution to their pension fund, with automatic salary deductions similar to other civil servants’ 9 percent supplemented with the government’s 12 percent, the reformed system must implement a fairer and more compassionate graduated deduction rate based on the MUPs’ status. Why not the full 9 percent for new recruits, and less for those who have served for at least 30 years? Start with, say, 1 to 2 percent deduction for retirees in the first year of implementation, with a smaller annual increase of 1 to 2 percent, which will help retired MUPs and their families adjust their household budget to the leaner pension packet.

To avoid the fate of the Armed Forces Retirement and Separation Benefits System that was shut down in 2006, lawmakers must also reconsider the current indexation of pension payments to the base pay of active personnel, since any movement in the latter’s salary would automatically raise the budget for the retirees’ pension. Note as well that the proposed reform bill guarantees a 3-percent annual salary increase for active personnel in the next 10 years, which would similarly nudge up the pension budget, and further sink our country into debt. Why not study instead how to expand the retirees’ access to housing benefits, health care, and even low-interest emergency loans?

On top of fixing the MUPs’ pension system, the respective offices of these uniformed personnel must diligently update their pension management information system to weed out delinquent pensioners from the payroll. As noted by House Deputy Minority Leader and ACT Teachers party list Rep. France Castro, the Commission on Audit (COA) recently found discrepancies in the list of Armed Forces of the Philippines pensioners that resulted in P17.095 million in overpayment and P2.301 million in underpayment last year. The COA report called out the AFP for failing to tag and delete 1,026 delinquent pensioners from its pension payroll, which resulted in the “continuous payment to unverified pensioners of monthly pension benefits totaling P159.420 million,” Castro said.

There is merit as well in retired police general and Baguio City Mayor Benjamin Magalong’s observation during a TV interview in July that while retired MUPs may be made to contribute to their pension fund to help avoid a possible “fiscal collapse,” lawmakers and other officials must do their part as well by shunning corrupt practices like kickbacks from inflated government projects.

As for senators Ronald “Bato” dela Rosa’s and Robinhood Padilla’s fears that changes in the MUP pension system could weaken the country’s security sector with the early retirement of uniformed personnel seeking to avoid impending reforms, House committee on ways and means chair Joey Salceda noted that “[f]iscal sustainability is also national security.”

Not to mention that with the continuing conflict in the West Philippine Sea, the need to conserve resources by reforming the MUP pension plan becomes paramount, as Salceda said, so that “we can [instead] keep investing in a formidable national defense.”