SSS pension increase is disguised injustice

The bill raising the Social Security System pension, including the statutory minimum P2,000 across-the-board increase, has just passed the House of Representatives and the Senate and will soon be transmitted to President Aquino for approval.

If the bill becomes a law, it will result in adverse consequences to the financial status of the SSS:

It will increase the annual pension cost by P49 billion, or 65.2 percent of the pension cost in 2014.

The increase in pension cost will result in a substantial deficit starting with P4 billion during the first year of implementation, which must be taken from the reserve fund estimated at P341 billion as of 2013, or barely four times the yearly pension cost.

It will upset the financial system of the SSS as a “partially funded” system, which assumes the continuous growth of the reserve fund not only to serve as a “guaranty fund” needed to assure currently contributing members that their benefits will be paid when their turn comes, but also to generate further income to avoid the need to frequently increase their contributions to maintain the long-term viability of the program.

It will adversely affect the SSS’ financial capability to increase its benefits or add new ones (e.g., unemployment insurance or family allowance) as mandated by law, to compensate for inflation which currently relies on surplus income from contributions and investments.

The bill’s proponents justify the increase through the unproven statement that “the SSS pension is low and no longer sufficient to support the basic needs of pensioners for food and medicine.”

I applied the pension formula provided in the law to four groups of hypothetical retirees with varying average wage levels and employment histories: 1) maximum, 2) high, 3) medium, and 4) low. The results showed the amount of pensions and their corresponding “replacement ratios” (the benefit expressed as percentage of preretirement wage known in the SSS Law as the average minimum salary credit or AMSC):

For maximum wage-earners with P16,000 AMSC, the monthly pension for 10 continuous years of service (CYS) is P6,400 (40 percent RR); 20 CYS, P6,700 (41 percent RR); and 30 CYS, P9,900 (61.9 percent RR).

High wage-earners (P12,000 AMSC) with 10 CYS receive a monthly pension of P4,800 (40 percent RR); P5,100 for 20 CYS (42.5 percent RR); and P7,500 for 30 CYS (62.5 percent RR).

Medium wage-earners (P10,000 AMSC) with 10 CYS get a monthly pension of P4,000 (40 percent RR); 20 CYS, P4,300 (43 percent RR); and 30 CYS, 6,300 (63 percent RR).

Low wage-earners (P1,000 AMSC) with 10 CYS are entitled to a monthly pension of P1,200 (120 percent RR);

20 CYS, P2,400 (240 percent RR); and 30 CYS, P2,400 (240 percent RR).

The present formula still appears to be in good shape, although I believe it can stand improvement, especially with respect to the “maximum monthly salary credit” which is quite low.

Ordinary workers who are diligent in earning a living for themselves and their family, and work continuously during their productive life, will never fall under the category of marginal pensioners.

It will be noted in the formula that the replacement ratios of the two lowest wage-earners range from a low of 40 percent to a high of 240 percent of AMSC. This is much higher than the minimum international standard for social security pensions of 40 percent of covered wage, as prescribed under the International Labor Convention’s 102 on Minimum Standards on Social Security.

With regard to the observation that the SSS pension is “no longer sufficient to cover the basic needs of pensioners’ food and medicines,” the hard reality must be accepted that the social security program of the SSS was never designed to meet those needs, which are more appropriately addressed by the government’s “welfare programs” such as the conditional cash transfer program. To believe otherwise is to mislead ourselves in our appreciation of the role of social security in our lives after retirement.

As early as 1960, or three years after the SSS Law was implemented, this role was clarified: “The effort to achieve social security is not the task of the government alone. Security is something that every free individual must work at for himself and his family. Social security does not take away the initiative from the individual to provide for his future. It complements the measures that enlightened management, labor itself, and other government agencies undertake for the welfare of the working man.” (1960 Annual Report, SSS, page 19)

In the words of the advisory council of the US Social Security, after which our system was patterned: “The contributions set the tone of the program and its administration by making clear that this is not a program of government aid given to individuals but rather a cooperative program in which people use the instrument of government to provide protection to themselves and their families against the loss

of earnings resulting from old age, death and disability.”

(Report of the Advisory Council, 1957, page 4)

Finally, the proposal to increase the SSS pension, submitted before the 2016 national elections, tends to politicize social security. This is unfortunate because the true merit of the proposal cannot be evaluated objectively and professionally.

While the present pensioners as well as those who will retire in the near future stand to benefit and may even vote for the bill proponents running for public office, the interest of young workers who have to shoulder the cost of future deficits caused by present spending is relegated to the background. This should not be the case.

The bill should not be approved by President Aquino; instead, it should be referred to an independent body, similar to the advisory council on US Social Security for analysis and evaluation as to whether it will redound to the best interest of SSS members.

To approve this expenditure in the billions of pesos of SSS members’ money with the flick of a finger will, in the long run, be an injustice to them disguised as a benefit.

Hector B. Inductivo is a lawyer, former senior deputy administrator of the Social Security System, and former regional director for Asia and the Pacific, International Social Security Association, International Labor Office.