Pension reforms to help ensure government’s fiscal stability


National Treasurer Rosalia de Leon said reforming the pension system will ensure the government’s fiscal stability while guaranteeing the continuous provision of fair retirement benefits for the military and uniformed personnel.

De Leon told senators during a recent public hearing of the Senate committee on national defense and security, peace, unification and reconciliation that the Department of Finance was fully supporting the proposal to overhaul the pension system of military and uniformed personnel.

She said reforming the pension system of the country’s defenders was long overdue and acquired greater urgency amid the growing fiscal burden and sustainability risks it poses.

The Bureau of the Treasury led the drafting of the bill, supported by an actuarial study by the Government Service Insurance System on the financial impact of the reform on the government’s coffers.

The government’s version of the bill, with some modifications, was filed in the House of Representatives by Albay Rep. and House ways and means committee chairman Joey Sarte Salceda.

The current MUP pension system is non-contributory, hence retirement pensions and benefits are fully funded by the government through annual appropriations.

An actuarial study by the GSIS  showed the current system would entail funding requirement of P9.6 trillion. The amount covers the future obligations pertaining to active members and current pensioners of the military and uniformed personnel. If the current system prevails, the government will be required to allocate around P850 billion to MUP pensions annually for the next 20 years.

This GSIS study also observed that the growth rates of MUP pension expenditures were steadily dwarfing the maintenance and other operating expenses of MUP agencies over the years.

The pscheme also features the option to avail of early retirement after at least 20 years of service, even ahead of the mandatory retirement age of 56.

The monthly pension of MUP retirees is automatically indexed to the salary of the next in rank in the active service, said the GSIS study.

Salary adjustments for active personnel directly affect and significantly jack up the funding requirement for retirees.

The proposed reform aims to ease the funding pressure by imposing a mandatory contribution amounting to 27 percent of base salary plus the longevity pay. It also aims to set a minimum age of 56 years for pension benefits.

It proposes the discontinuation of the automatic indexation, but this will still be reviewed periodically and may be adjusted to a maximum increase of 1.5 percent in pension yearly.

To ensure the judicious use and management of the retirement fund, a new entity will be established to serve as the fund administrator, easing the fiscal burden from MUP agencies. Meanwhile, the GSIS will serve as the fund manager.

Proceeds from the sale and lease of assets of the MUP will go to the pension fund.

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