The fiscal sustainability of the Military and Uniformed Personnel (MUP) pension system could face “total fiscal collapse” in the future unless urgent reforms are enacted to save it.
Albay Rep. Joey Sarte Salceda, who chairs the House Ways and Means Committee, has raised this alarm, noting that the pension system now has a P9.6 trillion unfunded reserve deficit, primarily because uniformed personnel do not have a contribution system and MUP pensions are much higher than that of civilian personnel.
“This problem has been easy to ignore in the past because pension spending was under control. It was a very daunting warning sign when pension spending exceeded MOOE for the uniformed services in 2018. It meant we were spending more out of the budget to serve retired personnel than to protect active members,” Salceda said.
Under the current MUP system, almost the entire pension spending for MUP comes from the national budget. “This is a looming fiscal crisis. Without reforms, funding the pension scheme will become fiscally unsustainable, shrinking the economy by as much as 7.2% in the long-run. This is worse than what the economy sustained in the 2004 fiscal crisis and the 2008 global financial crisis,” Salceda pointed out.
“This could be bigger than the 2004 fiscal crisis that I worked on to contain then, and worse than the 2008 crisis that we were able to avert. We have to prepare while the fiscal storm hasn’t come yet,” he added.
Salceda last week filed HB 9271, the fiscal framework for the MUP pension system, to solve the looming problem. Finance Secretary Carlos G. Dominguez has fully endorsed the reform bill and has sent Speaker Lord Allan Jay Velasco a letter asking for the support of the House of Representatives on the matter.
HB 9271 seeks the following: 1) Complete discontinuation of automatic indexation of pension payments, which can be periodically reviewed and increased to a maximum of 1.5% per year; 2) mandatory contribution rate of 21% of gross salary, similar to that of civilian government employees;
3) Adjusting the pensionable age to 56 years old instead of the accumulation of at least twenty (20) years of satisfactory active service in the current MUP system; 4) basing MUP pension on the rank upon retirement;
5) Use of MUP assets to supplement budget for pension costs; 6) creation of the MUP Trust Fund Committee to govern the fund, and designating the Government Service Insurance System (GSIS) as manager of the MUP Trust Fund;
7) Tax exemptions on the MUP Trust Fund and applicability of all GSIS tax exemptions on it as long as the GSIS remains its fund manager; and 8) authorization for the MUP Trust Fund Committee to create insurance products that specifically cater to the unique risks that uniformed personnel take.
Based on the estimates Salceda crafted with the Department of Finance, funding the pension scheme will be sustainable for the government. “Despite a small curb in short-run consumption, public spending will stimulate the economy, resulting in growth by as much as 2.1 percent in 2021 and 5.8 percent in 2030,” he said.
Salceda said he is also pushing for bigger risk insurance benefits for the MUP. “The good thing about having a reserve fund set aside is that it helps us create better insurance products for uniformed personnel. My proposal will help ensure that those killed in action or hurt in the line of duty will get bigger compensation. That’s the benefit of having contributions. We can compensate risks better,” he pointed out.
“If we don’t do this reforms, chances are we won’t have salary increases for uniformed personnel because the pension is linked with their salaries. It’s unfair to our active servicemembers that we can’t guarantee their pensions. Inaction on this matter will be very bad for everyone. We can’t kick the can down the road on this. We have to act now, while Congress has the resolve to do it,” Salceda stressed.