Budget Watch

Economic team urges Congress to reform military pension scheme

Aika Rey
Economic team urges Congress to reform military pension scheme

UNIFORMED PERSONNEL. A Quezon City cop issues an ordinance violation receipt to a commuter as enhanced community quarantine is reimposed on March 29, 2021.

Angie de Silva/Rappler

Congress has a limited window to pass the military and uniformed personnel pension reform bill in 2021 – not to mention that the Senate and House versions differ

The Philippines’ economic managers are urging Congress to pass reforms in the pension scheme of the military and uniformed personnel (MUP), saying that they back lawmakers’ efforts to “enhance” changes proposed by the Duterte administration.

“We, members of the Development Budget Coordination Committee (DBCC), express our full support for the efforts of Congress to discuss and enhance the administration-proposed reform of the [MUP] pension system,” the DBCC said in a statement on Tuesday, June 15.

“[To] avoid the potentially dire fiscal fallout from maintaining the status quo, we urge Congress to pass a fiscally sustainable version of the MUP pension reform [bill] when session resumes.”

Session resumes on July 26. Congress, however, has a limited window to pass the MUP pension reform bill in 2021 – not to mention that the Senate and House versions differ.

Currently, the lower chamber is planning to pass the measure before budget debates start.

The chambers would only have a few weeks to go before hearings on the 2022 budget, which would likely begin in September. If Congress fails to pass the MUP pension reform bill before the budget season, then it would have to wait until 2022.

The DBCC statement also comes as a substitute bill to House Bill (HB) No. 9271 is set to be approved at the committee level. Its key provisions include removing indexation – which pegs the amount of pension received against the current salaries of active personnel – yet mandatory contributions would no longer be needed.

The substitute bill also retains optional retirement after 20 years of service and includes a higher risk insurance coverage for MUPs who were wounded or killed in action.

The proposed reforms by the House ad hoc panel departed from what was being heard in the Senate, which includes mandatory contributions for MUPs.

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Senate Bill No. 1419 rejects indexation for new entrants, imposes mandatory contributions, and creates a Military and Uniformed Personnel Retirement Fund to manage the pension. The original HB 9271 also had the same provisions.

Both versions of the bill were supported by Finance Secretary Carlos Dominguez III.

It is still unclear whether the economic managers would be open to excluding mandatory contributions, but what is apparent from Tuesday’s statement is that the DBCC supports the removal of indexation.

Rappler reached out to Dominguez and Budget Secretary Wendel Avisado, but they have yet to respond as of this posting.

According to the actuarial study of the Government Service Insurance System, the total unfunded liability for the current MUP pension system is at P9.6 trillion.

Under the current scheme, MUPs do not pay for their pensions. Upon retirement at 56 years old or when MUPs reach at least 20 years of service, they get a higher rank, and pensions are pegged against the current salaries of active personnel.

Scrapping indexation would automatically cut two-thirds or P6.6 trillion from the total unfunded liability.

“Reforming the MUP pension system is long overdue, and has acquired greater urgency in view of the growing fiscal burden and sustainability risks it poses,” the DBCC said.

“If we are to modernize our uniformed services into a credible and advanced defense force, we must have the fiscal space to hire personnel, purchase state-of-the-art equipment, and invest in their training and protection.” – Rappler.com

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Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.