Budget Watch

Without reforms, over P800-B needed annually to fund pension of soldiers, cops for 20 years

Aika Rey

MILITARY TROOPS. Special Forces of the Armed Forces of the Philippines

File photo by Darren Langit/Rappler

The military and uniformed personnel do not pay for their pension

A whopping P848.39 billion is needed annually for the next 20 years to pay the pension of the military and uniformed personnel (MUP), according to the Government Service Insurance System (GSIS), if the existing scheme is not fixed.

At the Senate hearing on the proposed reforms on MUP pension, the GSIS said that the estimated unfunded liabilities or the funding requirement needed is at P9.6 trillion at status quo.

At present, soldiers and police do not pay for their pension.

To be able to fund this, Congress needs to appropriate over P800 billion – for the pension of MUPs alone – in the national budget for the next 20 years.

Based on GSIS Actuary Group Manager Jenny Lobas’ presentation, the scenario wherein the government has to pay the least in the next two decades is at P2.39 trillion or P211.06 billion annually, if the following conditions are met:

  • No indexation or the practice of adjusting the pension of retirees to the pay scale of those in the active service
  • Pension they receive is for their actual rank
  • Maximum amount of pension at 90% of the base and longevity pay
  • Age of retirement at 60
  • Mandatory contributions

The P211-billion annual requirement could even be lowered to P209 billion if MUP assets and properties are sold. However, the computation for this is still incomplete, as the Bureau of Fire Protection, Bureau of Corrections, and the National Mapping and Resource Information Authority were unable to submit their list of assets needed for the actuarial study.

The total funding requirement is based on 2019 data of 402,086 active personnel who, on average, served for 10 years, with a monthly salary of P39,687; plus 196,004 pensioners aged 64 on average, with a salary of P39,520.

If Congress is able to pass a law making 60 the retirement age for MUPs, without scrapping the indexation scheme and making them pay for their pensions, the unfunded liability will even go up to over P9.7 trillion or P856 billion annually – which is higher than the status quo.

Reform needed

National Treasurer Rosalia de Leon pointed out that the unfunded liability was just at P5 trillion in 2016 but it has already ballooned 3 years later.

“We should already address this head on with the removal of indexation because you see, the unfunded liability, it would be reduced by more than two-thirds, from P9.6 trillion to P3 trillion.… We reiterate that there should be a mandatory contribution by our military and uniformed personnel,” De Leon said.

While it’s already known that the current MUP scheme costs an arm and leg, previous administrations still failed to address this issue.

“The truth is we keep kicking this can down the road.… It’s no use – at a degree, it’s a pointless exercise – churning out all the numbers when there is no commitment on the part of our economic managers to finally grapple with this problem,” said Senator Imee Marcos.

Senator Panfilo Lacson, the Senate panel on national defense chair, said that this problem should already be solved within this year. Similar to the Senate, the counterpart measure at the House of Representatives is still pending at the committee level.

“We need to confront this. We cannot wait for the 2022 budget without resolving the issues involved,” Lacson said.

‘Separate pension scheme for AFP’

Defense Secretary Delfin Lorenzana has no problem with scrapping the indexation scheme, but he proposed that there should be an increase based on the consumer price index or account for inflation.

The Armed Forces of the Philippines, however, has different plans, said Lorenzana. The AFP wants to have its own pension scheme.

“The AFP should have its own pension plan because AFP is military and the others are civilian agencies. We do our duties 24 hours a day. We are also assigned to many missions abroad, or at war,” Lorenzana said.

“The strength is now at 147,000. If we are able to solve insurgency, then we can reduce that by half. That’s what the AFP wants to happen,” the defense chief said.

Lorenzana did not give the details of the proposed AFP pension plan, but he said a position paper will be submitted to the Senate. – 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.