Budget Watch

New House bill ‘simplifies’ MUP pension reform, seeks cut in salary hike

Aika Rey

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New House bill ‘simplifies’ MUP pension reform, seeks cut in salary hike

SALARY HIKE CAP. Police officers check on the identification of individuals passing the Bulacan-Caloocan border in San Jose del Monte, Bulacan on March 29, 2021.

Rappler

The new substitute bill for House Bill No. 9271 also seeks to make soldiers and cops pay for their pensions

A House panel is proposing to retain the current military and uniformed personnel (MUP) pension scheme, while introducing a key reform measure that would put a lid on annual salary increases for soldiers and cops.

House ad hoc panel on MUP chair Joey Salceda said Wednesday, June 23, that the committee unanimously approved a new substitute bill for House Bill No. 9271 that would replace the earlier approved measure.

Under the current scheme, soldiers and cops – who don’t pay for their pensions – retire at a higher rank at 56 years old, or when they reach at least 20 years of service. The pensions they receive are pegged on the current salaries of active personnel. This is also known as automatic indexation.

Under the approved substitute bill, the measure proposes to trim annual salary increases to 5% for 10 years for active personnel, and to make MUPs pay for their pensions.

If the bill is passed, MUPs would have to start contributing to the pension fund. Salceda said that the new substitute bill restores mandatory contributions – 12% for the government and 9% for the MUP.

Salceda argued that the problem lies with salary increases. However, according to him, the average nominal salary hike for MUPs in the last 10 years has been only 4.4%.

“Our resolution is to simplify the reform. The heart of the problem is indexation to very rapidly growing salaries. So, the solution is to contain the most crucial aspect of the problem. Let’s contain uncontrollable salary increases,” Salceda said.

He added that the proposed bill would “save” the system from collapse for the next 10 years, at least.

“Basically, it buys time for us to find better funding sources and benefits structures for the MUP pension,” the Albay congressman said.

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According to the actuarial study of the Government Service Insurance System (GSIS), the total unfunded liability for the current MUP pension system is at P9.6 trillion or over P800 billion annually for 20 years. This estimate assumed that the annual salary hike is at 10%.

According to the same study, capping the annual salary increase at 5% alone would save the government P6.05 trillion or about two-thirds less compared to the current setup. This computation does not include how much the government will have to spend for its share of the pension.

The proposed reforms by the House ad hoc panel departed from discussions arising from Senate hearings.

Senate Bill No. 1419, for example, rejects indexation for new entrants, proposes to retain the same rank upon retirement, and introduces mandatory contribution. This version of the bill was supposedly supported by Finance Secretary Carlos Dominguez III.

During the May 20 hearing at the upper chamber, security officials backed the said reforms but only if applied to new entrants.

Recently, the economic managers urged Congress to pass MUP pension reforms when session resumes, while reiterating support for the removal of indexation. On its own, this could bring down expenses by P6.55 trillion. – 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.