Budget Watch

Security officials now OK to pension reforms, but only for new entrants

Aika Rey
Security officials now OK to pension reforms, but only for new entrants

UNIFORMED PERSONNEL. Member of the Cavite police man the boundary of Metro Manila and Cavite at the Cavite Expressway.

Dennis Abrina/Rappler

Military and uniformed officials also raise issues on increasing the retirement age and the year when pension can be received

Security officials of the Duterte administration backed the proposal to reform the current pension system for the “survival” of the economy and the government, but they asked for it to cover future entrants.

At the Senate hearing on the proposed reforms on military and uniformed personnel (MUP) on Thursday, May 20, officials from the military, police, fire and jail bureaus, and mapping agency said they supported the reforms. But, of course, there were buts.

The Senate bills propose that retirees start receiving a pension at 56 years old, retiring at actual rank, and scrapping of indexation. The current system of indexation pegs the amount of pension received by retirees to the current salaries of active personnel.

The bills also propose a retirement age ranging from 56 years old up to 65 years old and mandatory pension contributions for active personnel.

During the hearing, the military and uniformed officials all said they wanted these proposed reforms to cover new entrants.

However, the Department of Justice’s (DOJ) legal opinion said that there was no stopping Congress from removing indexation on existing MUPs.

“With regard to existing MUP retirees, the removal of automatic indexation cannot be applied without violating the due process clause because as to them, they already acquired a vested right to the retirement benefit,” state counsel Noreliza Manlangit said.

“For MUPs who are still in the active service, the proposed termination of automatic indexation may apply to them because they have yet to acquire the vested right to the retirement benefit,” she added.

This means that because MUP retirees are now enjoying the automatic indexation benefit, this cannot be taken away from them. However, for those still in active service, because they have yet to avail of their pension benefits, government could still reform their retirement package. This includes removing automatic indexation.

According to the updated actuarial study of the Government Service Insurance System (GSIS), unfunded liabilities could go down by 75% to P2.4 trillion, from P9.6 trillion under the status quo, if the following conditions covering new entrants and active personnel are met:

  • No indexation but with increase of 1.5% annually
  • 21% mandatory contribution
  • Pensionable age of 56 years old
  • Retirement at actual rank
  • Compulsory retirement at 60 years old

This means that the government would only have to shell out around P208.6 billion annually for the next 20 years, against the previously projected P800 billion.

But Senate President Pro-Tempore Ralph Recto said that he doesn’t have any problems with implementing the proposed reforms to new entrants only. He raised that the GSIS could instead look at having a mutual fund to reduce the unfunded liability.

A mutual fund is a kind of investment where pooled money is invested in stocks, bonds, or other assets.

“The principle of what you put in, the more you put in, the more you get in return is in a mutual fund.…We had the same debate with reforming the SSS (Social Security System). By doing that (mutual fund), we reduced the unfunded liability. I suppose this is something in addition that GSIS and the Bureau of Treasury can look into,” Recto said in a mix of English and Filipino.

“The idea is to stop the bleeding and there are many ways to do that. But I think we need to respect our contract with the uniformed personnel,” Recto added.

BTr Deputy Treasurer-Officer-in-Charge Ed Mariño agreed that a mutual fund could remove the unfunded liability – “in theory” – if it is implemented properly.

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Issues on retirement

On retirement, most of the proposed bills would set mandatory retirement from 56 to 60 years old, while Senate Bill (SB) No. 1785 proposes compulsory retirement for the following:

  • Enlisted personnel – Those ranked Master Sergeant and below to retire by 56 years old with at least 20 years of service or upon reaching 30 years of service, whichever is earlier.
  • Senior non-commissioned officers – Those ranked Senior Master Sergeant and above shall retire by 62 years old.
  • Commissioned officers – Officers should retire by 65 years old unless their term surpasses that age.

Fire Chief Superintendent Wilberto Kwan Tiu raised that fire personnel “inhale toxic gases” so mandatory retirement at 60 years old would be somewhat “late.” Kwan Tiu also asked that instead of full indexation, retirees’ pensions be indexed at 25% of the active personnels’ salaries.

Army Colonel Reno Tolentino also cautioned that the average age of personnel would be older, as the reforms would push personnel to “maximize” their service if the pensionable age would be set at 56 years old.

Ang kailangan po natin sa Armed Forces, gusto rin po namin, medyo bata-bata ang average age. (What we need in the Armed Forces, and what we also want, is a younger average age),” said Tolentino.

While optional retirement will decrease, police chief General Guillermo Eleazar said that increasing the pensionable age would help the police force to retain skills.

Senator Panfilo Lacson, chair of the Senate panel on national defense, in response to the comments said: “Lahat kayo walang objection, pero mayroong ‘pero.'” (All of you say you don’t have any objections, but you all have your ‘buts.'”

Lacson asked the security officials to review their retirement laws and submit their proposals to the Senate panel so the GSIS can update its actuarial study.

Stopping the ‘revolving door’ policy

Defense Secretary Delfin Lorenzana on Thursday said that he supported Senator Richard Gordon’s Senate Bill (SB) No. 1785.

Apart from setting a range of compulsory retirement for MUPs, SB 1785 also prescribes a fixed 3-year term of the Chief of Staff of the Armed Forces of the Philippines and other top officials.

Lorenzana explained that while mandatory retirement could be set to 65 years old, only three or four-star generals would stay in their posts up to that age as Republic Act No. 8186 mandates a “time grade” or the maximum tenure per rank.

“The way I look at it, this retirement [bill], not everyone will reach 65 years old. If you do not get promoted after consuming your time grade, you have to retire,” Lorenzana told senators, estimating that as early as 52 years old, some generals would have to retire.

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Lorenzana also wanted to reduce the percentage of generals versus total active personnel in the AFP to 0.1% from the current 0.125%. He said that there are now 190 generals, which already exceeded the supposed cut-off by 20 more.

“Our strength now is 143,000, that means that we should have 143 generals. I believe that we have too many generals in the [AFP],” said Lorenzana. – Rappler.com

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.