Solon on SSS increase: Hike salary cap instead, improve investment return

Instead of increasing the Social Security System (SSS) contribution rate to 12.5 percent, the government should just increase the maximum salary cap from the present P16,000 to P25,000.

This was the suggestion made by Quezon City Rep. Winston Castelo, one of the legislators who filed his own version of the SSS measure — our House Bill 4008 — in the House of Representatives.

"One feature of a social security system is that it allows high-income earners to subsidize low- income earners, which is why the contribution rate is based on income," said Castelo.

"This can be enhanced by increasing the maximum salary cap and keeping the current rate. The increase in salary cap should be enough to cover the projected financial requirement of the pension increase without burdening low-income earners and self-paying members," he added.

President Rodrigo Duterte has just approved the initial P1,000 hike for SSS pensioners, and also allowed SSS rate contribution of its members to go up by 1.5 percent from 11 percent.

But Castelo argued that the best way to prevent "diminishing" the purchasing power of low-wage earners would be through an increase in the salary cap.

"This way we do not impose additional financial burden on low-wage earners and self-paying members, particularly the 'kasambahay' whose contributions are paid solely by their employers, overseas Filipino workers (OFWs) and self-employed individuals such as market vendors, tricycle and jeepney drivers, farmers, fishermen and other agricultural workers who pay contributions on their own," said Castelo.

The congressman also insisted that SSS should only be allowed to increase contribution rate once it has improved its ability to generate higher investment income.

"This means that before the increase should take effect, the SSS must achieve a minimum annual rate of return on its investments. This should be imposed on the SSS to force its management to invest wisely and manage its investments well," he said.

Castelo said the SSS' current average return of investment that is below 7 percent  is "very inefficient investing" considering that the agency has almost P500 billion in investable funds.

As of September 2016, the SSS has more than P470 billion in investments from which it generated income of only PhP24.6 billion, or just about a 5-percent ROI, according to Castelo.

"The SSS should learn from other investment institutions which make a lot more with P470 billion," he said.

The lawmaker said the SSS appears to earn more from lending to its own members, as it charges its members 10 percent for salary loans plus 1 percent service fee for a total of 11 percent.

Housing loans are charged eight 8 to 11 percent depending on amount. If the average ROI of SSS is 7 percent as it claims, that means SSS is earning lower from its other investments -- higher from lending to its members.

"SSS is badly managed and the funds are not invested well. So, to compel SSS to be more efficient in its investments, let's require that any increase in contribution should take effect only if SSS achieves an annual average ROI of, say, 8 or 10 percent," Castelo said. —KBK, GMA News