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Military pension crisis looms as unfunded reserve deficit hits P9.6T —Salceda

Albay Representative Joey Salceda warned of a looming crisis in the pension system of the military and uniformed personnel (MUP) unless reforms are undertaken by the government.

The pension system has a P9.6 trillion unfunded reserve deficit, primarily because uniformed personnel do not have a contribution system and that MUP pensions are much higher than that of civilian personnel, the chairperson of the Committee on Ways and Means said in a press statement.

A reserve deficit is the difference between the required funding level and the current funding level.

The pension fund for MUP is being subsidized by taxpayers through an appropriation from the yearly budget.  MUPs do not pay contributions for their pension, unlike civilian employees.

The 2021 General Appropriations Act (GAA) had P152.9 billion set aside for pensions of MUP.

“This is a looming fiscal crisis. Without the reform, funding the pension scheme will become fiscally unsustainable, shrinking the economy by as much as 7.2 percent in the long-run. This is worse than what the economy sustained in the 2004 fiscal crisis and the 2008 global financial crisis,” Salceda, an economist, said.

“This could be bigger than the 2004 fiscal crisis that I worked to contain then, and worse than the 2008 crisis that we were able to avert. We have to prepare while the fiscal storm hasn’t come yet,” he added.

Rescue pension

Salceda filed House Bill No. 9271, or the fiscal framework for the MUP pension system, which proposes the following:

1.      Complete discontinuation of automatic indexation of pension payments, which can be periodically reviewed and increased to a maximum of 1.5% per year;
2.      A mandatory contribution rate of 21% of gross salary, similar to that of civilian government employees;
3.      Adjusting the pensionable age to 56 years old instead of the accumulation of at least twenty (20) years of satisfactory active service in the current MUP system;
4.      Basing MUP pension on the rank upon retirement;
5.      The use of MUP assets to supplement budget for pension costs;
6.      Creation of the MUP Trust Fund Committee to govern the fund, and designating the Government Service Insurance System (GSIS) as manager of the MUP Trust Fund;
7.      Tax exemptions on the MUP Trust Fund and applicability of all GSIS tax exemptions on the MUP Trust Fund as long as the GSIS remains its fund manager; and
8.      Authorization for the MUP Trust Fund Committee to create insurance products that specifically cater to the unique risks that uniformed personnel take.

“Despite a small curb in short-run consumption, public spending will stimulate the economy, resulting in growth by as much as 2.1 percent in 2021 and 5.8 percent in 2030,” he said.

Salceda is also pushing for a bigger risk insurance benefits for the MUP.

“The good thing about having a reserve fund set aside is that it helps us create better insurance products for uniformed personnel. My proposal will help ensure that those killed in action or hurt in the line of duty will get bigger compensation. That’s the benefit of having contributions. We can compensate risks better,” he said.

“If we don’t do this reforms, chances are we won’t have salary increases for uniformed personnel because the pension is linked with their salaries.," he added.—LDF, GMA News