by Marvin A. Tort, Businessworld, January 12, 2017
Almost five years ago, I wrote a column about my concerns regarding the life span of the Social Security System (SSS). I expressed my opinions based on a study by the Asian Development Bank (ADB), released in the third quarter of 2012, on pension systems in the region. I am uncertain if there are more recent studies, local or otherwise, on the continued viability of the SSS.
I choose to recall parts of that 2012 study, in light of the recent government decision to raise by P1,000 across-the-board the pension currently being received by SSS retirees. Another P1,000 increase is being planned for either 2019 or 2022. Meantime, the mandatory “contribution” of all SSS members — practically all private workers — will also go up.
To raise pension by P1,000 starting this month (and possibly by another P1,000 either in 2019 or in 2022, according to SSS Chairman Amado Valdez) the monthly contribution of SSS members will go up to 12.5% (from the present 11%) of monthly salary starting this May. Incidentally, both 2019 and 2022 are election years.
In my case, as an SSS member, my present monthly contribution of P1,760 (as 11% of present monthly salary cap of P16,000) will go up to P2,500 (as 12.5% of new monthly salary cap of P20,000). In sum, to assure myself of maximum benefit possible come retirement, I will have to pay starting this May an additional P740 monthly to the SSS.
My concern is that I am uncertain if the SSS will still be around by the time I retire. I therefore ask myself yet again if I should still contribute to SSS, if not contribute more starting this May? Or, should I just manage my own pension fund? Can SSS assure me 100% of my monthly pension and other retirement benefits starting the age of 60 until I die?
According to SSS President Emmanuel Dooc, the SSS has sufficient funds to pay for higher pension starting this month. I don’t doubt this. But, until when will SSS have sufficient funds to pay all pensions in full? Another 15 years? Will it still be around by 2040? Will younger generations continue to pay bigger fees to SSS to benefit the generations ahead of them?
Congress wanted a P2,000 pension hike, but the Duterte administration was reportedly worried this would actually deplete the fund and shorten the life of SSS. A P1,00 hike is a compromise — an amount that SSS can supposedly manage, and that also allows the President not to renege on a campaign promise to support a pension increase.
In its 2012 report, however, the ADB noted that mere increases in contributions may not be enough to help prop up SSS in the long term. It said that more reforms were necessary to stabilize the condition of similar funds all over the region and to assure their continued viability given the “region’s rapidly aging population.”
In the Philippines, ADB reported, the “significant disparities in the [pension systems] challenge both its equity and sustainability.”
Moreover, the fall back to pension schemes like “family-based old-age support mechanisms, such as with children supporting their elderly parents, are breaking down, particularly as globalized labor markets trigger a surge in migrant workers.”
It also said that “with the already high benefit-to-contribution ratio of the SSS [as of 2012], greater increases in contribution rates would be required to sustain the pension program if no improvement is made on the current compliance rate of 31%.” The bank also said that unless major reforms were done, it estimated the SSS fund to last only until 2031.
The study also noted that SSS, the Government Service Insurance System (GSIS), and the Armed Forces of the Philippines Retirement Service Benefit System covered about 79% of the labor force and 28% of the population aged 60 and older. It also expected the GSIS fund to last longer than that of SSS, or until 2055.
It added that “The GSIS program generally offers better benefits than the SSS as reflected in the gap between their replacement rates, but in both the rates are much higher than the best practice targets of 40% to 50% which make the programs unsustainable as the population ages. Removing the wage ceiling for GSIS members in 2003 exacerbated the gap, and short-term salary averaging is another source of perverse redistribution.”
A source of encouragement, however, is that at the time of the ADB study in 2012, the SSS contribution rate was just 10.4%. This, as we now know, had been raised to 11%, and is to be raised again, to 12.5%, by this May. But, with benefits to go up as well starting this January, and again in 2019 or 2022, the contribution rate will surely have to be raised yet again.
In 2012, ADB noted that “the large discrepancy between the contribution rate of the GSIS (21%) and the SSS (10.4%) reflects the significant imbalance between contributions and benefits in the SSS. This accounts for its [SSS] shorter fund life (2031) compared to that of the GSIS (2055)… The significant disparities between the SSS and GSIS test the fairness and sustainability of the entire system for present and future retirees.”
ADB also said that “the longer this imbalance continues, the greater the burden to be passed on to future generations of contributors as greater increases in contribution rates will be required to catch up with ever-growing pension payments.”
ADB added that to “preserve the pension system, the government should consider raising the retirement age, increasing contributions, combining the two programs, gradually shifting to a defined-contribution system, and expanding the economy — although the current population growth rate of 2%, one of the highest in Asia, will make sustained economic growth a challenge.”
In arguing for raising the retirement age to 70 from 65 for government workers, and from 60 for private workers, the study noted that “decreases in fertility rates combined with increases in life expectancy will age the Philippine population… and if the present trend continues, the top-heavy structure may eventually result in the collapse of the [pension] system.”
And in pushing for an SSS-GSIS merger, ADB said this would “remove the current inequities between the two programs, and any savings for the government can be channeled to social assistance programs. This can also involve offloading non-pension related activities such as the non-life insurance operations of the GSIS, or the social assistance coverage of the SSS.”
The Duterte administration made the tough call of doing the necessary — raising pensions but at the same time mandating higher SSS contributions. It will have to make an even tougher call, in my opinion, of raising contributions for at least one more time within its term. And we all just have to grin and bear it — for SSS’ sake.
Part of the burden of sustaining the SSS is now with Congress, which should seriously consider merging it with GSIS, and raising the retirement age for public and private workers. These two initiatives, with the right push, can gain traction and support in Congress and Malacañang. That is, if a lawmaker or bureaucrat will bother to look into the value of these two recommendations.
Marvin A. Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council