MUP pension sustainability to take 60 years if only newbies pay in —DOF

It would take at least six decades for the reformed military and uniformed personnel (MUP) pension system to become sustainable if only the new entrants are mandated to contribute, top officials of the Department of Finance (DOF) said.

During the DOF's weekly press chat in Manila, Finance Undersecretary Cielo Magno said sustainability could be achieved in a shorter period if all MUPs contributed to their retirement funds.

“Maybe in about 20 years it will be completely sustainable,” she told the Finance press corps.

Finance Undersecretary Alu Tiuseco, for her part, said, “If we don't do that, it may take 60 years before it becomes sustainable... so, it’s versus 20 years.”

“What will happen is, you still have to pay for those who are retired and those who are active… they will pay partially. But that would reduce the overall burden of the government because there’s a counterpart already,” Magno added.

Defense Secretary Gilberto Teodoro Jr. earlier said he is not subscribing to the proposed “blanket” mandatory contributions for military personnel, “especially for those who have already completed at least 20 years of active service.” 

Military and uniformed personnel currently do not make contributions to their pension fund, which is fully funded by the government under the national budget.

Calls to reform the system by introducing contribution requirements included an earlier suggestion in which mandated contributions would only be required of new entrants into the MUP ranks.

However, the substitute bill approved by the Ad Hoc Committee in the House of Representatives on the MUP pension reform would require both those in active service and new entrants to contribute to their pension. 

In particular, the measure would mandate those in active service to contribute 5% of their base and longevity pay in the first to third years of the MUP pension reform implementation; 7% in the fourth to sixth years; and 9% in the seventh year onwards.

The government contribution would be at 16% in the first to third years; 14% in the fourth to sixth years; and 12% in the seventh year onwards.

New entrants, on the other hand, would contribute 9% of their base and longevity pay to their pension, with a government contribution of 12%.

Loan restructuring

"We recognize where Secretary Teodoro is coming from. But as economic managers, it is our job to ensure the sustainability of the proposed pension fund and individual contribution is really necessary to achieve that,” Finance Secretary Benjamin Diokno said.

“We are proposing a loan restructuring for MUP personnel to help them with their financial situation and allow them to accommodate the required contribution,” he added.

The Finance chief earlier said that a loan restructuring program is being planned “to ease the impact of mandatory contributions on personnel with heavy personal loans.”

The proposed reform also includes a uniform retirement age of 57 or upon accumulation of 30 years of satisfactory service, to encourage those in active service to stay longer and ensure that more experienced personnel are retained.

Diokno also said the plan includes a periodic review of pension benefits and a possible increase of up to 1.5% per year, subject to the evaluation of economic conditions and actuarial life of the pension fund, to keep up with inflation.

Commenting further on Teodoro’s remarks, the Finance chief said, “I'm sure there will be other hearings, so we don't know what version will be passed by the House.”

“In legislation [process], you don't get 100% of what you want… you have to compromise... then it will go to the Senate, so let's see what will be the final outcome,” Diokno said.

Indexation

The MUP pension reform covers those in the military and the police, as well as personnel in the Bureau of Corrections (BuCor), the Bureau of Jail Management and Penology (BJMP), the Philippine Coast Guard (PCG), the Bureau of Fire Protection (BFP), and the National Mapping and Resource Information Authority (NAMRIA).

Apart from mandatory contribution, the MUP pension reform bill also provides a guaranteed 3% increase on the salary of MUPs and the indexation of pension at 50% level of an MUP’s rank and retainment of one rank higher rate for pension upon retirement.

“That has been my position even before not to touch the pension of those who are already retired because it’s like a contractual obligation,” Diokno said.

Under the current system, retired MUPs' pensions are also automatically indexed to the prevailing salary of incumbent personnel of similar rank.

Diokno had said that with the pension system having no contributions from MUPs, liabilities have already been earlier estimated at P9 trillion versus the country’s gross domestic product (GDP) of around P20 trillion.

Under the 2024 NEP, the government is proposing to allocate P164 billion to the MUP pension, reflecting a 3.5% increase from the funding for benefits this year.

This is fully funded by the government, without any direct contributions from the MUPs themselves.

If the pension reformed is enacted into law, the government would only be allocating “around P40 billion to P50 billion” for the state’s counterpart in the MUP pension system.

“Just to add also that we are trying to emphasize that we are creating a sustainable pension system. Remember since it's non-contributory, it's really dependent on the availability of funds,” Tiuseco said.

“There were years that we had arrears. We are trying to solve this… This is not just to address the fiscal space, but also to make sure we can get funds,” she added.

Diokno had earlier emphasized that the current MUP pension system is “not a real pension system” because “there are no contributors.”

“A pension system is where the beneficiaries of the pension system contribute to the system and there is a government counterpart, okay, but in this particular sense, there is no contribution on the part of the beneficiaries, and we only appropriate it annually,” the Finance chief said.

The economic team conducted a series of exhaustive consultations across the country or a total of 30 roadshows and technical working group meetings from May to July with the Armed Forces of the Philippines, the Philippine National Police, the BFP, the PCG, the BJMP, BuCor, and NAMRIA. — BM, GMA Integrated News