DOF's Diokno: Marcos okay with military pension reform

Finance Secretary Benjamin Diokno is reviving his proposal to reform the pension system for military and uniformed personnel (MUP) under the Marcos administration as he warned that failure to address the ballooning cost of pensions for retirees could lead to a “fiscal collapse.”

At a Palace briefing on Tuesday, Diokno said he discussed with President Ferdinand Marcos Jr. the pension reform for retired MUPs, which he described as the “elephant in the room” that “nobody would like to touch it and they simply ignore it.“

Diokno outlined four recommendations to reform the MUP pension system, which he said were “okay” with the President.

“Yeah, he is part of the decision-making, yeah. Okay sa kaniya iyon (It’s okay with him,” he said.

During his stint as Budget secretary under the Duterte administration, Diokno pushed for the reform of the pension system for MUPs particularly mandating uniformed personnel to contribute to their pension fund. 

The plan, however, did not materialize under the previous administration.

In reviving his pension reform plan, the Finance chief noted that the current system for MUPs is fully funded by the national government.

“In other words, it’s appropriated annually in the budget but there’s no contribution from the retirees, okay,” Diokno said.

“That’s a unique kind of pension system. Right now, I think it’s in the neighborhood of around P120 to P130 billion in the 2023 budget,” he added.

The Marcos administration’s chief economic manager also pointed out the “automatic indexation” system of the MUP pension fund.

Under the automatic indexation system, the amount of a retiree’s pension is automatically adjusted to match the prevailing salary of incumbent personnel of similar rank.

“The MUP pension is automatically indexed to the salary of the personnel of the same rank. In other words if you are a retiree [and] if you are a general getting X amount of money, if the salary of the incumbent is doubled, you get your pension doubled also, okay,” the Finance chief said.

Diokno also said that when MUPs retire, “they granted one rank higher.”

“Pension can be received after 20 years of service with no minimum pensionable age. So some of them get recruited at the age of 20 so they can already retire at the age 40, okay. And you know how long their lives are, right? Military people, they live longer than us, okay, some at the age of 90, okay. So, they retire at 40 to get their pension up to age 90. Isn’t that ridiculous?” he said.

“So we want to reform them… There will come a time when the current budget will only be about a third, one-third, or one-fourth of the money that we’re paying for the pensioners. So we have to really address that issue. It’s not sustainable. I said, if this goes on, there will be a fiscal collapse,” he added.

The Cabinet official also compared the pension of private sector and civilian government workers against MUPs’ pension.

“The average monthly pension – this is monthly – of military personnel is P40,000 pesos, compared that to what of SSS (Social Security System) retiree gets – it’s P4,528; and what a GSIS (Government Service Insurance System) personnel get – P13,600,” he said.

Recommendations

Under the first recommendation, the Finance chief said that the reform should apply to all active personnel and new entrance.

“So once the new system is adopted, all those who are in active service and the new recruits will have to pay their way; no longer free, okay,” Diokno said.

The Finance chief also said that the automatic indexation of pension to the salary of active personnel of single ranks should be removed.

“And third, the military/uniformed personnel will receive their pension starting at 56 years old, or now it’s now adjusted to 57 years old,” Diokno said.

“And number four, mandatory contributions will be required for active personnel and new entrance similar to the GSIS pensioners,” he added.

Under the previous administration, the government planned to create a new branch of the GSIS to handle the pension fund for MUPs.

The GSIS estimated earlier that it needs around P7 trillion for the takeover.—LDF, GMA Integrated News