Loan restructuring mulled to ease impact of reformed MUP pension system –Diokno

The Marcos administration’s economic team is looking at including mitigating measures in the proposed reform of the military and uniformed personnel (MUP) pension system to ease the burden of those who will be impacted should the government mandate MUPs to contribute to their own pension fund, Finance Secretary Benjamin Diokno said Tuesday.

In a statement, Diokno said that among the mitigating measures being explored by the economic team is a loan restructuring program “to ease the impact of mandatory contributions on personnel with heavy personal loans.”

The chief economic manager of the administration issued the statement as the House of Representatives ad hoc committee holds its first hearing on the MUP pension reform bill.

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

Diokno said the plan also 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.

The Department of Finance (DOF) had said that while the reform of the MUP pension system would require uniformed personnel to contribute, the government would still shoulder a bigger share of the fund.

Diokno reiterated that the reformed MUP pension system would be funded through the MUP’s contributions “with a corresponding government share,” as well as supplemented proceeds from the sale or lease of military assets.

“The creation of the Military and Uniformed Personnel Trust Funds is one of the key reform proposals,” Diokno said.

“At the core of our reform package is the creation of separate pension funds that recognize the unique nature of military service, and provide retirement benefits that reflect the sacrifices by the military and uniformed personnel,” the Finance chief said.

The Cabinet official also said that while the reform bill would require MUPs to give a contribution, this is beneficial to them because it gives them full ownership and vested rights over the pension fund.

“The creation of a self-sustaining pension fund insulated from economic shocks and the budgetary process is key to ensuring that the State is able to honor its future promises to retirees and their dependents,” Diokno said.

Under the current system, retired MUPs' pensions are fully funded by the national government. These are also automatically indexed to the prevailing salary of incumbent personnel of similar rank.

The administration is pushing to reform the system by removing the automatic indexation among pensioners and imposing mandatory contributions on all active and new MUP entrants.

Diokno had said that the unfunded liabilities under the current pension system for MUPs were already worth half of the country’s economy or around P9 trillion.

“The core objective of the government’s efforts to reform the pension system for military and uniformed personnel is to address the unsustainability and uncertainty of the current pension system. Through these reforms, we can ensure the timely delivery of fair retirement benefits to men and women in service, while gradually lessening the strain on the government budget over time,” the Finance chief said.

"The current MUP pension system’s dependence on full government funding exposes it to economic and fiscal downturns and compromises its stability and reliability,” he said.

Diokno said that pension arrearages in the past few years alone amounted to P3.7 billion in 2021, P32.6 billion in 2022, P5.2 billion in 2023, with a projected P4.8 billion for 2024.

“The goal is to craft a pension system that factors in the welfare of the military and uniformed personnel in active service and retirees, while making sure it is sustainable and can withstand the test of time,” he said.

“The emerging consensus provides a framework that balances the welfare of MUPs and the fiscal health of the MUP pension system,” he added.

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, Philippine National Police, Bureau of Fire Protection, Philippine Coast Guard, Bureau of Jail Management and Penology, Bureau of Corrections, and National Mapping and Resource Information Authority. — DVM, GMA Integrated News