BTr wants reforms in military pension

Published February 10, 2021, 6:00 AM

by Chino S. Leyco

The Bureau of the Treasury (BTr) is urging the lawmakers to immediately reform the present pension system for military and uniformed personnel (MUP) in view of the growing fiscal burden and sustainability risks it poses.

In a statement, National Treasurer Rosalia de Leon said overhauling the MUP pension system is long overdue, and has acquired greater urgency.

De Leon stressed during a public hearing of the Senate Committee on National Defense and Security, Peace, Unification and Reconciliation the full support of the Department of Finance for the proposal to overhaul the MUP pension system.

National Treasurer Rosalia De Leon

De Leon said reforming the MUP will ensure the government’s fiscal stability while guaranteeing the continuous provision of fair retirement benefits for the nation’s primary defenders.

The treasury led the drafting of the bill, supported by an actuarial study by the Government Service Insurance System (GSIS) on the financial impact of the MUP reform on the government’s coffers.

The government’s version of the bill, with some modifications, has been filed in the House of Representatives by Albay Representative and House Ways and Means Committee Chair Joey Sarte Salceda.

The current MUP pension system is non-contributory, hence retirement pensions and benefits are fully funded by the National Government through annual appropriations.

According to the GSIS actuarial study, the current system entails a total funding requirement estimated at P9.6 trillion. This amount covers the future obligations pertaining to active members and current pensioners of the MUP. 

If the current system prevails, the national government will be required to allocate around P850 billion to MUP pensions annually for the next 20 years.

The GSIS study also observed that the growth rates of MUP pension expenditures have been steadily dwarfing the Maintenance and Other Operating Expenses (MOOE) of MUP agencies over the years.

The present scheme also features the option to avail of early retirement after at least 20 years of service, even ahead of the mandatory retirement age of 56.

In addition, the monthly pension of MUP retirees is automatically indexed to the salary of the next in rank in the active service, said the GSIS study.

Hence, salary adjustments for active personnel directly affect and significantly jack up the funding requirement for retirees.

The proposed reform aims to ease this funding pressure by imposing a mandatory contribution amounting to 27 percent of base salary plus the longevity pay.

It also aims to set a minimum age of 56 years for pension benefits.

Further, it proposes the discontinuation of the automatic indexation, but this will still be reviewed periodically and may be adjusted to a maximum increase of 1.5 percent in pension yearly.

To ensure the judicious use and management of the retirement fund, a new entity will be established to serve as the fund administrator, easing the fiscal burden from MUP agencies. Meanwhile, the GSIS will serve as the fund manager.

As an additional source of funding, proceeds from the sale and lease of assets of the MUP will go to the pension fund.