DOF pushes military pension reform

Published May 15, 2022, 1:26 PM

by Chino S. Leyco

With the forthcoming change in leadership, the Department of Finance (DOF) said the government should continue its reforms in the military and uniformed personnel (MUP) pension scheme to ensure the county’s fiscal stability.

Finance Chief Economist Gil S. Beltran said the government is spending around P114 billion per year to fund the MUP pension, a hefty and unsustainable amount for the state with a ballooning debt load.

For this reason, Beltran suggested that MUP pension reforms should form part of the government fiscal consolidation program.

“Structural measures, such as reforming the pension system of the military and uniformed personnel (MUP), will prevent the further build-up of pressure around fiscal fault lines,” Beltran said in his DOF economic bulletin on Sunday, May 15.

Since President Duterte took office, his economic managers began their push in Congress for a MUP reform measure.

National Treasurer Rosalia de Leon explained that reforming the pension system of military and uniformed personnel is long overdue.

Aside from ensuring the government’s fiscal stability, de Leon added that it will also guarantee the continuous provision of fair retirement benefits for the nation’s primary defenders.

The Bureau of 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 current 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.