The implementation on Jan. 1, 2023 by the Social Security System (SSS) of a one percent increase in its members’ contribution rate to 14 percent is the third step of its four-tier contribution increase. This is in accordance with Republic Act 11199 that was enacted in 2018 to strengthen the SSS’ capability to serve the needs of its large membership.
According to SSS President and CEO Michael G. Regino, an additional 22 years have been added to the fund life with the help of contribution rate increases since 2019. Banking on the rate increases mandated by the new law, he said that the fund life was extended by another 12 years or until 2044.
Moreover, he said that the latest SSS actuarial valuation has shown that the fund life was boosted by another 10 years as an offshoot of efforts to boost its membership and coverage. The SSS now projects the fund life to be extended until 2054. This means an additional 22 years wherein all SSS members and pensioners can enjoy their various benefits.
Indeed, the mandated rate increase is not a panacea. It should prod the SSS to sustain and level up its collection efforts. Over the years, the ratio of paying members vis-à-vis the number of beneficiaries and retirees has not been sufficiently high, thereby constraining the SSS to dip into its reserves to plug the gap. The optimal scenario is one in which contribution collections far exceed both operating expenses and benefit payments. Investment income must be used to beef up the pension fund’s Investment Reserve Fund to expand its actuarial life.
Another indicator of efficiency is the dependency ratio. Ideally, there should be an ever-increasing number of actively-paying members who could subsidize the benefit requirements of pensioners. In the past, SSS had experienced a dwindling percentage of paying members thereby worsening the dependency ratio altogether. The SSS management must see to it that this scenario is not repeated.
As a policy direction, the SSS must diversify its membership profile and concentrate efforts to encourage more self-employed and voluntary members. Even before the Covid-19 pandemic boosted the growth of the gig economy, there has been a steadily increasing number of freelancers and individual entrepreneurs. This segment could be targeted as a source of contributions to augment the shortfall in the collection from employed individuals.
Corollarily, the SSS would do well to expedite forfeiture proceedings and resolution of collection cases by maximizing the quasi-judicial powers of the Social Security Commission especially in issuing warrants or levy on properties and assets of delinquent employers. Prior to its exit earlier this year, the Duterte administration cited gains achieved by the SSS management in collecting huge debts owed by large corporations, as well as recovering substantial amounts from defaulting debtors.
Finally, the SSS must endeavor to mitigate the effect of the contribution hike on micro and small businesses since employers account for a larger share in the contribution. These businesses are in danger of either downsizing, which would affect overall employment or closure, and likewise create a negative impact on both government revenues and SSS collections.