The chief economic manager of President Marcos declared that there would be no room for negotiation regarding the proposed elimination of automatic indexation of pension for future retired military and uniformed personnel (MUP).

Finance Secretary Benjamin E. Diokno said the automatic increase in pensions for existing pensioners, which is linked to current wages, is one of the primary reasons for the government's substantial budgetary constraints.

But despite the financial challenges, Diokno acknowledged the importance of maintaining existing MUP retirees' pensions at their current levels to ensure their benefits do not diminish.

However, Diokno suggested a different approach to pension adjustments for working and future MUPs.

Instead of automatic indexation based on wages, the finance chief proposed that their pensions be modified based on economic conditions and the financial feasibility of the proposed pension fund for MUPs.

But he assured that “The [future] pension benefits will be reviewed annually for a possible increase of up to 1.5 percent every year.”

The removal of automatic indexation is a “non-negotiable pillar of genuine pension reform,” Diokno declared.

Since 2018, MUP pension obligations have consistently surpassed the budget allocated for the maintenance and other operating expenses (MOOE) and capital outlay (CO) of the military and uniformed services.

Diokno said this situation has undermined the government's capacity to adequately address the requirements for military modernization.

Diokno said allowing indexation to persist will be financially unsustainable, especially when combined with guaranteed increases, as it will further contribute to the budget deficit.

Based on government estimates, providing a guaranteed three percent annual salary increase for 10 years along with full indexation of pension benefits would necessitate P11.8 billion in 2024, P24.5 billion in 2025, P38.1 billion in 2026, and increasing to P165 billion in 2033.

In the absence of additional revenue sources, Diokno warned that the national government would be compelled to borrow funds to cover these rising benefit costs.

“It will not qualify as a reform if indexation will continue and the active members will not contribute. We have to reduce the fiscal impact of the MUP’s pension program and the contribution of active members will greatly help in managing that,” Diokno said

In addition to indexation removal, Diokno's other non-negotiables encompass several key aspects of the proposed MUP pension reform bill now pending in the House of Representatives.

These include the compulsory five percent contribution from active personnel during the first three years, seven percent during years four to six, and five percent starting from the seventh year onwards. New entrants will contribute nine percent immediately.

The contributions will be calculated based on the personnel's monthly base and longevity pay. Furthermore, the government will make corresponding contributions to ensure a total pension premium of 21 percent is met.

“The pensioners and the active personnel have different needs. It is therefore necessary to ensure that the pension and wages have different bases for adjustment,” Diokno said.

“Removing automatic indexation of pension to the current wages gives us flexibility to respond to the unique needs of the pensioners and the active personnel,” he added.

The DOF also suggested standardizing the benefits of MUPs.

This includes providing a maximum regular pension of 90 percent of base and longevity pay, as well as separation pay and similar benefits under optional retirement, which pensioners will receive upon retirement.

Furthermore, all new entrants in the uniformed services will retire at their actual rank.