Dealing with an age-old problem

PHILIPPINES - In Brief 17 Jan 2017 by Romeo Bernardo

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In the heat of the summer campaign, then candidate Rodrigo Duterte promised to raise old age pensions for private sector employees, a proposal that was vetoed by then President Benigno Aquino. Told by his economic managers after he won that granting pension increases without a compensatory revenue source would bankrupt the social security institution (i.e., the SSS) as early as 2025, thus requiring taxpayers to cough up funds to prop it up, now President Duterte hesitated. Early this year, he explained to newsmen that, given government's role as guarantor of the fund's solvency, it would be unfair for taxpayers who are not members of the pension agency to shoulder the cost. Many, us included, thought that that was the end of that. After all, no politician likes raising members’ contribution rates which has always been opposed by both labor and employer groups. Indeed, since 1980 when it was set at 8.4%, the contribution rate has been raised only three times, by 1ppt each in 2003 and 2007 and by 0.6ppt in 2014 to the 11% rate in effect today. In comparison, there have been 22 pension increases, a common Labor Day presidential pronouncement in the past, as politicians passed the problem of unfunded pension liabilities to the future with assumptions that the gap may be closed by generating higher investment returns, improving operational efficiency or aggressively expanding coverage to lower income groups that, given the progressive structure of the pension agency's benefit-to-contribution ratio, only served to improve cashflows while worsening solvency. SSS's 2015 Annual Report showed that unfunded liabilities have reached over P1.2 trillion, about 20% of outstanding nat...