The House of Representatives has elected Albay Rep. Joey Salceda to head of the newly organized “powerhouse” ad hoc panel, tasked to craft a sustainable fiscal framework for the Military and Uniformed Personnel (MUP) Pension System, to preempt a looming fiscal crisis.
The MUP pension now has a P9.6 trillion unfunded deficit, a level which Salceda referred to as ‘unsustainable’ which by “2035 would already account for two-thirds of the country’s target deficit, leaving us little room to hire more soldiers, modernize equipment, or strengthen training and military hardware.”
Salceda, who chairs the House Ways and Means Committee, said the MUP ad hoc panel is a “supercommittee with some of the highest-ranking members in the leadership team, reflecting the importance the House leadership places on the MUP reform/”
It is scheduled to initially meet May on Monday 31 and discuss the rules and assess the actual state of the pension plan. The committee’s mandate includes “all matters related to the MUP pension system, including funding and revenue sources, management, and benefits and contribution scheme,” he said.
Early in May, Salceda filed HB 9271, also known as Saving the MUP Pension Act, which sounded the alarm on a possible “total fiscal collapse” of the pension system if no reforms are immediately enacted to save it.
“The pension system has a P9.6 trillion unfunded reserve deficit, primarily because uniformed personnel do not have a contribution system and that MUP pensions are much higher than that of civilian personnel,” he noted.
Salceda observed that since 2018, pension funding from the General Appropriations Act has exceeded the MOOE (maintenance and other operating expenses) of the uniformed services, which means that the government is spending more to support retired personnel over operations of active personnel.
“This is a looming fiscal crisis. Without reforms, funding the pension scheme will become fiscally unsustainable, shrinking the economy by as much as 7.2 percent in the long-run. This is worse than what the economy sustained in the 2004 fiscal crisis and the 2008 global financial crisis,” he said.
The Salceda ad hoc Committee is composed of five House panels of varied jurisdictions over the MUP — Ways and Means, Government Enterprises, Appropriations, Defense, and Public Order.
“The issue here isn’t whether military and uniformed personnel deserve more or less pension benefits. Everyone who serves the country always deserves more. They deserve to be sure they will have pension, and right now, given the system, we’re not sure the country can afford it in the future,” Salceda stressed.
“If we can’t fund the pension system in succeeding years, salary increases for current MUP will also be in trouble. So we have to make this work,” he said, even as he assured there will be no diminution of benefits in the pension proposal.
At present, active members of the MUP pension system do not contribute to the fund, which is totally shouldered by the national government. “Joint Resolution No. 1, s. 2018, which nearly doubled the salaries of the MUP also came with the condition that we should undertake pension reforms. So, we are merely completing the mission we agreed to when Congress passed the salary increase,” he explained.
Salceda said the argument for the current system is that MUP members expose themselves to unique risks when they enter the service. For this reason, he said the fund should give benefits to those injured and killed in line of duty.
“So, let’s make the pension sustainable and increase benefits for line-of-duty injuries or deaths,” he said and assured pensioners “there will be no diminution of benefits, and no one will have their current pensions reduced.”
“I’m also working with the Department of Finance and the Bureau of Treasury to see which assets we can use to defray some of the pension costs, so that we won’t have to charge all of it against the national budget or the MUPs,” he added.
Salceda’s HB 9271 proposes the complete discontinuation of automatic indexation pension payments, which can be periodically reviewed and increased to a maximum of 1.5 percent per year. The measure also proposes a mandatory contribution rate of 21 percent of gross salary, similar to that of civilian government employees, and adjusts the pensionable age to 56 years old, instead of the “accumulation of at least 20 years of satisfactory active service” in the current MUP system.
MUP assets will also be used to supplement the budget for pension costs. An MUP Trust Fund Committee shall be created to govern the fund, and the Government Service Insurance System shall be designated as manager of the MUP trust fund.
Salceda said the proposed reforms would make funding for the pension scheme more sustainable for the government, which could result in growth by as much as 2.1% in 2021 and 5.8% by 2030.