Why not staggered rates of pension increases?

Jose M. Galang - Your Business

Posted at Jan 22 2016 04:01 PM

If the Social Security System (SSS) cannot afford to provide for an across-the-board increase in retirees’ pensions, maybe it can consider granting staggered rates of increases: retirees now getting the lowest pension should perhaps be given the full P2,000 monthly increase, and those already getting more than P10,000 should perhaps be given a lower raise, say, P500.

There are still quite a number of SSS pensioners who get the minimum rate of P1,000 a month — a measly sum for the more than 20 years’ worth of hard work they have rendered to qualify for pension benefits.

Even if the pension goes up to P3,000 a month, that would still give the pensioner an average of P100 a day for his basic needs — maybe the increase should be more than P2,000 a month.

On the other hand, the highest pension amount that the SSS now pays is P17,480 a month. Maybe those now getting at least P15,000 pension can do without the increase.

The overall average amount that the SSS pays to pensioners now is P3,169 per month. Suppose those getting less than this amount are given an increase of, say, P1,500, and those getting more than the average be granted a P1,000 increase?

Such staggered rates of pension increases can be a way of reducing the additional P56 billion that the SSS says it will have to pay if a P2,000 increase in pensions if granted.

Time for creative solutions

The additional payments may cut the projected life of the employee benefits and retirement fund, but surely it will have time to work out ways to shore up its finances.

The SSS had been faced with similar fears of a shortened life quite a number of times in the past but it surmounted these with creative solutions that ensured continued operations and benefits to its members.

For instance, in 1999, actuarial estimates put the fund’s life to last until 2015. It increased members’ contribution rates to 9.4 percent and expanded the maximum salary base and redefined the “credited years of service” and thereby extended the fund by 16 years, or to 2031 instead of 2015.

In 2011, that life span was further stretched to 2043, supported by an increase in the members’ contribution rate to 11 percent which was also accompanied by an increase in the monthly salary credit ceiling.

Again, in 2014, instead of simply rejecting outright a 5 percent across-the-board increase in pensions at the time, it came up with a reform strategy that limited the impact of such a pension increase to a one-year cut in the fund’s project life.

It is noteworthy that in the last three actuarial valuations, conducted in 2007 and 2011, it was specifically provided that “no future across-the-board increase in pensions” would be implemented. But an increase was granted in June 2014 and there was no tragic impact that followed.

Sterling financial performance

The SSS still has to report its financial performance in 2015, but for the year 2014, it registered net revenues of nearly P44.47 billion, an admirable increase of 15.9 percent from the year before.

Revenues from contribution collections and investments were reported at P155.18 billion, up by about 13 percent. Members who were actively paying their contributions as of that year totaled 11.84 million, an increase of about 346,000 from the previous year.

What could be holding back the current SSS management from agreeing to a new increase in pensions is the prospect of the exposing, or even worsening, lingering issues on the fund’s financial record.

State auditors had noted in its evaluation of the SSS’s 2014 financial statement that total assets were overstated by at least P1.16 billion and total liabilities were also overstated by P2.15 billion.

The auditors said these overstatements could have resulted in an understatement of the SSS total reserves by nearly P995 million. The auditors said the discrepancies did “not exceed the materiality level set for the 2014 audit… to warrant a qualified or adverse opinion.”

Since 1980, the SSS has increased pension rates 22 times through across-the-board raises in the minimum pension amount. It has also increased the monthly salary credit ceiling 12 times. Over the same period, the members’ contribution rate was increased only 3 times. But the SSS remains financially viable.

‘Equitable social protection’

It is difficult to understand why the SSS management now appears to be shying from its duty to look for ways to “provide universal and equitable social protection” to private sector employees under its wings.

As well, President Aquino’s veto of the congressional measure proposing the P2,000 across-the-board increase in pensions now looks like a deviation from the mandate of R.A. No. 8282, the Social Security Act of 1997, that clearly states that “the government accepts general responsibility for the solvency of the SSS and guarantees that prescribed benefits to members shall not be diminished.”