Finance Secretary Benjamin Diokno (L) and Defense Secretary Gilbert Teodoro Jr.
MANILA, Philippines — Because of its current setup, the country’s “pension system” for military and uniformed personnel (MUP) may take 60 years to become sustainable if only new entrants are required to make contributions.
But finance officials said this could be shortened to 20 years if all active MUPs contribute to a fund for their own retirement benefits. If the government does not implement needed reforms, Juan dela Cruz would have to continue paying P214 billion — equivalent to 0.9 percent of gross domestic product (GDP) — every year for MUP pensions.
Finance officials expect this to increase to P537 billion by 2030 and reach P1.5 trillion by 2040.
“The pension system is not a real pension system,” Finance Secretary Benjamin Diokno told senators on Wednesday. “A pension system is where the beneficiaries of the pension system contribute and there’s a government counterpart.”Diokno, in a statement on Saturday, said finance officials recognize where the objections of Defense Secretary Gilberto Teodoro Jr. came from.
“But as economic managers, it is our job to ensure the sustainability of the proposed pension fund and individual contributions are really necessary to achieve that,” Diokno said.
‘Loan restructuring’
“We are proposing a loan restructuring for MUPs to help them with their financial situation and allow them to accommodate the required contribution,” he added.
Teodoro opposed the reforms contained in a bill that the House of Representatives passed on Tuesday. The bill contained reforms that have been pending in Congress for years.
To finally solve the simmering problem, President Marcos urged Congress in his second State of the Nation Address to finally enact the reforms needed for a genuine pension system for MUPs.
Aside from personnel of the Armed Forces of the Philippines, MUPs include those in the Philippine National Police, Bureau of Jail Management and Penology, Bureau of Fire Protection, Philippine Public Safety College, Philippine Coast Guard and the Bureau of Correction.
Finance Undersecretary Maria Lualhati Dorotan-Tiuseco said the reforms were meant to build a pension system that was not dependent on the availability of government funds.
PH rating at risk
“What we are trying to do is that pensioners should now be assured that they will receive their benefits on time because there is a fund that is growing and will be paying,” she said.
Tiuseco said this would prevent the recurrence of years when pension payments were delayed, such as in 2022 when arrears reached P31 billion.
“This is not just about addressing the tight fiscal space that we have, but also to build a sure source of pension benefits,” she said.
Aside from delayed pensions and allocation dilemmas, the Philippines also risks losing its investment grade rating if it fails to reform the MUP pension system, Diokno said.
He said the Philippines could see its investment grade rating, which it has held for a decade, relegated to “junk” territory if “we continue to ignore” the need to reform the MUP system.