GSIS, SSS may run short of funds by 2003

The Social Security System (SSS) and the Government Service Insurance System (GSIS) are in danger of defaulting on their obligations to their members as experts estimate that both government-owned pension funds face negative flows by 2003.

Precipitated by bad investments decisions, a government-commissioned study indicated that both the SSS and GSIS were facing potentially serious problems resulting from negative flows, including the possibility of defaulting on their contractual obligations to their members.

Romeo Bernardo, executive director of the Philippine Retirement Income Commission and managing director of the Lazaro Bernardo Tiu & Associates, said there is an urgent need for a massive re-engineering of SSS and GSIS to prevent what could be a disastrous consequence of negative flows.

Bernardo revealed that SSS and GSIS are expected to encounter negative flows in 2008, but more recent estimates showed that this would be significantly earlier than expected.

"There are clear indications that this would happen sooner than expected, specifically by 2003," Bernardo said. "Unless government plans for it, GSIS and SSS may end up defaulting on its contractual obligations."

He said SSS and GSIS both sustained heavy losses from bad investments made in the past. He did not specify which of these investments were bad enough to throw both companies into default, but he said there was a need to clear their portfolio of "unviable investments."

"I am not talking about just BW-type investments but also unsound investments like in housing development," Bernardo said, referring to the controversial gaming firm, BW Resources in which GSIS and SSS still hold some interest.

As a result of poor investments, Bernardo said both state pension funds are both underfunded to the extent that maturing claims could no longer be met by its available resources.

Although this problem had been identified long before, GSIS and SSS continued to make what turned out to be bad investment decisions that could ultimately compromise its capacity to service the claims of their members.

According to Bernardo, government has to seriously review the GSIS and SSS portfolio and avoid making unreliable investments, even in such areas as housing development, a notoriously risky investment with an average repayment rate of only 15 percent.

Over the long term, Bernardo said there is a need to re-engineer GSIS and SSS as a whole and to come up with mechanisms that would allow individual members to have a more active role in deciding where their money would go. – Des Ferriols