Unsecured security

For a change, let's talk about the future.

Have you ever asked yourself how secured you are with your social security? Would there be money available when you retire? And would it be enough to meet your future needs?

For private sector employees who are about to retire anytime soon, you may find relief in the fact that there is still money left in the Social Security System (SSS) coffers. The pension fund, after all, still earned profits last year even if this was a substantial drop compared to the previous year's earnings.

For those looking at retiring in the next decade, start praying that SSS – which is administered by the government – would come up with some quick answers soonest to some of its critical problems.

If you don't believe in prayers, the practical way is to begin saving for old age.

I don't want to sound alarmist, but the current SSS situation may have reached a point that its members should be concerned. My e-bugs zapped me via cyberspace the latest actuarial of SSS. An actuarial, for the less enlightened, is a statistical calculation – best read in table format – of insurance and annuity premiums, reserves and dividends. Simply, it figures out what, based on today's income, your financial position would be, say, 10 years hence.

Lest I be accused of causing panic, let us study together the findings of the study.

Last year, total contributions collected by SSS reached P32.3 billion. Benefits extended to members, on the other hand, reached P39.7 billion. Compared with 2000 figures, last year's collection went up six percent. Alarming though is the significant 17 percent rise in benefit payments.

Thus, a comparative graph of benefits and contributions would show that the amount of benefits paid to members is now exceeding the amount of contributions received from members; and this divergence that started in 1998 is expected to widen in the coming year if no remedial action is taken.

Many blame the stock market investments made by SSS in the past, particularly those during the Estrada administration, which is now the subject of the former President's plunder case.

There is little doubt that much money was wasted in such investments as Belle Corp., Equitable PCI Bank, and Waterfront Philippines Inc. But these merely overshadow a bigger investment blunder, and this is with the now bankrupt and defunct National Home Mortgage and Finance Corp. (NHMFC).

As of last count, SSS has close to P40 billion in the NHMFC's subsidized housing program. It is wishful thinking if SSS expects it can collect on this bad account. Incredibly, government has lately been mulling to secure another P10 billion to P15 billion from SSS for socialized housing again. (This has been discussed in my column titled "Mess Housing" last April 29, 2002.) True enough, old habits never die.

Bad investments, however, are just one side of the coin. SSS officials who were suspended due to the recent stock investment scandal may have a point when they say that it's not just simply poor investment decisions that is to blame for the depleted position of SSS, but rather a confluence of many other significant factors.

For one, a lot of over-subsidies are embedded in the current structures. For example: when Mang Pandoy pays an initial contribution of P300 and drops dead the next day, his family would still end up enjoying the mandated SSS P25,000 funeral benefits when he is laid to rest.

The system has been structured in such a way that SSS is now faced with P1.2 trillion in "unfunded" liabilities until 2065.

Legislators are also to be blamed for the SSS' current financial woes.

Imagine the financial impact of enacting a law that would significantly enhance benefits without necessarily increasing contribution rates. Do you blame our lawmakers? They're politicians, not arithmetic experts.

Republic Act 8282, which was penned before a major national election, increased the minimum pension of P2,400 monthly. At the same time, it increased the dependent's pension from P150 to P250 each, and gave beneficiaries the option to receive 18 monthly pension payments in lump sum. Definitely, a lot of votes were won that year.

I wonder if these politicians would be as generous and eager to pass a law to rescue SSS? Would they support legislation to increase SSS contribution rates to correct a mistake? It would not be surprising if they would even disown authoring the errant bill. It's hard to really foresee such initiative now that 2004 is just around the corner.

An actuarial made in 1995 showed the SSS funds would last until 2040 even without any contribution increase. In 1999, after Congress enacted RA 8282, the fund's life was reduced to 2015. And recently, with the stock market and subsidized housing debacle, it's down to 2009.

SSS Administrator Cora de la Paz simply puts it: a contribution raise is necessary. And I don't think she's the type who will say this just for kicks. Understandably, failure to increase member contributions would mean that the government would end up shouldering the P37 billion in annual benefit payments to members; after all, it is government that administers the fund.

Members, who could argue that government should pay up for its messy decisions, may put forward a mean case of protest. At the moment, after the Power Purchase Adjustment (PPA) furor in electricity billings, the citizenry is all keyed up to take another consumer cause a step further. "Bakit ko pagbabayaran ang mga katangahan ng pamahalaan?"

If solutions are needed before 2004, this would mean going to Congress to ask for SSS's inclusion in the general appropriations. But with government's budget books already in its undesirable state, tila walang maaasahan ang mga miyembro ng SSS kahit pumuti pa ang uwak.

Then again, De la Paz may be persuaded to keep the lid on the case until after 2004. By then, whoever is in charge of government, let him/her take care of the problem.

One thing for sure though, the future security looks unsecured.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. If you wish to view the previous columns, you may also visit my website at http://bizlinks.linkedge.biz.