MANILA, Philippines – The Social Security System (SSS) would register a net outflow of funds in 20 years and its assets would be depleted in 28 years if crucial reforms are not carried out immediately, the World Bank (WB) said in a report.
In a recently released report titled “Philippines – Review of the social security system: considerations for strengthening sustainability and coverage,” the multilateral lending institution said the pension fund’s medium-term financing issues could be addressed through the gradual implementation of reforms that would improve collection and coverage.
The WB said the report was undertaken at the request of the SSS to “analyze key challenges and propose reform options to improve the sustainability and expand the coverage of old age income protection for private sector workers.”
Among the recommendations made by the WB is the strengthening of the identification system and introduction of a special instrument for informal workers.
“Administrative reforms could focus on measures to make it easier and cheaper for informal sector workers to make contributions, monitor accounts and receive payments,” it said.
To increase collection, WB said the pension fund can strengthen mobile money platforms and improve access to savings instruments particularly for small savers.
WB also proposed the gradual extension of the retirement age to 65 years and beyond in accordance with increases in life expectancy in retirement age to improve the sustainability of the fund.
It said, ultimately, reforms in the pension fund should aim to shield workers and retirees from abrupt changes in contributions and benefits.
“Like many countries worldwide, social security in the Philippines faces challenges to its sustainability in part due to a gradual aging of the population,” said WB.
Over the next 35 years, the old-age dependency ratio (those over age 60 in proportion of those who are of working age) is projected to double from about 12 percent in 2015 to 22.5 percent in 2050, the WB report said.
“Higher old age dependency ratios, coupled with little change in the relative size of the working-age population, will place increasing pressure on working-age individuals to provide support for elderly family members as well as on the country’s social security system and other old-age support programs,” said the report.
“Projections of the SSS financial flows undertaken using the Pension Reform Options Simulation Toolkit indicate that the scheme will face outflows greater than inflows in about 20 years and depletion of assets in about 28 years. At the same time, the SSS will continue to face the challenge of maintaining adequate SSS contributory benefits in the face of limited contribution histories, so that retirees have sufficient support in old age,” it added.
In January, former president Benigno Aquino III vetoed the bill increasing the SSS monthly pension fee of retirees by P2,000 because of financial constraints experienced by the fund.
Extending the P2,000 increase to 2.15 million retirees would entail a total payout of P56 billion annually. When compared to an investment income of P30 - P40 billion, this translates to a deficit of P16 to P26 billion annually.