‘SSS fund status shaky by 2039 without new financing sources’

MANILA, Philippines — State-run pension fund Social Security System (SSS) is expected to face challenges in its fund life by 2039, as it will pay more benefits and collect less from members amid continued demographic shifts in the next 16 years.

During a hearing yesterday of the House committee on government enterprises and privatization, SSS chief actuary Edgar Cruz said the pension fund is seen developing a large unfunded liability after 2054 of a little over P4 trillion.

This, as SSS opposed several proposals from lawmakers in the Lower House, particularly on the enhancement of unemployment benefits, as well as benefits for solo parents, among others.

“We would like to point out that SSS fund, like many social insurance claims in the world, is largely unfunded, meaning, we rely on the current contributions to pay for the current benefits,” Cruz said.

“The fundamental principle that we follow is that there should be no enhancement in benefits unless there is an adequate source of funding,” he said.

Currently, SSS has a reserve fund of P700 billion which is still expected to grow. However, at some point, this will start to shrink by 2039 due to demographic shifts.

For one, Cruz explained that life expectancy of older people is getting longer because of advances in medicine, which means that payment of pension is also lengthened.

At the same time, the fertility rate of Filipinos is declining, thereby, lessening the worker to pensioner ratio.

Some 20 to 30 years ago, Cruz said, nine workers pay for contributions for one pensioner. This has declined to 6:1, and is projected to further go down to a 3:1 ratio in another 20 years’ time.

“Right now, we still have a positive net. Our collection from monthly contributions is more than all the benefits that we are paying out monthly, that’s why we can add to our reserve fund,” Cruz said.

“But this trend will be reversed by 2039, which means that our payment for benefits will be more than what we will be collecting. The reserve fund will be reduced until such time it will be depleted by 2054,” he warned.

SSS actuarial projections are based on expected cash flows in the next 60 to 70 years, in line with the international practice in social insurance. It covers future contributions based on the population, as well as future benefits for members.

“After 2054, we will have debts, we can no longer pay in full the benefits of our SSS beneficiaries. We have an obligation to pay them beyond 2054, but our fund will no longer be enough,” Cruz said.

Cruz said that in the short-term, SSS would remain in a good condition given that the fund life is until 2054.

However, he pointed out that a social insurance scheme should live in perpetuity and should not have a deadline to be able to provide the full benefits to its members.

“If we increase the benefits to current claimants, we are necessarily depriving future generations of SSS members of the same amount. We can only provide additional benefits by taking away benefits from our future members,” Cruz said.

“Any enhancement of benefit, no matter how small, will further add to our unfunded liability and impact our financial solvency,” he said.

To protect the actuarial life of the fund was also the premise why SSS decided to proceed with the scheduled contribution rate hike last January, as mandated by the Social Security Act.

The contribution rate has been effectively increased to 14 percent. This will be hiked to 15 percent by 2025.

Postponing the contribution increase, Cruz warned, would reduce the fund life of SSS, as the 2054 projection is based on the hike being given out at the right time. An additional 22 years have already been added to the SSS fund life with the help of contribution rate increases since 2019.