‘Debt to climb 25 percent sans MUP pension reform’

MANILA, Philippines — The Marcos administration has no choice but to overhaul the pen for the military and other uniformed personnel (MUP) as maintaining the status quo could drain the national budget and increase public debt by as much as 25 percent over the next few years.

In a briefing, Finance Secretary Benjamin Diokno said the current formula for the MUP pension system, which began during the Ramos administration, is not fiscally sustainable.

MUP do not contribute to the pension system. The retirement pensions and benefits are fully funded by the government through annual appropriations.

“It is a big drain on our national budget because we appropriate this every year. And we provide a pension to people who did not contribute even a single centavo to the pension system,” Diokno said.

Actuarial studies showed that the government must spend nearly P850 billion annually for the next 20 years to finance the current pension system.

It is also estimated that the level of total unfunded pension liabilities is at P9.6 trillion, which is equivalent to nearly half of the country’s economy last year.

“Considering that the current pension system is fully funded by the government, the accumulating pension liabilities will likely increase public debt by as much as 25 percent by 2030,” Diokno said.

This means that some P3.43 trillion could be added to the country’s outstanding debt due mainly to the need to fund the pension system. This does not include other government borrowings for other purposes in seven years’ time.

Diokno argued that securing sufficient resources to provide for the benefits of future pensioners and their dependents would be extremely challenging if the unfunded liabilities are not addressed immediately.

“We can no longer afford to ignore this elephant in the room. Somebody has to really fix this formula, otherwise we will be facing a fiscal crisis,” Diokno said.

“If this continues, we are crowding out some important projects like education and health because we keep on prioritizing the military pension,” he said.

A unified separation, retirement and pension system for the MUP is proposed in place of piecemeal reforms.

Diokno explained that the real solution should apply to those in the active service and new entrants, and members across all MUP agencies.

The monthly pension of retirees is automatically indexed to the salary of the next in rank in the active service. Hence, salary adjustments for active personnel increase the funding requirement for retirees.

MUP also have the option to avail themselves of early retirement after at least 20 years of service, ahead of the mandatory retirement age of 56.

“The new recruits will have to start contributing to the system. And those who are in active service will also be contributing to the system. But this will be done in a staggered basis,” Diokno said.

To compare, uniformed personnel are getting P40,000 in pension per month even without their contribution. This is nine times higher than the P4,528 pension received by the private sector through the Social Security System.

It is also three times above the P13,600 monthly pension of state workers under the Government Service Insurance System.

Latest data showed that there are about 234,180 MUP pensioners.

As such a reform will have to go through Congress, Diokno said he is confident that President Marcos has the political capital to pursue such a measure.

“He [Marcos] has signified that he is willing to spend his political capital for important reforms. We have no choice. We have to face this problem,” Diokno said.

Diokno noted that Rep. Joey Salceda is one of the proponents to file a bill reforming the MUP pension. The finance chief is hoping that by January 2024, MUP will start contributing for their own pension system.