House panel OKs bill proposing MUP pension reform

MANILA, Philippines —  A House ad hoc panel has approved after just one hearing a substitute bill proposing changes to the military and uniformed personnel pension system in a bid to address the fiscal strain from rising pension costs.

The House ad hoc committee on the MUP pension system greenlighted the measure on Tuesday after clinching the support of representatives from agencies under the Department of National Defense and the Department of Interior and Local Government, including the Armed Forces of the Philippines and the Philippine National Police.

Malacañang has tasked the Congress to look for a legislative fix to the problem of ballooning pension costs for MUP, which the government shoulders through budget appropriations. Without any reform, the government’s economic team has warned that pension payouts could hit the P1-trillion mark by 2035.

“We are pleased to report to the President and to the public that, today, we have formalized a solution to the MUP Pension problem. The members of the Ad Hoc Committee on the MUP Pension System have agreed in principle on an MUP Pension Reform that is amenable to both the military and uniformed services and to the economic managers,” Rep. Joey Salceda, chair of the House committee on ways and means, said in a statement.

In all, the approved bill consolidates the provisions of 12 other House bills suggesting changes to the MUP pension system. Instead of leaving it up to the government to fund the pension for MUPs, it will now require mandatory contributions for active personnel and new entrants similar to other government workers.

The main provisions in the approved bill are the following: 

1. Retention of promotion to one rank higher upon retirement;
2. Uniform 90% of longevity pay plus base pay for lump sum benefit upon separation below 20 years in service, which will create a new benefit for the PNP which currently does not have it;
3. Uniform multiple of 1.0 x Years of Service for lump sum benefit;
4. Guaranteed 3% annual increase in salaries for 10 years;
5. Indexation of pensions to 50% of adjustment in pay;
6. Creation of window for indigent pensioners under the trust funds;
7. Regular IFRS-compliant reports every three years for the pension system;

“We can already see the light at the end of this fiscal tunnel. The services accepted. The economic managers also see the substantial improvement this formula makes over the current system,” Salceda said.

There will also be a phased- contribution scheme of 5% of salaries for the first three years, 7% for the next three years, 9% thereafter for active personnel; 9% immediately for new entrants, but including a larger government counterpart to complete the 21% contribution.

“This is a win-win solution, because we are removing the risks of sudden spikes in pension liabilities while also ensuring that salaries and pensions increase at manageable levels,” Salceda said.

Separate trust fund for AFP and non-AFP services 

During the hearing, Salceda disagreed with representatives from the agencies that supported the creation of a separate pension fund for the members of the AFP, saying that two fund systems could pose a problem in the long run if one is better managed than the other.

In a message to Philstar.com, Salceda said: “The proposal to have separate trust funds for both the AFP and non-AFP services was agreeable to all the services and the economic managers.”

“There are certain benefits to having just one trust fund, including reduced costs as a percent of the fund, and attractiveness of the fund to potential investible projects. That is why I disagreed,” he said.

The lawmaker added, however, that while he disagreed “as a matter of principle,” he accepted the proposal which had gathered the consensus of the MUP representatives and the economic managers who attended the hearing. 

“The economic managers went through dozens of consultations, and we have also ensured that we hear the statements and comments of the various services. We also sought the acceptance of the various services before moving to approve the measure,” Salceda said.

“The House is committed to approving its version on third reading as soon as possible,” he added.

Lawmakers will next discuss the bill during plenary sessions.

Defense Secretary Gilbert Teodoro Jr. said in June that President Ferdinand Marcos Jr.’s marching orders to him was to fast-track the passage of a measure introducing reforms to the MUP's current pension scheme.  — Cristina Chi