Diokno insists on mandatory MUP pension contributions

MANILA, Philippines — Reforming the pension system of the military and uniformed personnel (MUP) would only be genuine and sustainable if contributions were made mandatory and indexation removed, Finance Secretary Benjamin Diokno said yesterday.

In a statement, Diokno said reform in the MUP pension system must “directly and squarely address the substantial budgetary implications stemming from indexation and the absence of personnel contributions.”

Diokno’s statement came after Defense Secretary Gilbert Teodoro voiced opposition to the MUP bill even after its approval by the lower house.

Teodoro is against a blanket contribution to pension funds as well as the removal of indexation.

Currently, MUP continue to enjoy the benefits of a pension system even without contributing to the fund. As such, the government appropriates a budget annually to fund retirement benefits for MUP.

The monthly pension of retirees is automatically indexed to the salary of the next in rank in the active service.

This means salary adjustments for active personnel increase the funding requirement for retirees.

“It will not qualify as a reform if indexation will continue and the active members will not contribute. We have to reduce the fiscal impact of the MUP’s pension program and the contribution of active members will greatly help in managing that,” Diokno said.

“Allowing indexation to continue will be unsustainable which, coupled with guaranteed increases, will further expand the deficit,” he said.

Diokno, who heads the administration’s economic team, has stood firm on the DOF proposal that new entrants be mandated to contribute nine percent, with the government forking over 11-percent share.

For those in active service, the contribution would be staggered starting from five percent for the first three years, seven percent for the 4th year to 6th year and nine percent thereafter.

The contributions are based on the MUPs’ monthly base and longevity pay.

Diokno also maintained that indexation should be removed for both active personnel and new entrants.

“Their future pension will be adjusted according to economic conditions and financial viability of the proposed pension fund. The pension benefits will be reviewed annually for a possible increase of up to 1.5 percent every year,” Diokno said.

The finance chief emphasized that pensioners and active personnel have different needs, hence the need for their pension and wages to have different bases for adjustment.

“Removing automatic indexation of pension to the current wages gives us flexibility to respond to the unique needs of the pensioners and the active personnel,” Diokno said.

Data showed that a guaranteed three percent annual salary increase for 10 years with full indexation of pension benefits would require P11.8 billion next year, P24.5 billion in 2025, P38.1 billion in 2026 and as much as P165 billion by 2033.

Without new revenues, Diokno argued the government would be forced to borrow to finance these increases in benefits.

The economic team is also pushing to standardize the benefits of MUPs to include maximum regular pension of 90 percent of base and longevity pay, separation pay and similar benefits under optional retirement, which the pensioners will receive immediately upon retirement.

All new entrants in the uniformed services shall also be retired at actual rank.

Over the past five years, pension commitments have consistently exceeded the budget for maintenance and other operating expenses and capital outlay of the MUP sector.

Such a situation has already weakened the ability of the government to effectively meet the needs for military modernization.

For next year, some P164 billion has been earmarked for the pension and gratuity benefits of MUPs.

Real estate fund

Teodoro, meanwhile, said he is thankful to the legislators for listening to the position of the DND on the issue, saying “we pledge to exert our utmost efforts in transferring available real estate assets into the proposed AFP Retirement Trust Fund.”

He said the distinction between the Armed Forces of the Philippines (AFP) and the rest of the uniformed services goes beyond the differences between the nature of their duties and responsibilities.

“While these differences are significant and should be fundamental considerations for the proposed changes in their respective pension systems, from a financial perspective, I must point out that the AFP will not increase its force size in the same manner as the other services, whose numbers are tied in to the country’s growing population,” he explained in a statement issued Wednesday night.

“In short, AFP will not increase its personnel over time, unlike other services, which must increase theirs by necessity in order to maintain an ideal service ratio in proportion to the number of our citizens and communities,” he said.

Teodoro clarified that the AFP’s size is based on its mission of upholding the Constitution and defending the country’s sovereignty against foreign and domestic aggressors.

Hence, the pension burden of the AFP retirees on government expenditures will actually reduce over time as the envisioned AFP Retirement Trust Fund becomes viable as a funding source, given a constant force size,” he said.

He said there is a proposal to realign the share of the AFP in the earnings of the Bases Conversion and Development Authority (BCDA) to service AFP retiree pensions.

“We realize the efforts of our lawmakers to ease our budgetary deficits. However, we are informed that the financial impact of the pension burden of the AFP (stand alone, not with the other uniformed services) retirees, current and prospective, is substantially lower than as originally stated,” he pointed out.

“We likewise have no intention of downplaying the significant contributions of all sectors of our society in nation building and making our country resilient. But the undeniable fact is that all these collective efforts will fail if we do not have a strong, well equipped and, most importantly, a well motivated and professional Armed Forces of the Philippines,” he added.    – Michael Punongbayan