PHL pension system seen facing sustainability, governance issues

By Aaron Michael C. Sy, Reporter

THE pension system is facing sustainability issues as well as questions about its ability to resist political interference, analysts said.

“The Social Security System (SSS) pension payout is notoriously low. It may be good for some food, but certainly not enough for utility bills and maintenance medicine. There are doubts about its sustainability given its current reserve deficit. It also suffers from integrity issues given the history of government trying to raid it for development needs,” University of Los Baños Economics Senior Lecturer Enrico P. Villanueva said in a social media message.

The Government Service Insurance System (GSIS) likewise has a “massive” reserve deficit, Mr. Villanueva noted.

“The lack of (correspondence) between contributions and defined benefits means there is doubt about its sustainability,” he added.

Mr. Villanueva noted the government’s initial plan to use the pension funds to provide seed capital for the Maharlika Investment Corp. (MIC).

“While the government has not reneged on pension payments, there is distrust created by attempts to transfer funds away from them, as in the case of Maharlika,” he said.

The MIC eventually received its initial capital from the Land Bank of the Philippines (P50 billion), Development Bank of the Philippines (P25 billion) and the National Government (P50 billion).

State pension funds are also unable to provide formal social security benefits for the majority of the  population due to their informal nature, Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said via Facebook Messenger.

He noted the disparity in pension benefits between public and private sector employees, and within the public sector, between civilian and uniformed personnel.

“Within the public sector, some have heftier benefits than others (e.g., members of judiciary and military and uniformed personnel),” he said.

Monetary Board Member Romeo L. Bernardo said via Viber cited a study by the World Bank and the Department of Finance which recommended harmonizing the benefit formulas of military and civilian pensions.

“Increased contributions to a reformed Pag-IBIG might be a good means for providing a larger share of military pensions rather than creating a new specialized fund for the military,” the study concluded.

“There was an initial attempt to reform the military and uniformed personnel pension system to prevent what former Finance Secretary  Benjamin E. Diokno called an overgenerous, undisciplined pension system that can trigger a “fiscal collapse,” Mr. Sta. Ana added.

A study by Mercer CFA Institute likewise suggested improving the governance requirements for the private pension system.

According to the institute’s Global Pension Index 2024, the Philippines had the third-worst pension system in the world, scoring 45.8 out of 100 on its index.

The study also recommended increasing the minimum level of support for poorer aged individuals, aligning the benefit to cost-of-living indices, improving vesting requirements in private-sector plans, and introducing non-cash-out options for retirement plan proceeds so they are preserved for retirement purposes.

The Philippines scored 41.7 out of 100 on the adequacy sub-index, 63.4 out of 100 on the sustainability sub-index, and 27.7 on the integrity sub-index.