THE GOVERNMENT will need to provide up to P1.5 trillion in 2040 to plug the funding hole in pensions for retired military and uniformed personnel (MUP) if the system is not reformed, National Treasurer Rosalia V. de Leon said on Monday.
Speaking before the Senate Committee on National Defense and Security, Peace, Unification and Reconciliation, Ms. De Leon said, “Without reform, pension spending is projected to increase tremendously in the succeeding years.”
Ms. De Leon told the panel that the government would have to spend P214 billion in 2023, P537 billion in 2030, and P1.5 trillion in 2040 to keep up with pension commitments for retired MUPs.
She added that the unfunded liabilities under the current MUP pension system are estimated at P9.6 trillion. “This represents around 53.4% of GDP in 2020 and does not yet include funding requirements for those who enlisted after the study was conducted.”
Borrowing for pension liabilities subjects the Philippines to interest rate risk. The Philippines paid about P11.5 billion in 2023 on interest expenses, Ms. De Leon told the committee.
This may increase to P40 billion in 2030 and P171 billion in 2040.
Ms. De Leon told the panel that the government is spending more on pension liabilities than on keeping the uniformed services “safe, competent, and in fighting shape.”
“While we recognize the important role and peculiar nature of work of our soldiers, policemen and women, and uniformed officers being exposed to constant risk and danger, we are also mindful of the enormous burden of the existing MUP pension system… especially to the taxpayers, as it is fully funded by the government,” Committee Chairman Senator Jose Ejercito Estrada said.
The Finance department proposes reforms applying to all active personnel and new entrants, and to adjust pension benefits by up to 1.5% within a given year, subject to evaluation of economic conditions and the actuarial life of the pension fund.
It also proposed that MUPs receive their monthly pensions at 57 years, and contribute more to the MUP trust fund to finance benefits, including increased disability pension and life insurance.
“Dependence on full government funding makes the pension system susceptible to economic and fiscal downturns which creates an unstable and unreliable benefit system for MUPs and their dependents,” Ms. De Leon said.
Officer-in-charge Defense Secretary Carlito G. Galvez, Jr. said that the “morale and welfare of our soldiers be given due weight” in pursuing reforms.
“At present, mere discussions of proposals related to retirement benefits — most especially the (adjustment of the) pensionable age — has affected the morale and caused unease” not only among active-service personnel but even among veterans and retirees, Mr. Galvez said.
He added that around 70% to 80% of personnel may retire in advance to lock in the current pension benefits.
President Ferdinand R. Marcos, Jr. is also “very much concerned” about the impact of any reforms on the morale and welfare of MUPs, Mr. Galvez said.
The MUP pension program covers members of the Armed Forces of the Philippines, Bureau of Jail Management and Penology, Bureau of Fire Protection, Philippine National Police, Philippine Public Safety College, Coast Guard, and Bureau of Corrections.
The Budget department in January said that the MUP pension program covered 137,649 retired personnel in the first quarter of 2023.
The proposed MUP pension reform is a priority legislative item. A similar bill in the House is pending at the committee level.
The Senate committee has formed a technical working group to work on the bill. Mr. Estrada said that the measure may not be approved before Congress adjourns on June 2, pushing deliberations past the President’s State of the Nation Address in July.
Meanwhile, Senators on Monday approved on third reading Senate Bill No. 1480, which seeks to rationalize the disability pensions of veterans.
In a plenary session, 21 senators voted in favor of the bill, with no one opposing or abstaining.
The bill seeks to amend Republic Act No. 6948, or An Act Standardizing and Upgrading the Benefits for Military Veterans and their Beneficiaries. — Beatriz Marie D. Cruz