As Ponzi scheme, SSS fund prone to manipulation, exploitation and insolvency


AT the Saturday forum at Annabel’s last Saturday, one of the featured topics for discussion was President BS Aquino’s unpopular veto of the P2,000-peso hike in pensions for some two million SSS retirees.

I raised at the forum, which featured among others  Rep. Neri  Colmenares, principal author of the pension bill, the argument that it is principally because social security is a Ponzi scheme, that the pension fund is prone to easy manipulation and mismanagement, and is finally doomed to eventual bankruptcy.

Before  proceeding, I want to place on record that I am not batting for the end of social security in this country. Rather, I believe with many social reformers that social security  is one of the most, vital, humane and dynamic social programs invented in  the modern era.  It is precisely because of this essential contribution to welfare for the aged,  that our government must responsibly strive to  fix and reform our social security system, well before it collapses on itself.

Five points

I put forward five points at the forum:

1. It is  because SSS is a  Ponzi scheme that managers of the pension fund can exploit it to their  advantage (by awarding  themselves obscene salaries and allowances) while denying the merest increase in benefits to  SSS members.

2. It is because it is a Ponzi scheme that SSS officials will always argue for an increase in the premiums SSS members pay to the fund, every time there is a petition to adjust the pensions to the cost of living.

3.President Aquino, who vetoed the pension hike, is not a member of the SSS and has never had to work for a salary in his life. He absolutely has no idea of the life of salaried workers and retirees.

4. The SSS commissioners and officials of  the  SSS set as their first priority  what they can
take out for themselves from the pension fund, not what they can reasonably award to SSS members, who are the  lifeblood of the system.

5. As a fundamental  qualification for anyone who serves as an official of  the SSS, he or she must be able to successfully defend the system from the charge that it is just a gigantic  Ponzi scheme. They must be able to explain why and how social security can be sustained in this country.

1. Social security is a Ponzi scheme

Charles Krauthammer, whose Washington Post colums The Manila Times publishes, puts the issue  bluntly and mercilessly: “Of course, social security is a Ponzi scheme.”

In a Ponzi scheme, the people who invest early get their money out with dividends. But these dividends don’t come from any profitable or productive activity — they consist entirely of money paid in by later participants or investors.

The scheme cannot go on forever because at some point there just aren’t enough new investors to support the earlier entrants. Word gets around that there are no profits, just money transferred from new investors to old investors. The merry-go-round stops, the scheme collapses and the remaining investors lose everything.

Ponzi schemes are illegal. It is a fraudulent investment scheme. It is why Bernie Madoff is now in jail, after swindling his investors of millions.

2. Social security is mandatory .

The crucial distinction between a Ponzi scheme and Social Security is that Social Security is mandatory.

Lack of compulsion is why Ponzi schemes always collapse; and compulsion is why Social Security does not. When the pyramid scheme is mandatory, you ensure an endless supply of new participants. Indeed, if Charles Ponzi and Bernie Madoff  had had the benefit of the law forcing people into their schemes,  they would  still be flourishing up to now.

But there’s a catch. Compulsion allows sustainability; it does not guarantee sustainability.
This means that even a mandatory Ponzi scheme such as Social Security can fail if it cannot rustle up enough new entrants.

You can force young people into Social Security, but if there just aren’t enough young people in existence to support current beneficiaries, the system will collapse anyway.

Krauthammer explains the actuarial life of American social  security this way: “When Social Security began making monthly distributions in 1940, there were 160 workers for every senior receiving benefits. In 1950, there were 16.5; today, three; in 20 years, there will be but two.

Now, the average senior receives in Social Security about a third of what the average worker makes. Applying that ratio retroactively, this means that in 1940, the average worker had to pay only 0.2 percent of his salary to sustain the older folks of his time; in 1950, 2 percent; today, 11 percent; in 20 years, 17 percent. This is a staggering sum.”

Demography is destiny

With the Philippines having a large population of over 100 million and still high birthrate, it might seem superficially that our SSS will never run out of young entrants into the system.

This is just an illusion.

Unless the country faces now the challenge of reforming  our social security  system, the fund will collapse into insolvency.

Philippine policy makers must understand the new demographics that are bearing down on the nation. They should  remember that at best our demographic dividend (young workers compared to dependent population) will last us at most up to 2035, when our population will  start to age as fast as that of our Asian neighbors.

Key policy steps that must be studied now are: 1. Change the cost-of-living measure, 2. apply means-testing for richer recipients, and  3,  raise the retirement age.

The current retirement age is an absurd anachronism. Bismarck arbitrarily chose 70 when he created social insurance in 1889. Life expectancy at the time was under 50.

When Franklin Roosevelt created Social Security at the height of the great Depression, he chose 65 as the eligibility age, while life expectancy was 62. Today expectancy is now almost 80. FDR wanted to prevent the aged few from suffering destitution in their last remaining years.

The crucial point to remember is this:  social security  was not meant  to provide decades of ease for senior citizens in their late years.

Hard realities in Philippines

This will sadden  my colleagues in the seniors’ community in this country, but  the hard  reality is that President Aquino was correct in vetoing  House Bill No. 5842, or the proposed Social Security Act.

There was no other way for him to go.  The hike is fiscally suicidal  for  our social security system, even as rejecting it may turn out to be politically suicidal for the administration’s bets in the May elections.

The pension hike was approved and deliberated in haste  by members of Congress who sought to make political capital out of helping the elderly.

Congress did not hold hearings that got to the heart of the uncertain future facing social security in our country.

It  did not press SSS officials to provide substantive testimony about the actuarial life of the  fund, and the threats of insolvency that looms in the future.

Here’s the really sobering reality. The SSS cannot pay for the pension hike with the premiums it collects from current members. That cannot be used  because  the SSS  must also take care of things like salary loans, sickness and disability payments, and help for members who have suffered from disasters and catastrophes. In other words, there are other members, besides retirees, who have to be cared for.

The SSS must take care of all its members.  There  will be a point  where  the pension increase  decreed by HB 5842 will put  at risk the  social security of other members.

The forthcoming debates in Congress  about the proposed override of the veto must grapple with the hard and grim realities of social  security.

The overzealous  proponents of the pension hike must come down to earth. They must make sense of the numbers and face the real-life importance of social security in our lives.



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  1. The fund must be managed by competent men and women who would know how and where to invest the money and,somehow, earn a net profit for the institution. Right now, the men and women in the upper echelons of the institution receive fat salaries and bonuses. But are they helping make more money for the SSS outside of the members’ monthly contributions? I doubt it.

  2. Still Pnoy is very wrong in vetoing the P2000 increase.

    His only excuse is bankruptcy from higher pensions.

    PNoy did not consider the millions of salaries, perks and bonuses of the executhieves. PNoy also did not bother about bad investments made by the same useless executhieves. All of these, are the real causes of bankruptcy.

  3. The best way to solve this problem is just to give the 2k increase only to those who are receiving less than 5,000 pesos a month. Those retirees were the rank and file employees.

  4. So therefore, the issue is neither P-Noy’s vetoing the bill, nor Congress actually passing the bill:

    I don’t disagree that the SSS fund is a pseudo-Ponzi scheme, if not an actual ‘legalized’ Ponzi scheme — which, in effect, was brought to light by P-Noy’s veto of a bill that was conceptualized and passed by a-100 or so members of Congress, while stating a very fundamental reason that over a finite period of time, funds are much less than the would-be pension increase. Wouldn’t one think that this is so fundamental that Congress is so inutil to have missed this out??

    That said, it begs the question: How can the SSS fund pseudo-Ponzi scheme exist for so many years without the proper checks-and-balances, or even just flags, from a different organization — adept at fund management, to which this country is not lacking — and therefore made the necessary corrections?

  5. Seven years contribution, went to work abroad, went for an expat leave after eleven months checked on my contributions to this SSS damn it’s all gone! Therefore thieves abound in the SSS.

  6. Does anybody try to investigate SSS officials’ salary and bonuses compare to what other employee in the private sector recieving every month? They are supposed to be the servants of the people and not just sitting on their butt inside their lavishly expensive offices. This is the right time to STOP scamming our poor Filipino workers.

  7. You are correct, Sir!. SSS is a giant Ponzi Scheme. SSS is also giant juice extractor.
    Members are squeezed of money and executives collect all the juice. Directors fees from investment should go to members fund.

  8. That’s only in the Philippines where SSS is worth of that Ponzi character (but not US and other countries), whose highest leader is Ponzi expert (President Aquino and Congress kakusa, kabarilan, cronies and others ), comes out with clean hands, but evidence is humongous, where SSS retirees wallowed in deep-setted poverty situation with nothing to buy food, medicines and medical expenses out of granted pension as low as P1,200 per month and whose proposed increased of barely P2,000 was disgracefully denied by heartless, merciless, but but known financial dictator of the country, who powerfully control his almost a third or about one trillion pesos of the National budget, apparently using for, includes among others, bribes and campaign support of his LP candidates. SSS truly failed it’s legal mandates to provide future financial security and stability after all mandatory workers putting all hard-earned share of contributions to the called Ponzi SSS system until no more to bleed, fully drained by corrupt officials by the time they retired. The government officials’ rotten character and greed of this country cannot be hidden from condemning eyes of international community. They brought this shame of the country and tagged its president as the sick man of Asia. I urge to remove the SSS AGENCY of the Philippines as only serving the occasion and venue for the milking cow of government officials and privileged officers of this SSS institution, who cause much hunger and deep sufferings of 60% population of the Philippines. To change this regime of lawlessness, impunity, greed and lacking the rule of law is institute an armless revolutionary government by strong leadership of proven character, capability, honesty, talented in deeds not of its words, with vision for change and have the heart to serve the people and not mere promises but tainted corrupt and incompetent, in order to reverse the apparent decadence in the moral degradation of its people in general, and for the entire country and for us all to turn back to God.

    • Jose Samilin, if your rantings are based on facts you should show them and suggest solution…seems purely mentioned going back to God hope your start with yourself first and preach it to others how you were able to..its a tall order to eliminate corruption its engrained in our culture and as you say we go back to God and in your part please give us some guidelines on how you did it yourself..

  9. Naonsi din pala ako!. I have just retired from government service but also a member of SSS pension plan because of my small business.In my long years of government service I prided myself of not being suck into this Ponzi scheme because I immediatelysense the pyramid tactic that will make you a fool while this schemers run laughing all the way to the bank when they will stop paying.From the larger Agrix pyramid in the 70’s to the smaller ‘ Paluwagan’ among employees I never joined because sooner or later this pyramid crumbles and will come crashing on your head. You do not know what happen as you realize your get rich quick mentality became your worst nightmare.Now that I am a retiree and SSS member kasali pala ako sa mga naloko! Ponzi scheme din pala.

  10. We have the hard realities!

    –Most of which is the abuse of the public purse by a steadfast group of govt officials –Who continue to think that public monies are their OWN…Until we stop this” serious internal bleeding”..We will be left with a corpse .

    This group of clone like; official;s ..That managed to sink their teeth into.the public purse,is terrifying.since the reign of Marcos ..

    .We are seeing; a blatant misuse of public funds .

    ..When the miscreants are caught they laugh —Go on their merry way .

    .We are ruled by powerful families ..I am told they number 19 in all.

    These families always have members in the senate,right the way up to president..They have judges;lawyers doctors law makers ..etc etc–They are in all levels of high and powerful positions .

    No one says if this is a benign leadership !

    Make no mistake, this is,in no shape nor form;a democracy–This is an oligarchy !

    The stranglehold these families have ; is so complete…That the members feel themselves to be the elite of the country..

    The poor need more –“If they have no Bread Let them it cake” ! Is the sarcastic response !

    Dr David M Meyer {PhD Psych}

  11. I still believe that SSS will not work to help retirees. Only solution, Abolish SSS and let us invest our monies in mutual funds or savings accounts rather than wait for the inevitable which is bankrupcy. Also monies invested are used for political campaigns, bonuses to officers, perks for officers, commissions which does not help the retirees. If they failed to help, SSS is a failed undertaking. Solution , abolish SSS.

    • I agree to abolish the SSS Agency and all members submit authorization letters to employers ordering them to stop deduction for SSS contributions for the reason that these trust fund deposits were not used for what is legally intended which the financial security and stability of retirees, evidenced by many years of SSS Agency’s failure to provide. Don’t tell me the P1,200 per month to retirees or even P5,000 is already a legal compliance of the law, far from it, does not even provide for food, medicines, medical services, shelter, entertainment and host of other needs by our lola and lolo and other disabled and retirees, while, SSS Executives, officers and directors and other privileged employees of ove 100 in numbers were abusively awarding themselves pay, bonuses and perks ranging from about 25 million to 35 million pesos annually compared to RETIREES PAY of almost nothing as P1,200 PER MONTH. Its time to enforce the law and have all these SSS LAWS VIOLATORS be arrested and put to jail till they complied with the law to provide the financial security and sustainability of all SSS retirees and disabled beneficiaries in order to give lesson to abusive and corrupt officials, directors and executives of this institution.