CONTRIBUTED COMMENTARY

Bold pension reforms urgent under the Duterte Government

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[Ibarra A. Malonzo is the outgoing Social Security Commissioner representing the Labor sector and Errol Ramos is the Director of Workers’ Initiative for Sustainability and Empowerment (WISE), advocating for social security for all.]

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SSS pension reform remains an unfinished business.

So much so that even after President Aquino vetoed the 2,000 across the board pension for 2.1 million private sector retirees, the issue continues to linger. This is only means the incoming Duterte administration, which won on an anti-corruption and social justice platform, will now be carrying the Herculean task of providing a win-win solution which the exiting Aquino government, unfortunately, did not do.

The Social Security System is faced with a triple challenge namely: collection efficiency, benefits adequacy, and financial sustainability.

Consider the following facts as it stands today.

SSS collected around 130 billion in 2015 from 13 million paying members. This is around one per cent of a 13 trillion Philippine economy. We could have collected more. A membership of 31 million leaves a yawning gap of about 19 million ‘uncollected’ members. Most of them are in the so-called informal economy – the farmers and fishers, market vendors, sidewalk vendors, small-scale miners, construction workers, transport sector, kasambahays.

On the other hand, SSS disbursed around 120 billion in benefits, around 80 billion of which are purely retirement pensions. This is 0.85 per cent of GDP. Each pensioner receives on the average around 3,600 pesos a month. Senior citizens receiving this amount are howling over the insufficiency of such amount. True, this is insufficient but until the SS Law is amended, there is not much we can do to increase their pensions.

Lastly, financial viability of the System. The actuarial life of SSS is until 2042. Meaning to say, funds will run out 26 years from now. In the case of a P2,000 pension increase across the board, it will shorten fund life by 18 years if no corresponding contribution rate increase will happen.

This having been said, a bolder and more comprehensive reform agenda must therefore be put in place by the Duterte administration to address the triple challenge. Further, the reform should be mindful of the interests of the major stakeholders.

Let’s face it: this has never been done the last 20 years. The last time a comprehensive reform package on SSS was implemented when the country and the whole of Asia was in financial crisis. That was in 1997. This time around, we want to scale up SSS by improving its viability and expanding its benefits.

What reform package are we trying to propose?

There can be two waves of reforms.

The first wave is to give a P1,000, instead of a P2,000 pension increase across the board. No contribution rate increase. No collatilla. Period. This can be done immediately after the assumption of office of the new President. A resolution by the next Social Security Commission can be prepared immediately for the President’s signature to effect such.
This may quell the restiveness of our pensioners for the meantime.

The second wave will involve long-term strategizing. The next six years of a Duterte presidency is the perfect time to overhaul the system and put in place the reforms.
This may include the passage of a pending bill in Congress to give the Social Security Commission (SSC) the power to fix contribution rates and condone penalties. However, in our opinion, SSC may only make minor rate adjustments because employers will always oppose rate increases. Deadlock will happen. In fact, for the last 36 years, the rate of contribution only increased by 2.6 percent from 8.4 to 11 per cent. What more if we will increase the rates by 1 per cent every two years in the next 20 years. It is really Congress which has the plenary powers to make these bold adjustments.

Next is to pass the matching contribution scheme bill also pending in Congress. The target sector for this scheme is the informal economy workers earning below P8,000 a month. It is unfair for the working poor–mostly vendors, tricycle drivers, farmers and fishers–to pay the entire SSS contribution, while those employed pay 33 per cent and the employers pay 67 per cent. The poor in the informal economy can pay for 50 per cent of their contribution rate while government can match the other half.This will incentivize the membership of around 10-15 million.

Third, a multi-stakeholder commission can be convened by the President or Congress to establish a consensus on what is the level of social security, particularly pensions of the elderly, the survivors and disabled we want to attain in the next twenty to thirty years. Do we want to double the pensions in the next ten years, and quadruple in twenty years? Do we double the number of pensioners from 2 million to 4 million in 2036? Do we want to double paying membership from 30 per cent to 50-60 per cent in the next 10-20 years and be at par with international standards? Do we increase collection from 1 per cent to 2-3 per cent of GDP?

With an economy growing at 6.5 – 7 per cent GDP per year, it is a realistic goal to double the average income level of Filipinos in real terms by 2036 by maintaining steadily or even exceeding the GDP growth rate of the past six years. By then, the economy can provide the wherewithal to double the real value of SSS pensions, double the number of pensioners, and increase paying membership from 13 million to 30 million. SSS can grow way above its actuarial projections done in 2011. We can do it.

But economic growth does not automatically translate to higher social protection.

Increased social protection can only come about if the growth of the economy is shared with the poor, the sick, the widows, orphans and the elderly. There has got to be a significant redistribution of wealth. This requires a stronger political will to care for the weak members of society. This requires strong social security institutions that can institutionalize the ethics of sharing and caring into law and practice.

* Written by Outgoing Social Security Commissioner representing labor Comm. Ibarra A. Malonzo and Errol Ramos, Director, Workers’ Initiative for Sustainability and Empowerment (WISE), advocating for social security for all.

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