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By Karl B. Kaufman
, Reporter
(First of two parts)
ARMY Master Sergeant Tupas is worried. He will
be retiring in five years and he is concerned that by the time he
leaves the service, there will be no office financially capable to
handle his pension.
“By that time my two sons will be in college.
They want to be engineers. I wonder where will I get the money to
finance their studies,” Tupas (not his real name) said.
The source of his apprehension is the recent
news report that the Armed Forces of the Philippines Retirement and
Separation Benefit System (AFP-RSBS) has admitted it is close to
bankruptcy, because of structural flaws in the organization and bad
investments in the past.
RSBS officials interviewed by The Manila Times
said the looming bankruptcy “is a general misconception,” but
admitted that with the multibillion-peso losses incurred, they
cannot take over from the government the payment of the pension of
military retirees.
“We are not bankrupt. We just can’t attain
our mission of giving pensions to our soldiers by ourselves,”
Cleofe Melchor, RSBS assistant vice president, said.
Sergeant Tupas is not the only worried soldier.
On July 27 2003, close to 300 junior officers and enlisted men of
the Armed Forces seized the posh Oakwood premier service apartment
in Makati City to dramatize their grievances against the military
organization, among them the alleged irregularities and corruption
in the RSBS.
“Many soldiers didn’t join the mutiny, but I
think they were there at least in spirit,” the 51-year-old
official said. After all 5 percent of the monthly pay of all RSBS
members, virtually the entire 113,000-strong Armed Forces, goes to
the RSBS.
RSBS’ financial mess has worried not only the
soldiers, but also legislators who dread the day when the
cash-strapped government could no longer pay the military
retirees’ pension.
“The AFP-RSBS cannot and will never maintain
its mandate of taking over from the government the payment of
military retirees at the present scale,” said Sen. Rodolfo Biazon.
The AFP-RSBS was created in December 1973
through Presidential Decree 1656 and started operations in 1976.
From the start it was meant to provide a funding mechanism to ensure
the continuous payment of military pensions.
Under P.D. 1656, the AFP-RSBS manages the
military pensioners’ fund, determining where and how much to
invest. For the first two decades of its existence it was successful
in its job. From an initial funding of P200 million, the RSBS fund
had grown to total assets of P14 billion.
“The RSBS has invested the funds in the stock
market, money market, corporate, loans, real estate and long-term
equities,” said Cesar Jayme, RSBS president. RSBS records show
that for the first 20 years of operation, the net income of the
agency rose at an annual average rate of 66 percent, with the
highest net income, P1.46 billion, posted in 1996.
The RSBS bubble burst in the late 1990s, when
the financial crisis swept Asia. “We were directly hit,” Jayme
said. “The [1997] East Asian financial crisis had a debilitating
effect on us.”
From a high of P14 billion in 1997, RSBS’
income took a dive in the next three years until it reached P12.3
billion at present. Biazon blamed the almost P3-billion loss to
“wrong” investments and the depreciation of real estate, where
the RSBS invested.
“Instead of being able to build its assets, it
had lost through the years despite the fact that the Armed Forces’
active service personnel continue to contribute 5 percent of their
monthly salary, which amounts to P803 million a year,” Biazon
said.
Melchor, who is also the head of the RSBS
legislative reform office, said the financial woes could not be
blamed on “past mistakes” on real-estate investments alone.
“We are heavily involved in real estate and
the real-estate sector is soft. Revenues are just not coming in. But
even without our involvement in real estate, there will still be
losses because of flaws in our structure,” she said.
Melchor was alluding to the members’
contribution rate of 5 percent, which she considers inadequate to
finance the retirement benefits of AFP personnel. The contribution
is refunded with interest to soldiers after retirement. It doesn’t
cover the monthly pension that they are going to receive.
“Only the members contribute to the retirement
fund. There is no counterpart contribution from the employer, like
in the case of the Government System Insurance System and Social
Security System, in which the employers contribute 12 percent and 5
percent, respectively,” Melchor said.
“The contributions are refunded to members on
their retirement, instead of helping build up our fund to a point of
self-sufficiency. Only the residual earnings from the investments
are left in the fund to accumulate,” he added.
Melchor said this is why attaining
self-sufficiency becomes “an elusive target.” “The RSBS will
only pay the pension when it becomes self-sufficient financially.”
At present efforts are being exerted by RSBS
officials to amend the provision and have the soldiers’ employer,
which is the government, shell out a counterpart contribution to the
fund.
Alarms were raised, however, when, at a recent
hearing by the Senate Committee on National Defense chaired by
Biazon, RSBS officials said there were “early-warning signals that
the government can no longer sustain the payment of pension
benefits.”
The Armed Forces information chief, Lt. Col.
Daniel Lucero, said that of the P55 billion allotted to the
organization this year, only P9.5 billion went to the pension fund
when in fact the AFP’s total pension obligation is P15 billion.
Lucero said the figure includes the pension
arrears due the retirees on account of the several adjustments in
the pay of active military personnel. “Payments of pensions will
continue. But what we can’t give is an increase,” he said.
In an analysis RSBS officials predict that by
2007 the number of pensioners will grow more than the number of
those in the active service, and that by 2013 and beyond, the
pension cost would be higher than the cost of salaries of the active
military personnel.
Melchor said this is a “cause for alarm,”
because pension demands will certainly eat up the funds for other
key expenditures of the military such as the maintenance and
operating expenses and it has already delayed the AFP’s
modernization program.
Biazon said he was shocked on learning this
revelation and urged for an immediate restructuring of the RSBS. His
call came amid clamor to abolish the RSBS to be replaced by a new,
more professional benefit system for the military.
“Even if the RSBS never attains
self-sufficiency in its present structure to perform its mandate of
taking over the payment of pension of all soldier retirees, I
don’t think abolishing it is a priority right now,” Biazon said.
Melchor, for her part, said that even on their
level, steps are being undertaken to improve the financial state of
the RSBS. One of them is the recommendation to create an overarching
supervisory body, which will monitor and oversee the military
retirement system.
Part 2 |
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