This position paper is an offshoot of the pronouncement of Department of Finance (DOF) Secretary Benjamin Diokno on March 28, 2023 about the Marcos administration’s intent to overhaul the pension system of the military and uniformed personnel (MUP).

REFORMING THE MUP PENSION SYSTEM
A Position Paper of PMA Class of 1971, Inc.

 

EXECUTIVE SUMMARY 

This position paper is an offshoot of the pronouncement of Department of Finance (DOF) Secretary Benjamin Diokno on March 28, 2023 about the Marcos administration’s intent to overhaul the pension system of the military and uniformed personnel (MUP). The salient points of that announcement focused on the non-contributory systems of the MUP retirement pensions and indexation of pension, as well as current pays received by those in the active service. Controversial was the Secretary’s assertion that the current MUP retirement system is not sustainable, and if not reformed, could lead to fiscal collapse in the future.

The position paper, adopted by the Philippine Military Academy (PMA) Class of 1971, was jointly prepared by Retired Vice Admiral Ariston Delos Reyes and Retired Colonel Rolando Malinis, both from the PMA Class of 1971. It is based mainly on several studies of the former, the latter’s book BROTHERS, with significant contributions from former Senator Panfilo “Ping” Lacson (PMA ’71), Retired Commander Bienvenido Alano (PMA ’71, USNA ’71), Retired Colonel Marte Chioco (PMA ’71), and other Class members.

Its specific objectives are: a) to present the MUP and stakeholders’ arguments against the current government plan (per se) to reform the MUP Retirement System; and, b) to list down the recommendations resulting from such discussion.

The following is a summary of the key points of the position paper.

1. Retirement pensions should be seen as a vital part of an incentive package for: a) retirees who not only served the country well, but also gave more during their active service tour by working beyond than the mandatory eight hours a day without overtime pay and being assigned on various missions like national defense, internal security operations, UN peacekeeping missions, and disaster relief operations at great sacrifice to life and limb; and b) as a motivation for capable and promising young men to choose the profession of arms;
2. The need for a sound budget outlay must be balanced with the motivational needs of the MUP;
3. The MUP pension is not ballooning as claimed by Secretary Diokno;
4. The data gathered indicated that the main problem is not the growing financial requirements of the MUP pension, but the neglect of the government to sufficiently adjust its budget to cope with the capability development and operational requirements of the military;
5. The fallacy of the Government Service Insurance System (GSIS) study about the P9.6-trillion liability of the MUP pension and its insufficiency as basis for outright and drastic changes to the MUP pension system. In 2021, then Senator Ping Lacson emphasized the need for such completed actuarial study; and
6. That the MUP Retirement System will cause fiscal collapse in the future was debunked.

Towards this end, the paper presented the following recommendations:

1. That the proponents of pension reform led by Secretary Diokno heed the advice of Chief Presidential Legal Counsel Secretary Juan Ponce Enrile as well as the appeal for prudence by former Senator Ping Lacson, and wait for the much-needed, completed actuarial study;
2. That during preliminary discussions and consultations by the proponents with MUP and other stakeholders, an alternative bill on pension reform be duly considered with the following salient provisions:

• 2.1. Equalize the MUP disability pension as mentioned by the President during his State of the Nation Address (SONA) in 2022;
• 2.2. Equalize the maximum MUP pension at 90 percent of base pay and longevity pay, thereby adjusting that for the military (85 percent at present); and,
• 2.3.  Ensure that the MUP and all other existing non-contributory pension systems are indexed to account for inflation.

3. That the Presidential Adviser on Legislative Affairs consider recommending to the President to certify as urgent a Joint Resolution authorizing the increase in MUP base pay for 2024-2027, to be at par with that granted to all civilian government personnel in 2020-2023, pursuant to RA 11466. The pay adjustment should be strictly in accordance with RA 9166 of 2002.

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REFORMING THE MUP PENSION SYSTEM
A Position Paper of PMA Class of 1971, Inc.

 

INTRODUCTION

The contentious issue regarding the magnitude of the cost of military and uniformed personnel (MUP) retirement pay is once again in the limelight.

As reported by the Manila Bulletin on November 23, 2022, Secretary Diokno, during his confirmation hearing, again cited the fallacious and misleading GSIS study, adding that the Department of Finance vowed to resolve the complicated MUP pension system that “continues to take a heavy toll on the government’s yearly budget.” Among other things, he posited that not only new entrants but even those already in the active service will contribute to their retirement benefits.

During the Presidential Communications Office (PCO) press briefing on March 28, 2023, Secretary Diokno said: “The Marcos administration is pushing to overhaul the pension system for the military and uniformed personnel (MUP) to avert fiscal collapse stemming from higher pension costs.” According to Diokno, President Marcos has agreed to reform the pension system for MUPs to address the country’s fiscal deficit. The current MUP pension system is non-contributory and, as such, retirement pensions and benefits are fully funded by the government through annual appropriations. Diokno indicated his predecessors did not want to address this, saying: “It’s the elephant in the room and nobody would like to touch it and they simply ignore it.” He added that the current pension system is not sustainable and if it goes on, there will be fiscal collapse.

It may be recalled that the President, during his State of the Nation Address (SONA) on July 25, 2022, mentioned that among his priority legislative measures would be the grant of monthly disability pensions in lieu of unequal disability benefits under existing laws for the MUP, but not changes in the MUP pension system as again being proposed by Secretary Diokno — changes similar to those contained in various bills which were not passed into law during the 18th Congress (2019-2022).

Limitations

During the advent of salary standardization in 2016, the Department of Budget Management (DBM) and Department of Finance (DOF) had lumped the military with the different civilian uniformed services such as the Philippine National Police (PNP), Bureau of Fire Protection (BFP), Bureau of Jail Management and Penology (BJMP), Philippine Coast Guard (PCG), and National Mapping and Resource Information Authority (NAMRIA). This group is now commonly known as Military and Uniformed Personnel (MUP), conceived for the DBM’s use in the drafting of the salary standardization bill and the consequential pension indexing as well as the MUP pension reform bill.

This system of indiscriminately grouping or treating as alike without regard for particulars created several problems insofar as coming up with a common position regarding the issues raised by Secretary Diokno, especially about the MUPs’ non-contributory system and indexation of pension to the current pay of similar rank.

This complex situation has posed some important limitations brought about by our inability to acquire critical data from among the other stakeholders pertaining to the several issues at hand. This paper has more than enough supporting information for the military, but almost nil from the other agencies. Thus, the position of the military is strengthened but that of the others is uncertain. It is our hope, however, that this approach could lay the groundwork for a more complete research study in the future by the rest of the MUPs.

The data limitation has been addressed by making some assumptions. For example, we assume all MUPs are exposed to the same risk to life and limb, though in differing degrees. And that except for the BJMP and NAMRIA, MUPs are sui generis because they work 24/7 without overtime pay. The weakness of this setup is that it leads to confusion because sometimes things unique only to the military are also interpreted to apply to all other MUPs. For example, the data of the military does not show that the pension for the military is ballooning. This state would be interpreted as true for all MUPs. In the absence of data, we could say non-sequitur. At the outset, it is our belief that despite the limitation, the strength of the argument of the military will not be affected and it will lead to a stronger common stand of MUPs in the future.

Objectives

This position paper, adopted by PMA Class of 1971, was jointly prepared by Retired Vice Admiral Ariston Delos Reyes and Retired Colonel Rolando Malinis, both of the PMA Class of 1971. It is based mostly on several studies of the former and the latter’s book BROTHERS, with significant contributions from former Senator Panfilo Lacson (PMA ’71), Retired Commander Bienvenido Alano (PMA ’71, USNA ’71), Retired Colonel Marte Chioco (PMA ’71), and other Class members.

The objectives of this paper are: a.) to present the MUP and stakeholders’ arguments against the current government plan (per se) to reform the MUP Retirement System; and, b.) to list down the recommendations resulting from such discussion.

Historical Background

Since 2015, Retired Vice Admiral Ariston Delos Reyes has been involved in research and continuing study of the MUP pension system. He provided the Office of the President, Congress, Department of National Defense (DND), Philippine Military Academy Alumni Association, Inc. (PMAAAI), Association of Generals and Flag Officers (AGFO), National ROTC Alumni Association, Inc (NARAAI), and other MUP organizations with studies and papers in defense of its non-contributory nature and being indexed to the prevailing rate of those in active service. The Confederation of the Uniformed Services Associations (CONUSA) and the PMAAAI in particular have had successes in the recent past – most significant of which was the MUP pay adjustment and resumption of pension indexing pursuant to Joint Resolution No.1 s 2018, benefitting more than 400,000 active and 220,000 MUP pensioners; notwithstanding the recommendation of then Secretary Benjamin Diokno to suspend the indexing.

During the 18th Congress, certain financial technocrats in government pursued the enactment of bills to make the MUP pension system contributory and to effect the outright stopping of pension indexing.

Fortunately, both Houses of Congress had been receptive to another alternative to the drastic measures embodied in said bills. During the meeting of the Ad Hoc Committee in the House of Representatives to review the MUP pension system on June 9, 2021, it decided to propose that MUP pension remain non-contributory but indexing would be limited to maximum five (5) percent per annum for 10 years. Then, during the hearing of the Senate Committee on National Defense and Security, Peace, Unification, and Reconciliation on September 30, 2021, the five-percent limit to indexing was also taken up. Delos Reyes concurred with the proposal, provided that such limit will also apply to non-MUP pension systems that are non-contributory and indexed at 100 percent not only to pay but also including allowances of those in the service pension systems for the judiciary, prosecution service, and constitutional commissions. The annual limit of five percent will prevent sudden increases in funding requirements when indexing to high pay adjustment is in effect. It has similarity with the annual pension adjustment due to inflation (cost of living adjustment) being granted to all retired United States federal employees including the military. Unfortunately, the said proposal was not enacted in 2022.

CONFRONTING ISSUES RAISED BY SEC. DIOKNO

The PCO Press Briefing with Finance Secretary Benjamin Diokno on March 28, 2023 raised concerns among the MUPs because he proposed major changes to the pension system but short of being in accordance with the doctrine of completed staff work.

For instance, he only discussed that compared to SSS and GSIS members, the MUP pensioners have the highest average monthly pension at P40,000. However, he did not include a fourth group: the members of the judiciary, prosecution service, and constitutional commissions whose pensions are the highest and are estimated to exceed P200,000 – or five times more than that for the MUPs.

Diokno expressed that he wants the MUP pension to be made contributory and that pension indexing be stopped. Yet, those of the judiciary, prosecution service, and constitutional commissions will remain non-contributory, based not only on pay but including all allowances, indexed at 100 percent. Hence, his proposal is discriminatory against the more than 600,000 MUPs, active and retired. He proposed that all those in the active service can start contributing to their pension and that those who will optionally retire will only receive their pension upon reaching the age of 57 – proposals that will have an outright deleterious effect on the morale of the MUPs. Definitely, not a few will opt to retire just before his proposals could be enacted.

Rationale of Non-Contributory System and Pension Benefits of Retirees

Pursuant to Section 7, Article XVI of the 1987 Constitution of the Philippines, funds for the benefits of veterans shall be provided by the government. Such benefits include, among others, AFP retirement pension, old age pension and total administrative disability pension which have all been funded by the Government. [Any effort contrary to this provision is therefore unconstitutional.]

It is easy to see that the above provision is consistent with the military’s non-contributory pension system that has been in effect since 1935 pursuant to Commonwealth Act No.1 (CA 1). The non-contributory system and retirees pension benefits can be rationalized.

The military career is a noble profession of arms. This calling is unique from all other professions, as it calls for those who pursue it to defend our country even if it means sacrificing their lives. As the Code of Conduct of the Philippine Military states:

“… I am a Filipino soldier. I WILL FIGHT AND DIE in the true Filipino tradition of valor, honor, duty and loyalty. To all these I PLEDGE MY LIFE, my treasure and my sacred honor.”

Similarly in the United States, Article One of the Code of Conduct for members of the armed forces states: “I am an American fighting in the forces which guard my country and our way of life. I AM PREPARED TO GIVE MY LIFE IN THEIR DEFENSE [capitalization supplied].” This is perhaps the reason why in the US Government, the non-contributory pension system is exclusive to the military, it being considered as a gift of the American people to their soldiers for their honorable and dedicated service.

The following partial list of actual deaths of soldiers in the battlefield is being presented as proof that the sacred oath of the military to die for the country is real and not a mere statement:

1. In November 1972, the casualty count at the Battle of Sibalu Hill listed 15 Marines killed-in-action (KIA) and 22 wounded;
2. During the height of the conflict in Mindanao in 1973 when the government almost lost Central Mindanao to the Moro National Liberation Front (MNLF), the military forces at the Battle at Lebak lost 48 soldiers, 148 wounded, and one missing. Subsequent battles in Central Mindanao led to heavier casualties. The Army reported at least 149 deaths and 506 wounded on the part of the military;
3. During the confrontation between the MNLF and the government in 1974 also known as burning of Jolo or Siege of Jolo, 29 soldiers died;
4. Government troops and Muslim rebels clashed in Basilan Island on April 30, 1978, which resulted in the deaths of 11 government soldiers;
5. The Patikul Massacre, referring to an event that took place on October 10, 1977 in Patikul, Sulu, led to the death of 35 officers and men of the Philippine Army. Among the casualties were Brigadier General Teodulfo Bautista, Colonel Gabriel Pangilinan, and four Lieutenant Colonels;
6. In the infamous Mamasapano Clash in 2015 between the Special Action Force of the PNP and the MILF, some 44 troopers of the PNP were killed; and
7. More than 165 soldiers died during the Marawi siege in 2017.

Our soldiers did not die in vain. Their supreme sacrifices, as well as the sufferings of those who survived, bore fruit. For one, they have fulfilled their mandate of protecting the people, territorial integrity, and sovereignty that goes with securing our democratic way of life and institutions; they have prevented the loss of Central Mindanao in the early 1970s Secessionist War; and they have halted the loss of more lives and further destruction of properties in Mindanao and other hotbeds of insurgency.

More significantly, they have confronted well the more serious threat to our democratic way of life posed by the Communist Party of the Philippines’s (CPPs) strategy and plans. For many decades, the MUP prevented and protected the country from communist takeover with clear intent to destroy our democratic and economic systems including the judicial, legislative and banking systems, among the strong pillars of our society.

This threat against the economy including banks and financial institutions is clearly laid out in the 2016 CPP Constitution and Program for People’s Democratic Revolution. The CPP General Program states, ‘The commanding heights of the economy, including the banks and other financial institutions, existing strategic enterprises, major sources of raw materials and main instruments of transport and communication must be in the hands of the people’s democratic state in order to ensure planning and development of the economy and lay the foundation for socialism”. This is socialism of Marx, Lenin and Mao under the dictatorship of the Party as prelude to communism. On the other hand, the CPP Specific Program talks about developing and applying a revolutionary justice system to replace our current judicial system.

Over the years, the MUP have thwarted CPP’s strategy and plans although the MUPs also sustained their own casualties. The string of successes includes the reported death of the Chairman of the CPP Executive Committee and the CPP’s Secretary General during an encounter with the military on August 22, 2022, effectively losing the insurgents guiding lights and direction to their effort. This success was followed by the recent arrest of the secretary of the Southern Mindanao Regional Committee in Langkawi, Malaysia wanted for murder, kidnapping, and other crimes.

The military personnel have too much on their plates. Aside from internal security operations, they have been in the forefront in national defense (defending the West Philippine Sea), UN peacekeeping missions, disaster relief operation, search and rescue, etc., with consequential risks due to loss of life and limb, 24/7 work to include holidays and during disasters without overtime pay even if our working hours extend beyond eight hours a day, a benefit being enjoyed by their civilian counterparts. Retired PDDG Rex Piad (PMA ‘71) said in jest, “IF we are granted overtime pay for all the extra hours that we work, MUPs would be happy to contribute for our pensions.”

It is noteworthy to mention that our MUP retirees of today, both dead and living, have their own share of time during their active military service in the past when they fought, bled, died, and served for God, country, and family even at the cost of their lives and intense hardships. This is what makes MUP retirees special and unique from among other non-military retirees. Take out the sacrifice of life, the military is just like any other job. This is exactly what Chief Presidential Legal Adviser Juan Ponce Enrile had in mind when, during a radio interview, he expressed total disagreement with said proposals of Diokno. He mentioned “Iba ang trabaho ng sundalo eh [The mandate of the military is different]” and that the soldiers “are gambling their lives to protect the country.” His advice: ” Kung ako si Secretary Diokno, dahan-dahan ako diyan [If I were Secretary Diokno, I’ll slow down]. That is very explosive.”

On a similar note, our Mistah, former Senator Panfilo “Ping” Lacson “appeals for prudence” from the proponents and to wait for a completed actuarial study which is an indispensable part of a reformed pension system. He briefed the Class that during the 18th Congress, the Senate Committee on National Defense and Security, Peace, Unification and Reconciliation required the MUP’s, National Treasurer, GSIS, and other concerned agencies to submit their inputs to the study. However, the MUP’s including the AFP failed to submit on time their inventory of assets. As a result, the actuarial study was not completed, and the Committee was not able to come up with its report on the pension reform measures before Congress adjourned sine die in mid-2022.

What is then the relevance of the discussion above to the MUP pension issues raised by Secretary Diokno?

Per se, the position of Diokno as a technocrat is understandable but it is not inclusive. As Finance Secretary, he is tasked with allocating a finite budget in such a way as to: 1) address the financial requirements of the different government departments to ensure that they function effectively in pursuing their respective mandates, and 2) create the conditions that would allow the economy to remain on a viable and sustainable growth path.

In attempting to attain these objectives, Diokno would most probably lean towards devoting resources to the most productive sectors, with the expectation that these sectors would lead the country towards higher levels of economic growth. Sadly, the retirees are among the last in terms of economic productivity. Thus, they expect to find themselves at the tail end of the queue for economic resources – a position undeserving for retirees who had served the country well.

Comparing the MUP retirement system to other government agencies’ retirement systems (contributing and not indexed to current pay of equivalent grade) is like treating the retirees’ pensions as mere dole outs to old soldiers whose productive years have long come and gone. This is a direct disrespect and an act of ingratitude to a profession involving the risking of lives while in the service to the country. Rather it is more fitting that the system should be seen as a vital part of an incentive package that goes a long way to help them and their families. These extended support and appreciation would surely boost the morale of the organization. It would help convince capable and promising young men to choose the profession of arms despite the risks involved in such a choice knowing that the government assures him and his family of a comfortable life even beyond his productive years serves as a strong incentive for him to take on the risks inherent in joining the MUPs ranks.

Fallacy of Ballooning Pension Budget

Based on the statistical data on Philippine Military/Defense Budget below gathered by Retired Vice Adm Delos Reyes, the AFP pension is not ballooning as claimed by Secretary Diokno.

Year	National Budget	AFP Pension	AFP Pension as Percent of Budget
2011	P1.645 Trillion	P24.17 Billion	1.5
2017 (prior to indexing pursuant to JR 1)	P3.350 Trillion	P33.11 Billion	1.0
2019 (after indexing)	P3.662 Trillion	P54.809 Billion	1.5
2021 (two years after indexing)	P4.500 Trillion	P56.447 Billion	1.2

 

It may be recalled that in the past attempt to reform the pension system, the GSIS, based on its study, has presented the P9.6 trillion as liability of the MUP pension. Delos Reyes has exposed the fallacy of this argument. Please refer to the REPORT ON SENATE WEBEX ON PLANNED MUP PENSION REFORM/FALLACY IN THE GSIS STUDY ON MUP PENSION (Attachment below).  According to him:

1. The P9.6 trillion is the present one-time cost to ensure the perpetual financing of all MUP annual pension requirements in lieu of annual appropriation for the pension;
2. The GSIS study should have included projected annual MUP pension for reference as compared with the annual total budget. For the AFP, the pension for 2021 is P60 billion. Since 2018, the annual increase has been less than two (2) percent. It was only in 2017 – 2018 that it increased by 73 percent due to pension indexing (JR 1); hence, the increase in annual pension requirement does not increase considerably;
3. That the P9.6 trillion figure is misleading and not being well understood by readers.

The earlier statement of former Senator Lacson that there is still a need for a completed actuarial study only proves that the initial GSIS study is not sufficient; hence, it is not a suitable basis for the outright and drastic changes in the MUP pension system that are being proposed.

It is also noteworthy to mention that Delos Reyes who gathered data on Philippine military/defense budget, indicated that the main problem is not the growing pension but surprisingly the neglect by the government to sufficiently adjust its budget to cope with its capability development and operational requirements. The following are the salient findings of his study:

1. Military spending has continually increased in nominal value from 1960 to 2021; however, it has also continually gone down in terms of percentage of GDP from 1.78% in 1960 to 1.04% in 2021.
2. From highest to lowest, the Philippine military spending in percentage of total government spending in 2021 ranked No. 91 out of 142 countries at 3.82% which is way below their average of 6.22%. Based on the 2021 budget, the government would have to infuse an additional P108 billion if only to elevate our military spending that already includes pension in order to match the worldwide average.
3. Likewise, Philippine military spending in percent of GDP ranked No. 108 out of 145 countries at 1.08%. The average for all countries is 1.87%.
4. The study assessed that due to low military spending, our soldiers had been ill-equipped and had to pay with their lives and limbs in gallantly fighting the enemies of the state for decades.

The above statistics indicate that notwithstanding the years of economic progress, the government has neglected the national defense program and shifted higher priority to numerous other programs of the government like education, infrastructure, and poverty alleviation program, etc., all of which now have much higher percentage of government spending. Consequently, our ill-equipped soldiers have to pay the high price with their lives and limbs in gallantly fighting the secessionists in the 1970’s, the CPP/NPA in the 80’s, and thereafter the terrorists, highlighted by their heroic liberation of Marawi City in 2017.

Now we are barely capable of defending our national interest in the West Philippine Sea. Regrettably, our defense spending relative to our neighbor leaves us dangerously vulnerable considering that we are faced with both external and internal security threats. Amidst such neglect of government in truly modernizing the AFP over decades, it is saddening to hear from Secretary Diokno that the solution is to make the military pension contributory.

Another area long neglected related to promoting the morale and welfare of our military is the prolonged delay in adjusting their pay in four tranches, equivalent to that already granted to all civilian government personnel from 2020 to 2023 pursuant to Salary Standardization Law of 2019 (RA 11466). While it is true that the base pay from the rank of candidate soldier to Technical Sergeant had been considerably increased above those granted under EO 201 s 2016 to their civilian counterparts, the pay from the rank of Master Sergeant and higher, as well as those for the cadets and commissioned officers of all ranks are lagging behind when compared with the pay that their civilian counterparts have been enjoying for the last four years.

On February 12, 2021, Chairman and CEO Edgar B Aglipay of the PMAAAI, a retired police general and a former Chief PNP, endorsed to then Senate President Vicente Sotto III a draft Joint Resolution that could have rectified such discrepancy effective 2022-2025. The letter further explained that the proposal will entail an increase in monthly pension by an average of only seven (7) percent annually for four years. Regrettably, it was not passed into law. Its enactment would definitely boost the morale of more than 600,000 active and retired MUPs as well as their more than two million loved ones.

Fiscal Problem Issue

Our Mistah, former Senator Ping Lacson, expressed his opinion before the Matatags (referring to PMA class ’71) in our Viber group regarding the issues of the MUP Pension System. He said:

“I have nothing against a pension reform being suggested by DOF secretary. In actual fact, I spearheaded the legislative initiative to reform the same. But Diokno should not use the MUP retirees as his scarecrow describing the problem of sustaining the present pension system long term as the cause for the country’s ‘possible fiscal collapse’, which some financial experts have suggested is far from happening. Even calling a general’s pension as the ‘elephant in the room’ when his 2021 pay as Central Bank governor was a whopping P41.811 M which is at least 18 times more than what I, Narcing Abaya, Egay Aglipay, Aris Delos Reyes, or all the other 3 and 4-star retired generals are currently receiving.”

Before Lacson made the above comments, he had already expressed this sentiment on Twitter.  He said, “My tweet on the matter elicited a lot of reactions and I hope Ben Diokno reads or hears about the thread so he would realize the effect of his not-so-responsible statement. He could have explained it better without making the MUP retirement pay as a scapegoat of whatever fiscal problems our country maybe confronting in the future, if it actually comes to that.”

Retired with 4-stars, it will take me at least 18 pension years to approximate Ben Diokno’s 2021 pay of P41.81-M. Many of us who risked our lives away from our families for at least 30 years may not be the primary cause of the country’s possible fiscal collapse. pic.twitter.com/8TjkoBRZVa

— PING LACSON (@iampinglacson) April 1, 2023

While waiting for the outcome of the actuarial study, for now we can just explore other possible alternative sources of our future fiscal problems, that is, if the study will lead to the conclusion that the government is indeed on the way to fiscal crisis.

Mistah Marte Chioco offered some useful insights. “Maybe it’s not true that nobody wants to touch the MUP pension as Secretary Diokno alludes to as ‘Elephant in the Room’. The problem could be the failure to see beyond the room or take the overall view of the situation. MUP pension is welfare payment and just recognition of their services and sacrifices. Likewise, it also inspires those in the active service who look forward to their future. It is a government expenditure not subject to corruption. No percentage cut, bribery or unlawful disbursement. In fact, the pension payments received monthly are spent wisely by retirees on goods and services which eventually contribute to the Gross National Product (GNP) or the whole economy as consumption expenditures. The real problem could be the failure to see the white elephants in the government budget and expenditures per the economic or business definition of term, White elephants that perform below par in terms of utility and values like pork barrel, excessive allowances and government infrastructure projects which have been prone to corruption. Among others, these budgetary items could contribute to government financial and fiscal crisis that Diokno believes will occur in the future.”

RECOMMENDATIONS:

Based on the above discussion, the paper presented the following recommendations:

1. That the proponents of pension reform led by Secretary Diokno heed the advice of Chief Presidential Legal Counsel Secretary Juan Ponce Enrile as well as the appeal for prudence by former Senator Ping Lacson, and wait for the much-needed, completed actuarial study;
2. That during preliminary discussions and consultations by the proponents with MUP and other stakeholders, an alternative bill on pension reform be duly considered with the following salient provisions:

• 2.1. Equalize the MUP disability pension as mentioned by the President during his State of the Nation Address (SONA) in 2022;
• 2.2. Equalize the maximum MUP pension at 90 percent of base pay and longevity pay, thereby adjusting that for the military (85 percent at present); and,
• 2.3. Ensure that the MUP and all other existing non-contributory pension systems are indexed to account for inflation.

3. That the Presidential Adviser on Legislative Affairs consider recommending to the President to certify as urgent a Joint Resolution authorizing the increase in MUP base pay for 2024-2027, to be at par with that granted to all civilian government personnel in 2020-2023, pursuant to RA 11466. The pay adjustment should be strictly in accordance with RA 9166 s. 2002.

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(Attachment: Report on the Senate WebEx Hearing dated 2 February 2023)

REPORT ON SENATE WEBEX HEARING ON PLANNED MUP PENSION REFORM / FALLACY IN THE GSIS STUDY ON MUP PENSION

by VADM Ariston V Delos Reyes AFP (Ret)

A. FOREWORD

Below is my report of participation on the last Senate hearing on MUP pension reform in September 2021 with my attached comments on the GSIS actuarial study. I emailed same to my mistahs, some DND officials and other stakeholders. It is intended to update the reader on the Senate hearing on 30 Sep 2021 regarding planned MUP pension reform.

Ref: Manila Bulletin, 24 Nov. 2022, p1. During his confirmation hearing at the CA, Sec Diokno again mentioned the fallacious and misleading GSIS study and that the DOF vowed to resolve the complicated MUP pension system that “continues to take a heavy toll on the government’s yearly budget.” Among other things, he posits that not only new entrants but even those already in the active service will contribute to their retirement benefits.

If such will happen, then the non-contributory pension system will become exclusive to the members of the judiciary, prosecution service, and constitutional commissions, indexed at 100 percent of prevailing pay and allowances. Like in the USA, the non-contributory pension system has been exclusive to the AFP since 1935 until enactments allowed it to numerous groups of civilian government personnel. Thus, losing it will be an insult to the dignity of the soldiery.

B. THE SENATE WEBEX HEARING ON PLANNED MUP PENSION REFORM

1. On invitation, I attended the WEBEX meeting of the Senate Committee on National Defense and Security, Peace, Unification and Reconciliation, chaired by Senator Ping Lacson on 30 September 2021. Senators Drilon and Gatchalian were present. The DND was represented by USEC Ding Luna, USEC Rey Mapagu, USEC Duco , ASEC Gaverza and ASEC Bautista while PVAO was represented by USEC Carolina. The National Treasurer, Dir De Leon, representatives of the AFP and other MUP agencies, DBM, GSIS, DOF also attended.

2. The meeting was a continuation of previous hearings regarding the different schemes/proposals/bills to reform the MUP pension system. Initially, Sen Lacson informed that the Ad Hoc Committee at the House of Representatives has considered to adopt a simplified MUP pension reform bill that will only peg the annual increase of base pay at five (5) percent for 10 years. Hence, the consequent annual pension indexing will likewise be limited by such increase.

In this regard, Sen Drilon suggested that such proposed bill may have to include also making the pension system contributory but only for new entrants. I was asked to comment.

Summary of my comments

2.1. I concur with the Ad Hoc Committee’s proposed bill that will only limit the annual increase in base pay at 5 percent annually for 10 years and from which pension indexing will be based.

2.2. I expressed concerns if the pension system for new entrants will be made contributory. First, for the military, the non-contributory system has been in effect since 1935 pursuant to Commonwealth Act No.1 (CA 1) and which further finds support under the 1987 Constitution regarding veterans’ benefits being funded by the government. Second, it could have adverse implication to military recruitment because there will be no more significant added benefits that will accrue to military service vis a vis civil service because all military ranks have equivalent salary grades for the purpose of salary standardization. Third, such will be discriminatory to the MUP because the new entrants in the judiciary and constitutional commissions will continue to enjoy non-contributory pension system. In the United States, only the military and coast guard personnel enjoy the non-contributory pension system. All other federal employees contribute to their retirement including the justices. The military pension system pursuant to CA 1 was patterned after that for the United States Armed Forces. I also mentioned the present great disparity in annual pension received by a retired CSAFP at P2.3 million compared with more than P10 million for an associate justice in the Supreme Court. (The Chairman noted said disparity.)

3. On the presentation of the GSIS Actuarial Study. The presentation included various iterations based on certain inputted assumptions. Nevertheless, it remains rooted to the initial study which has been much publicized regarding the P9.6 trillion MUP pension liability.

My Comments:

3.1. The study has misled the public on the real meaning of the P9.6 trillion pension liability. I researched on the issue at hand and came up with my article FALLACY IN THE OUTRIGHT USE OF P9.6 TRILLION AS LIABILITY OF MUP PENSION (attached below). For want of time I mentioned its key provisions only.

3.1.1. The P9.6 trillion is the present one- time cost to ensure the perpetual financing of all MUP annual pension requirements in lieu of annual appropriation for the pension.

3.1.2. The GSIS study should have included projected annual MUP pension for reference as compared with the annual total budget. For the AFP, the pension for 2021 is P60 billion. Since 2018, the annual increase has been less than two (2) percent. It was only in 2017 – 2018 that it increased by 73 percent due to pension indexing (JR 1); hence, the increase in annual pension requirement does not increase considerably.

3.1.3. When asked by the Chairman if I informed concerned agencies about my observation, I mentioned that I emailed Finance Secretary Dominguez about the P9.6 trillion not being well understood by readers. During a brief telephone conversation, he said he would refer me to the National Treasurer to discuss the matter; however, the meeting did not materialize.

4. When the Chairman asked the DOF and DBM as to the feasibility of the annual MUP pension requirements indexed on the planned annual increase in base pay for ten years, DBM presented the slide/matrix on the matter.

When asked, I replied to the Chairman that such annual projection should have been included in the early part of the GSIS actuarial study for better understanding of the readers.

USEC Luna commented that the projected AFP strength used by DBM should not be based on population increase as the case for the PNP. Rather, it is based on the national defense and security situation.

My personal observations (not part of the proceedings) relative to the comments of Sen Gatchalian on the DBM’s annual projection

In his initial statements, he mentioned the P9.6 trillion cost of MUP pension for a” number of years” which is an indication of his misinterpretation of what the figure really meant, as in the case of the other readers. In the ensuing discussion, he asked about the additional annual cost to the government for the counterpart contribution if ever new entrants will contribute to their pension. Again, with the benefit from hindsight, such could readily have been included in the GSIS actuarial study because it is a significant additional cost factor for the government to consider. I mentioned this matter in my Comments on Senate Bill 1419 (Para C.4.) which was endorsed by PMAAAI to the Senate.

5. Finally, I am very grateful to the Chairman for inviting me to join the hearing and I feel honored and privileged to be allowed to express my opinions and views regarding the ongoing Congressional review and plan to institute reforms in the MUP Pension System. Moreover, being addressed as “Mistah” by the Chairman during the hearing of the powerful and prestigious Committee was a music to my ear, really made my day, and an unforgettable experience.

C. FALLACY IN THE OUTRIGHT USE OF P9.6 TRILLION AS LIABILITY OF MUP PENSION

1. The GSIS actuarial study merely presupposes that the government will have to pay/invest one- time P9.6 trillion if it wants to have a perpetual annual source of payment in lieu of annual appropriation for the present MUP pension which is non-contributory and indexed to prevailing pay rate. The study assumes that the amount will earn annual interest rate at 7 percent and that annual average increase of pension is 10 percent. In lieu of such enormous one- time payment, the government may opt to pay/set aside annual amortization at P848.39 billion for the first 20 years. Obviously, both options are not affordable (not feasible as categorized under a staff study). Yet, the figures therein have been used by some government officials as outright justification to enact drastic changes to MUP pension system. Since there is no explanation, it tends to mislead the public (exemplified by the Rappler article, below [omitted]). As such, it may be considered as intellectual dishonesty.  Likewise, it is a clear case of non sequitur. Just because the present cost of one- time payment of P9.6 trillion is needed to perpetually support the MUP pension, it does not justify making the system contributory; indexing to prevailing rate shall stop; age for compulsory retirement shall be extended; pension for optional retirement shall be payable only upon reaching much later age; etc. IT DOES NOT FOLLOW. Why?

The MUP pension is non-contributory and funded through annual appropriation; hence, the GSIS study should have included projected MUP annual pension as compared with total annual national budget. If the pension will significantly increase in percent of total budget, then it is ballooning and problematic. Thus, simpler options short of making the pension contributory should have been considered such as but not limited to indexing to inflation, say, not exceeding 5 percent annually and only in years when SSL for all government personnel shall be in effect. (But then such option will not have the hoopla and drama of the ” P9.6 trillion MUP pension liability” that needs to be addressed at once to avert alleged fiscal crisis.) Note that at present, MUP pension is only P135 billion (including P60 billion for the military) or 3 percent of national budget for 2021.

Moreover, using the AFP’s projection, the increase in pension from 2018 to 2023 is only 8.2 percent or a five- year annual average of 1.6 percent. This further indicates that pension indexing is the main factor that increases MUP pension considerably such as 73 percent for military pension from 2017 to 2018, pursuant to JR 1

The above data further justify that a contributory pension system should apply to new entrants for uniformed services only and not to those already in the service.

2. Further, the position to include other non-contributory pension systems in the ongoing review/reform cannot be overemphasized.  Retired Supreme Court Associate Justices (SG 31) are already entitled to annual pension of more than P10 million and will further increase over the years, compared with now-to-be-pegged P2.287 million for a retired CSAFP (SG 30).

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