Senate Joint Committee Hearing on MUP Pension Reform Bill

Legislation

September 30, 2021 - This is the fourth and hopefully the final hearing of our proposed measure on the Military and Uniformed Personnel (MUP) pension reform.


As reiterated by our fiscal managers, we are pressed for time: the passage of the MUP pension reform bill is earnestly and urgently sought so as not to create any fiscal risks that may compromise the state’s ability to fund both the MUP pensions and a credible defense posture.


All of us here would agree that our shared objective is plain and simple: we must have a clear policy direction to guarantee that the pension requirement is sustainable for the next one hundred years. Nonetheless, we must be grounded in reality that our fiscal capacity is limited while at the same time, be very certain that we will not shortchange the welfare and interest of our uniformed retirees.


Yet, the devil is in the details —so to speak.


To keep everyone abreast of the many developments on the matter, let me lay down the following:


One, the Ad Hoc Committee on the Military and Uniformed Personnel Pension System recently submitted for consideration of the plenary of the House of Representatives Committee Report No. 1061. The fiscal improvements under said report are primarily derived from capping the growth salaries of active personnel to a maximum of 5% at any given year for the next 10 years.


Two, the GSIS released their new actuarial study dated September 13, 2021 which capped the salary increase by 5%, with automatic indexation for both existing members and pensioners, and new entrants. The base case scenario at 7% interest rate fell to 5.7 trillion pesos from the previous 9.6 trillion pesos. Further, if a mandatory contribution scheme is adopted, the total funding requirements will be reduced to 4 up to 4.4 trillion pesos.


Third, last Monday, the Senate passed on third reading Senate Bill. No 2376. Under Section 8 of that bill, officers and enlisted personnel of the AFP shall be retired one rank higher but will only be entitled to retirement benefits of the permanent rank last held. The removal of entitlement to the benefits of a higher rank for new entrants, if applied to all new entrants of the various MUPs, will reduce the funding requirement from the base scenario of 5.7 trillion pesos to around 5.5 trillion pesos, or a difference of around 225 billion pesos. The bill also provides for changes in the retirement age of officers in the military from 56 to 59 years old or 30 years of active duty, whichever comes earlier. Nonetheless, the actuarial study indicates that changing the retirement age from 56 to 60, not 59, provides no substantial addition to the funding requirements, registering a mere 0.58% increase.


Fourth and finally, considering the position of the majority, if not all, of the concerned agencies that the termination of the automatic indexation and all other financial reforms should only cover new entrants, the GSIS study showed that the requirement will fall from 5.7 trillion to 2.99 trillion, though still higher than the 1.356 trillion pesos if the reforms are to be applied to all.


While this representation refuses to drown you with numbers, much remains to be discussed in today’s hearing.


With that, let us begin.


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