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Pension reform

The Department of Finance will be supporting proposed reforms for the pension system of the military and uniformed personnel (MUP) and Finance Secretary Carlos Dominguez has directed the department’s Strategy, Economic and Results Group (SERG) that extends technical support to lawmakers in tax reform measures and in pandemic response measures to assist the Treasury in gathering support from stakeholders and lawmakers.

The Bureau of Treasury (BTr) that led the drafting of the pension reform bill, said reforming the MUP pension system would ensure its fiscal stability while sustaining the provision of fair retirement benefits for those covered by the system.

The current MUP pension system is non-contributory, and as such, retirement pensions and benefits are fully funded by the government through annual appropriations. An actuarial study conducted by the Government Service Insurance System found the system needing a total funding requirement of P9.6 trillion to cover future obligations to active members and current pensioners. If the system fails, the government will be required to allocate around P850 billion to the pension fund for the next 20 years.

The reform bill has been filed in the House of Representatives by Albay Rep. and House Ways and Means Committee chair Joey Salceda.

The proposed reform imposes a mandatory contribution of 27 percent of the base pay plus the longevity pay. The minimum age for accessing pension benefits will also be raised to 56 years. It also proposes the automatic indexation of pension payments which will be reviewed periodically and may be adjusted with a maximum increase of 1.5 percent annually.

To ensure the judicious use and management of the retirement fund, a new entity will be established to serve as fund administrator while the GSIS will serve as the fund manager.

A system that is ultimately unsustainable, no matter how attractive the benefits may be, is doomed to fail its stakeholders at a certain point. Reforming the MUP pension system is a painful but necessary step towards building sustainability into the system to ensure that it continues to work and exist so the country’s military and uniformed personnel get their fair share when the time comes.*

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