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105 Philippine Social Science Center (PSSC) Commonwealth Ave., Diliman, Quezon City
Telefax: (632) 4532375 (Main Office) Tel No.: (632) 8939602 (Accounting)
Website: www.fef.org.ph Email: [email protected] / [email protected]
Foundation for Economic Freedom, Inc.
BOARD OF ADVISERS:
Gerardo Sicat
Cesar A. Virata
BOARD OF TRUSTEES:
Roberto De Ocampo Chairman Romeo Bernardo Vice-Chairman Calixto Chikiamco President Ernest Leung Treasurer Atty. Ricardo Balatbat III Corporate Secretary Anthony Abad Art Corpuz Eduardo Gana Felipe Medalla Vaughn Montes Simon Paterno Perry Pe Gloria Tan-Climaco
NOT JUST INCREASE SSS PENSION BUT FIX THE PHILIPPINE PENSION SYSTEM
In response to incoming President Rodrigo Duterte’s vow to increase the Social Security
System (SSS) pension benefits, we, the Foundation for Economic Freedom (FEF), caution the
Duterte administration on fiscal prudence. It is likewise imperative for the administration to
specify the source of funds for this measure.
It is important to recall that President Benigno Aquino III previously vetoed such measure
on the recommendation of the Finance Secretary and the President and Board of the SSS, taking
into account the following:
1. It is estimated that it will cost SSS PhP56 billion annually, compared to annual investment
income of PhP30 billion to PhP40 billion only. Such total payment will therefore yield a
deficit of PhP16 billion to PhP26 billion annually.
2. It will hasten the depletion of SSS fund life by 13 years to as early as 2029 when many of
the current contributors will be retiring.
3. The increase in pension benefits will deplete SSS funds because most of the people who
will benefit from the large increase in pension payments will receive much more from SSS
than they have contributed before they retired. It is therefore prudent that how the large
increase in retirement benefits will be paid for be decided now (e.g. via new taxes or
higher SSS contributions from currently working SSS members) and not many years from
now, as the advocates of the increased benefits have irresponsibly proposed.
Procrastination on how the increased benefits will be funded will create fiscal risks that
would have implications on the credit ratings of our country down the road (e.g. higher
interest rates on bonds issued by the national government).
105 Philippine Social Science Center (PSSC) Commonwealth Ave., Diliman, Quezon City
Telefax: (632) 4532375 (Main Office) Tel No.: (632) 8939602 (Accounting)
Website: www.fef.org.ph Email: [email protected] / [email protected]
We recommend that any major increase in pension should only be considered in the
context of a thorough review of the entire Philippine pension system to improve its
structure and governance for a more adequate, affordable, sustainable, and robust system.
The Philippine pension system includes the SSS, the Government Services Insurance System
(GSIS), Home Development Mutual Fund or Pag-IBIG, military pensions paid from the
budget, private tax-exempt retirement accounts, and the still to be implemented Personal
Equity and Retirement Account (PERA) under Republic Act No. 9505, which was passed in
2008.
We are in agreement with independent observations on the issues affecting the
solvency of the Philippine pension system. According to a study on Structural and
Governance Reform of the Philippine Pension System commissioned by the Department of
Finance in 2006, persistent weaknesses of the Philippine pension system that need to be
addressed include: a. investments decisions need to be protected from political processes;
b. pension assets need to be sufficiently diversified and well matched to risk/return needs;
c. supervision, regulation, and auditing need to be holistic and adequate; d. mandatory
system needs to be sustainable and equitable; e. benefit formulas need to be harmonized; f.
the defined-contribution, fully-funded element of the pension system needs to be bigger; g.
taxation needs to be harmonized and consistent; h. administration of the system needs
improvement; and i. the system needs to expand its coverage and sufficiently reach the
poor elderly.
June 10, 2016
For more information, please check our website: www.fef.org.ph, or contact the following: Ranna Pintor, Senior Program Officer – [email protected] /+63 2 453 2375 Angela Arnante, Program Officer – [email protected]/ +63 2 453 2375 Mabel Almenteros, Communications Officer – [email protected]/ +63 2 453 2375