THE House ad hoc Committee on the Military and Uniformed Personnel (MUP) Pension System on Monday arrived at a consensus on the key parts and principles of the proposed reform of the MUP pension structure, preventing its “total fiscal collapse” in the future.
The chairman of the House ad hoc Committee on the Military and Uniformed Personnel (MUP) Pension System, Albay Rep. Joey Sarte Salceda, said the agreements were made during the ad hoc supercommittee’s inaugural meeting attended by Defense Secretary Delfin Lorenzana, Department of Finance and the Bureau of the Treasury.
“The panel tasked the Secretariat to draft a substitute bill for its consideration, incorporating features where consensus has already been achieved,” said Salceda.
“Keeping the military pension system affordable for the government is a matter of the nation’s very existence. Allow it to explode financially, and we will be both militarily defenseless and fiscally bankrupt,” Salceda said.
According to the lawmaker, the key agreements were the removal of automatic indexation (which accounts for the bulk of unfunded pension liabilities), the provision of Cost-of-Living Adjustment (Cola) to ensure that monthly pensions remain on track with changes in prices, the retention of the no-contribution scheme, and the adjustment of pensionable age to 60 years old.
He said the panel members also proposed to earmark proceeds from the disposition and use of MUP assets and the Ninoy Aquino International Airport (Naia) and the New Bilibid Prison for the Armed Forces of the Philippines (AFP) modernization and the Philippine National Police (PNP) revitalization program.
Salceda also assured MUP pensioners that no cuts will be made to their present pensions.
“There will be no diminution of benefits. That is our most fundamental commitment in this reform. No one will receive less than what they already get,” Salceda said.
Salceda also laid out other principles for the proposed reform.
“We seek to decisively address the hazard of being an MUP. My proposal is to have a life insurance system that takes those risks into account. But a basic principle of insurance is that risk should be compensated when actually incurred such as when the MUP is killed or wounded in action. We can’t compensate heroism, but at least we should try,” Salceda said.
Warning
Salceda, meanwhile, warned against the consequences of a no-reform scenario.
“No reform risks the budget itself. The unfunded pension liability means that at some point, the government will be unable to pay retirees their full pension, if at all. The budget itself is at serious risk as MUP pension liability could account for 2/3 of deficit space in 2040. This is a question of little pain now versus big pain in the future,” Salceda said.
Noting that pension spending now exceeds capital outlays and maintenance and other operating expenses (MOOE) for the MUP services, Salceda said that pension reform will be needed “to ensure that we can fund a credible fighting force.”
“In the 1980s, the US also undertook a series of reforms of its military pension system to keep their defense budget sustainable. The fiscal space it opened allowed the US to invest in the Strategic Defense Initiative or the “Star Wars Initiative.”
That show of credible force allowed them to defeat the USSR in the Cold War and become the world’s only superpower,” Salceda said.
“A credible, modern, and world-class fighting force is essential. We keep saying we want to have a credible defense system. In truth, we have the lowest military personnel per capita in Asean. We have one of the oldest fleets in the region. We have to invest in our active forces and in military capability if we will adopt a strong posture in the West Philippine Sea. We can’t afford it unless we prevent the pension budget from bloating,” Salceda explained.
Salceda said the House will approve its version before the hearings on the 2022 national budget.
“That’s around August. The committee will finish sooner than that, of course. We already have a consensus. I will confer with my co-members, all of whom have leadership positions in the House, to see how we can accelerate the passage. But we are broadly aligned, and we have already instructed the secretariat to prepare a substitute bill for our consideration,” Salceda said.
‘Total fiscal collapse’
Earlier, Salceda had raised the alarm on the fiscal sustainability of the MUP pension system, saying that it could face “total fiscal collapse” in the future unless reforms are enacted to save it.
Salceda has said the pension system has a P9.6-trillion unfunded reserve deficit, primarily because uniformed personnel do not have a contribution system and MUP pensions are much higher than that of civilian personnel.
“This problem has been easy to ignore in the past because pension spending was under control. It was a very daunting warning sign when pension spending exceeded MOOE for the uniformed services in 2018. It meant we were spending more out of the budget to serve retired personnel than to protect active members,” Salceda said.
Under the current MUP system, almost the entire pension spending for MUP comes from the national budget.
“This is a looming fiscal crisis. Without the reform, funding the pension scheme will become fiscally unsustainable, shrinking the economy by as much as 7.2 percent in the long run. This is worse than what the economy sustained in the 2004 fiscal crisis and the 2008 global financial crisis,” Salceda added.
“This could be bigger than the 2004 fiscal crisis that I worked to contain then, and worse than the 2008 crisis that we were able to avert. We have to prepare while the fiscal storm hasn’t come yet,” Salceda said.
Salceda filed House Bill 9271, or the fiscal framework for the MUP pension system.
Finance Secretary Carlos G. Dominguez fully endorses the reform and has sent Speaker Lord Allan Velasco a letter asking for the support of the House of Representatives on the matter.
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