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www.businessmirror.com.ph n Sunday, July 30, 2023 Vol. 18 No. 286
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FIXING THE M.U.P. PENSION IMPASSE DND, DOF jointly craft the ‘structure’ for a proposed military trust fund to help legislators remedy what was described as a ‘bloody’ reform issue.
A FILIPINO soldier stands guard on Calayan Island, Cagayan province, on Friday, June 30, 2023. EZRA ACAYAN/POOL PHOTO VIA AP
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By Rex Anthony Naval
FFORTS are now under way to create the “structure” that will handle the retirement trust fund of military personnel.
And admittedly, Department of National Defense (DND) Secretary Gilberto C. Teodoro Jr. said building or creating such a system from the ground up is a difficult task. “We’re not talking about contributions; the first thing that we are doing—they are willing to contribute but on a certain level and a certain basis and on a certain rate—what I’m busy doing is to create the ’structure;’ nagsasalita lahat tungkol sa [everybody is talking about] contributions, net take home pay, net pensions, but that’s useless if we cannot create a retirement trust fund at yan po ang pinakamahirap gawin [and that is the most difficult thing to do],” he said during a recent news briefing. And creating this fund, Teodoro said, entails placing it under a governance system. He added that the structure would be somewhat similar to the PERA law, also known as the “Personal Equity and Retirement Act of 2008.” It is described as a “voluntary retirement savings and investment account” open to anyone with the capacity to contract and possessing a tax identification number. Speaking partly in Filipino, the defense chief continued: “We are thinking that the structure could be similar to the PERA law, which has a trust fund custodian and trust fund administrator so that there will be no conflict of interest. The trust fund administrator that will be running the trust fund will be the GSIS, which has a proven track record of managing and administering a pension fund that is not hampered by a lot of
regulations, and is capable of handling a business or more than that trust,” the DND chief added. He also said that they are working “double time” to establish the structure, aside from identifying possible funding sources for the proposed trust fund, which could come from disposable properties of the Armed Forces of the Philippines (AFP). Aside from this, the DND chief said, they are also ensuring that “rate fixing” will be affordable and will not cause hardship to military personnel who will be making the contributions. And under the DND proposal, Teodoro said the pension system for retirees, or those no longer in active service, will remain the same. “For retirees, their pension system will remain the same and they will still receive the same, that is the proposal of the DND and I will push for that,” he said. New entrants to the military, meanwhile, will be required to contribute to the proposed pension or trust fund. Those in the entry level will “naturally…need to contribute [to the proposed trust fund] because it is also a good exercise on financial literacy and financial culture for our young officers and soldiers, as it will contribute to their future savings and it is better than consumption spending,” he added. Teodoro is confident the transition from a setup where members made no contributions to the new contributory phase would have the “least financial disruption” for AFP members, which the trust fund exclusively covers.
DEFENSE Secretary Gilbert C. Teodoro: “For [military] retirees, their pension system will remain the same and they will still receive the same, that is the proposal of the DND and I will push for that.” PRESIDENTIAL COMMUNICATIONS OFFICE
Fiscal collapse
THE past several months, the Department of Finance (DOF) had flagged the impending threat of a “fiscal collapse” if no reforms are made to the MUP, given the huge strain on the national budget of paying for pensions of a certain population that does not contribute at all to their retirement fund—the way that state workers contribute to the GSIS and private workers to the SSS. The proposed reforms to the military uniformed personnel (MUP) pension system are embodied in several bills that both chambers of Congress are struggling to cobble as a reform law. In fact, Senate President Juan Miguel Zubiri recently predicted the MUP bill will be the “bloodiest” measure they expect to tackle in the second regular session of the 19th Congress. Reforms are being eyed to address the MUP pension system’s sustainability and ensure provision of fair retirement benefits to military personnel, while easing the financial pressure on the government.
MUP in Sona
IN President Ferdinand R. Marcos Jr.’s second State of the Nation Address (Sona) on July 24, 2023, he said the proposed MUP pension is part of essential measures that need to be passed under the Medium-Term Fiscal Framework. These include the excise tax on single-use plastics, valueadded tax on digital services, rationalization of mining fiscal regime, motor vehicle user’s charge or road user’s tax. Under the proposed pension system, MUPs will be required to contribute a portion of their salaries as a form of savings, which will be supplemented by the government. “The pension of the military and uniformed personnel is as important, urgent and humanitarian as that of all other civilian Filipino employees. Efforts are underway to make it fully functional and financially sustainable,” Marcos said. The President also assured the public they are working closely with Congress to ease the transition process and to guarantee, “no effects are felt by those in the
uniformed services.” Earlier, key DOE officials met with Teodoro to discuss the MUP pension reform. In a statement on June 20, the DOF said the DND chief referred to the MUP’s contributions to the fund as an engine for national growth provided that the fund is prudently managed. Discussions mostly revolved around the governance structure of the MUP pension fund. The DOF said Teodoro is amenable to the proposal that the fund be managed by the GSIS. Under the current proposal, the fund will be managed by the GSIS and an oversight committee shall be formed composed of the Secretary of Finance, the Secretary of Budget and Management, the Executive Secretary, and the President and General Manager of the GSIS as ex-officio members, and representatives from the MUP services. The economic team is set to continue dialogues with various MUP service representatives on the proposed governance structure to ensure optimal cash flows and proper representation of stakeholders. To ensure a full understanding of the expected outcomes of the proposed reforms, the economic team will also provide computations on the net take-home pay, as well as the net payout of all retirement options.
Actuarial study by August
THE GSIS is set to complete an updated actuarial study on the MUP pension fund by August. (See https://businessmirror.com. ph/2023/07/26/gsis-study-on-muppensions-ends-soon/) GSIS Acting Executive Vice President Jason C. Teng said the updated actuarial study on the MUP pension is crucial to the reforms being pushed by the administration’s economic team. Teng said they initially pro-
posed to separate the MUP pension from the regular social insurance fund for all GSIS members. “Right now, what is for sure [is that] we will have a separate accounting for the MUP. We will have a social insurance fund for the GSIS members and, if the MUP would fall under the coverage of the GSIS, a separate fund would be created for it to avert the inter-marriage of the two funds,” he said during a webinar organized on July 25, 2023, by the Philippines Graphic, a sister publication of the BusinessMirror. Based on the previous actuarial study conducted by the GSIS in 2019, the national government would spend about P850 billion annually in the next 20 years to finance the current MUP pension system. The DOF earlier revealed that the monthly premium of the reformed MUP pension fund will be invested by the GSIS to allow the fund to grow and achieve “required return of 85 percent to 90 percent of pension upon retirement” of MUPs.
MUP reform bill passage
FINANCE Secretary Benjamin Diokno said the bill reforming the MUP pension system is expected to be passed within this year “We are pushing for this. The military pension reform is part of the top priority legislative agenda of the President, concurred in by Congress, and we expect this to be passed before the end of the year, and so it will have an impact as soon as January of next year,” he said at the post-Sona Philippine Economic Briefing on July 25, 2023. The DOF chief said that there are three types of beneficiaries from the reform: those who are already retired, those in active service and will be asked to contribute gradually, and new recruits who will pay for the full amount of the benefit.
PESO EXCHANGE RATES n US 54.5300 n JAPAN 0.3911 n UK 69.7984 n HK 6.9884 n CHINA 7.6053 n SINGAPORE 40.9723 n AUSTRALIA 36.5733 n EU 59.8685 n KOREA 0.0425 n SAUDI ARABIA 14.5370 Source: BSP (July 28, 2023)