Finance Secretary Benjamin Diokno has asserted that proposed reforms in the pension system for military and uniformed personnel (MUP) must address the substantial budgetary implications stemming from indexation and the absence of personnel contributions.
Diokno, in a statement, expressed his concerns on proposals to continue with indexation. He said that allowing indexation to continue will be unsustainable which, coupled with guaranteed increases, will further expand the deficit.
According to the Department of Budget and Management, a guaranteed three percent annual salary increase for 10 years with full indexation of pension benefits will require P11.8 billion in 2024, P24.5 billion in 2025, P38.1 billion in 2026, increasing up to P165 billion in 2033.
Without new revenues, the national government will be forced to borrow to finance these increases in benefits, the Department of Finance said.
“It will not qualify as a reform if indexation will continue and the active members will not contribute. We have to reduce the fiscal impact of the MUP’s pension program and the contribution of active members will greatly help in managing that,” Diokno said.
Diokno firmly stood behind the economic team’s proposals on the MUP pension reform system.
Among these proposals are the mandatory five percent contribution of active personnel on year one to three, seven percent on year four to six, and nine percent starting year seven onwards, while new entrants will immediately contribute nine percent.
The contributions are based on the personnel’s monthly base and longevity pay, government counterpart contributions to meet the 21 percent total pension premium, and removal of indexation for active personnel and new entrants.
The finance secretary however agreed with the indexation for current pensioners to ensure the non-diminution of their benefits. But for the active personnel and new entrants, their future pension will be adjusted according to economic conditions and financial viability of the proposed pension fund.
The pension benefits will be reviewed annually for a possible increase of up to 1.5 percent every year.
“The pensioners and the active personnel have different needs. It is therefore necessary to ensure that the pension and wages have different bases for adjustment. Removing automatic indexation of pension to the current wages gives us flexibility to respond to the unique needs of the pensioners and the active personnel,” Diokno said. – Angela Celis
