The government estimates that the total unfunded liabilities for military pension obligations now stands at P14 trillion, the Department of Finance (DOF) said yesterday.
Cielo Magno, DOF undersecretary, disclosed this updated figure during a forum in Quezon City, as she highlighted the DOF’s position on the military and uniformed personnel (MUP) pension reform, particularly on the removal of indexation for active personnel and new entrants as well as the proposed mandatory contribution.
“Based on the previous study of the Government Service Insurance System using 2019 data, that (unfunded pension liabilities) is estimated at P9.6 trillion, but using 2022 data, that’s already P14 trillion,” Magno said.
The estimated unfunded liabilities pertain to the government’s future obligations for existing active MUP members and pensioners, under the current system.
The DOF earlier said the accumulating pension liabilities will likely increase public debt by as much as 25 percent by 2030.
Finance Secretary Benjamin Diokno has asserted that proposed reforms in the pension system for MUP must address the substantial budgetary implications stemming from indexation and the absence of personnel contributions.
Diokno, in a statement last week, expressed his concerns on proposals to continue with indexation. He said allowing indexation to continue will be unsustainable which, coupled with guaranteed increases, will further expand the deficit.
“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.
Diokno, 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.
