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: fefphilippines@gmail.com / fef@fef.org.ph

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: fefphilippines@gmail.com / fef@fef.org.ph

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 – rannapintor@yahoo.com /+63 2 453 2375 Angela Arnante, Program Officer – aarnante.fef@gmail.com/ +63 2 453 2375 Mabel Almenteros, Communications Officer – mialmenteros@fef.org.ph/ +63 2 453 2375