House version of MUP reform may still pose fiscal risks

By Luisa Maria Jacinta C. Jocson, Reporter

THE LATEST VERSION of the military and uniformed personnel (MUP) reform bill, which does not include mandatory contributions from all active personnel, may still pose fiscal risks, analysts said.

The House of Representatives on Tuesday approved on second reading House Bill No. 8969 or the proposed Military and Uniformed Personnel Pension System Act but removed the provisions on personnel contributions and indexation. The bill may be approved on third reading by next week.

University of the Philippines economics professor Cielo D. Magno said the version approved by the House would ensure there is a sustainable fund to support the MUP pensions.

“In 20 years, the retirement of MUP will be fully funded by the fund and not by the General Appropriations Act (GAA) anymore. However, it would have been helpful in managing our fiscal constraints if active personnel will contribute and the indexation is removed,” she said in a text message.

During Tuesday’s plenary, lawmakers approved several amendments to the bill such as requiring only new entrants to contribute to the pension fund.

New entrants must contribute 9% of their base pay to their pension fund, while the government will shoulder 12%.

Lawmakers also agreed to restore the full indexation of pensions to the salary increase of active personnel, after objections from Defense Secretary Gilbert C. Teodoro.

This was a departure from the Department of Finance’s (DoF) original proposal to require contributions from active personnel and new entrants, and to cap the indexation of the MUP pension at 50%.

Ateneo de Manila economics professor Leonardo A. Lanzona said the amendments introduced in the House bill are “not reforms at all.”

“Allowing the existing MUP to keep their pensions and with full indexation still constitute a significant drain in the country’s finances, possibly leading us to a financial collapse,” he said in an e-mail.

Mr. Lanzona said this policy shows the bias of the government towards the military.

“If we can pay for the pensions of MUP, why don’t we offer the same for other marginalized and disadvantaged persons?” he asked.

Bienvenido S. Oplas, Jr., president of a research consultancy, said the MUP pension system is “very unfair to taxpayers.”

“There is a double standard in the treatment of government personnel. MUP are ‘special’ while government doctors and nurses, government teachers and professors, government agriculturists and engineers, are not special. Whenever the budget deficit remains high, whenever public borrowings and annual interest payment remains high, we can partly blame the ‘special’ MUP pension system. It is a big deficit generator now,” he said in a Viber message.

Albay Rep. Jose Ma. Clemente S. Salceda, who also chaired the ad hoc committee on the MUP pension, had earlier admitted that exempting the active MUPs from contributing to their pension would cost the government around P934 billion for 35 years or until 2058.

He said this assumes that the age of new entrants is 22, and they will retire at 57.

Under the measure, all MUPs would also be guaranteed a 3% annual adjustment of their base pay over 10 years. Mr. Salceda had said this is “already a sacrifice willingly made by the MUP given the historical salary rate increase of 12%.”

“The capping of the increase in salary to 3% will help manage the pension liability as this will limit the additional pension cost of the government due to indexation. On average, the MUP salary increase is about 10%,” Ms. Magno said.

The unfunded liability of the MUP pension system is currently estimated at P14 trillion.

Mr. Salceda noted the reform is expected to bring down the unfunded liabilities to P3.4 trillion.

The Finance department earlier said continuing the current pension system for MUPs could lead to “fiscal collapse,” as accumulating pension liabilities might increase public debt by as much as 25% by 2030.

The MUP pension reform bill is also one of the priority measures of the Legislative-Executive Development Advisory Council that is targeted for Congress approval by December.