Reader’s views on the SSS pension fund

With Congress sending to the President’s Office the refiled (and modified) bill seeking to increase the maximum pension for retired Social Security System members by P2,000 but in two tranches (P1,000 by 2017 and the other half by 2020), expect the pension fund’s life to be reduced by another 10 years or just until 2032.

The current SSS chairman Amado D. Valdez had issued a warning of sorts that better sources of funds would have to be tapped to prolong the pension fund’s life and perhaps even save the SSS so that its 31 million members would continue to benefit from the fund.

Hector Inductivo, a retired senior deputy administrator of the SSS, sent a letter to the current SSS president that details some of the finer points of pension fund administration. We’d like to share his letter (in two installments), with our readers. Here goes.

“May I commend you on your well-informed article on SSS which appeared in (the Nov. 29) issue of The Philippine STAR. How I wish other columnists/commentators would also take time, as you did, in learning more about how the SSS works. Their responsibility as ‘opinion makers’ demands no less.

“In this connection, let me furnish you a copy of my letter dated Nov. 22 to SSS president Dooc on the subject.”

Insurance expert

Here’s Inductivo’s letter to the newly appointed SSS president and CEO, Emmanuel Dooc:

“Let me first congratulate you for your appointment as the new president and CEO of the Social Security System. President Duterte could not have made a better choice which, for the first time, gave the SSS a social insurance expert for its president who has the expertise, experience and ability not only to ‘develop, promote and perfect’ the social security program established under RA No. 1161, as amended, but also defend it against those who would undermine its viability.

“While I am confident that SSS is now in safe hands with you at the helm, please allow me to share with you some personal insights based on my long experience with social security regarding the proposal to increase SSS pension by P2,000.00 across the board.

“In this connection, I am providing for your perusal a copy of my article entitled ‘SSS pension increase is disguised injustice’ … at the height of the last political campaign.

Politicized

“I wrote it because I thought then, as I still think now, that SSS was being politicized by some politicians in Congress, using the pension increase — the money of SSS members — as bait to win the votes of the more than two million pensioners of the SSS.

“I believe politicians should keep their hands off the SSS and its reserve fund, now and forever!

“The article, while touching on the adverse effects of the proposed pension increase on the financial status of the SSS, more importantly sought to bring out certain significant facts that have not been fully ventilated during the public discussion of the proposal, but which are most relevant in determining its merit, taking into account the basic concepts underlying social insurance programs such as the SSS, as follows (not necessarily in the order of importance):

“(1) The proponents claim that SSS pension is ‘very low’ (‘subhuman level’ according to one proponent); that is not true! The fact is its ‘replacement ratio’ (RR) expressed as a percentage of pre-retirement income of the recipients far exceeds the so-called actuarial value of the corresponding contributions paid by workers of all wage levels: 120 to 240 percent RR for the lowest income groups, and 40 to 62.5 percent RR for the medium/maximum income groups; and much higher than the minimum international standards for pensions (ILO Convention No 102).

Not a relief or welfare program

“(2) The proponents indignantly claim that SSS pension ‘cannot even cover the need of pensioners for food and medicine,’ betraying their total ignorance of what social security is all about!

“SSS is not a relief or welfare program funded from tax revenues, but a social insurance scheme merely managed by the government as ‘trustee,’ and therefore its trust funds (which are private money of SSS members) must be used exclusively and prudently to pay benefits to its members based on their respective contributions and not for distribution to the ‘poor’ even though they happen to be SSS members!

“(Interestingly, the US Social Security System has a social welfare component — the Supplemental Security Income  (SSI) — paid for from tax revenues [not social security contributions] to provide cash to the aged, blind and disabled with low or no income to help them meet basic needs for ‘food, clothing and shelter.’ But does our government have the money for this?)

Not a ‘bottomless cookie jar’

“(3) The SSS reserve fund is there not ‘for the taking’ as if it were a ‘bottomless cookie jar’ but is intended not only to back up the government guarantee (Sec. 21, SS Law) to members that there will be funds to pay their benefits when their turns come several decades later, thereby strengthening their confidence in the system, but also to generate further income from investment (Sec. 26) to avoid frequent increases in contributions that would otherwise be needed to keep the system viable.

“(4) The proposed ‘across-the-board’ pension increase tends to benefit not only the low income group, but even those already receiving substantial pension who do not need the increase (the highly paid executives prior to their retirement such as the Ayalas, Cojuancos, Sys, etc.).

“This is an indication that the pension increase proposal has not been well-thought of.

“(5) Social insurance schemes are solely funded from contributions, and are designed to be self-sufficient, i.e.. without relying on government subsidy. The history of the US Social Security, after which our own system was patterned, tells us why President Roosevelt preferred a contributory scheme to one funded from government revenues:

““He viewed the idea of using general revenue as tantamount to a ‘blank check’ that would allow lawmakers to engage in unbridled spending and he feared it would inevitably lead to ‘unfunded deficits.’” (SSA Bulletin, Vol. 70 No. 3 2010)”

Erratum

We hold for Thursday the remainder of Inductivo’s letter. Meanwhile, our apologies to SSS chairman Valdez who we inadvertently mentioned as the former president and CEO of SSS. The current SSS president and CEO Dooc replaced Emilio de Quiros, an appointee of former president Benigno Aquino III.

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.