Insulate SSS from our politicians

I never factored in the pension I am supposed to get from the SSS in my retirement kitty. I figured the monthly take would not be enough to buy the hypertension medicines I need to keep my blood pressure in check for longer than a week. It is just as well that I had no illusions about this social security benefit because as it turns out, I may not be able to get anything at all, after contributing to the fund since 1969.

According to my good friend Cora dela Paz who has the misfortune of looking after the SSS today, their actuarial valuation reports indicate the SSS fund would be completely depleted by 2015. That happens to be just about the time I am supposed to retire and should start reaping benefits from the system. There is no significant improvement in the outlook, Cora sadly reports, even with the recently approved one percent increase in the SSS contribution rate.

Cora is too polite to say it but reading between the lines of her presentation before the PCCI last Wednesday, it is clear that the blame rightfully belongs to the politicians, the same ones who messed up our general economy. SSS, like any government financial institution, is subject to financial abuse by past presidents.

Cora is cleaning up the SSS and has implemented an austerity program in the management of the system. The accountant in her keeps her watchful eyes on their operating expenses and even the COA concedes that last year, SSS saved P574.9 million, 87.6 percent of which came from cutbacks in personnel benefits, while 12.4 percent resulted from tighter control of other operating expenses. SSS cost of operations is at P200 per member compared to over P3,000 per member for GSIS.

Cora told the thousands of business leaders at the PCCI convention that they have just about done what they could on the operations side. They really need to increase contributions to the pension fund, but they know they won’t get that in an election year. The SSS contribution rate is now 9.4 percent, implemented last March, applied up to a maximum of P15,000 of an employee’s salary. For the past 23 years, it was pegged at 8.4 percent. GSIS charges 21 percent with no ceiling.

Here is how Cora explained the numbers behind the SSS problem today.

"Since its inception in 1957 and until end-September 2003, the SSS earned P315 billion in contribution collections and P220 billion in investment income. On the expenditure side, SSS paid a total of about P320 billion in benefits and P36 billion in operating expenses. Thus, taken over the period 1957 to end-September 2003, SSS cumulated revenues of P535 billion exceeded expenditures of P356 billion. Notice, however, that the difference between the cumulated collections of P315 billion and cumulated benefits of P320 billion shows a deficit of P5 billion."

From those figures, it is clear that were it not for the cumulated investment income of P220 billion, the SSS would have been depleted by now. This is why the management of the SSS investment portfolio must be divorced from politics. The first and long time SSS administrator Gilberto Teodoro did a pretty good job of doing just that, saying NO even to Imelda Marcos. It seems, however, SSS became just another source of funds for post-EDSA politicians.

Steady Eddie dipped into the SSS funds for his ego-boosting flop of a carnival supposedly to celebrate the Republic’s centennial. That P400-million behest "loan" given under direct FVR instruction was guaranteed by National Development Co. (NDC). But NDC is practically insolvent. Steady Eddie also dipped into the fund to finance ill-planned and ill-executed low-cost housing for the poor. SSS is out P40 billion on that one and they are still negotiating with government to liquidate that non-performing obligation somehow.

And let us not forget how the Erap administration gave a large accommodation to the Gatchalian group of about P300 million, which the SSS is now trying to collect with some difficulty, given that a son is now a congressman.

Cora complained that Congress also has the habit of increasing benefits without any actuarial study on the implications. In fact, for the period 1980-2000, across-the-board pension increases of 10 to 20 percent have been declared 19 times with no counterpart increase in the SSS contribution rate. Our politicians must really believe there is such a thing as a free lunch. As Cora puts it, "these pension enhancements were often announced on May 1st (Labor Day) or on the Sept. 1st anniversary of SSS."

This heavy reliance on investment income is why I think we should work hard to force the privatization of the system’s investment function. Cora said they can actually do that under its current charter. Right now, they compare their return on investment against Treasury bill rates. But, as Cora pointed out, "pension funds are long-term savings and hence should earn higher returns in exchange for lower liquidity."

Of course, we can be bullheaded about our demand that the SSS and the government clean up its act to our satisfaction first (like settling those NDC loans and collecting from Gatchalian) before we agree to any further increase in contribution. But in the end, you can’t beat the mathematics of it all. The simple reality is that those of my generation will have nothing to look forward to if the system stays as it is.

My suggestion is to tie any future contribution increase to a complete professionalization of the pension fund’s management of its investments. It is stupid to think that our politicians can be trusted to respect the fact that SSS funds are not government funds but trust funds that belong to private sector workers. Let us get a reputable private sector fund manager to invest it here or abroad with minimum guarantees to achieve returns above some acceptable benchmark that must be higher than ordinary T-bill rates.

Cora will most likely be out of the SSS after the May election, if not sooner. She may be doing a good job of housecleaning now, but what happens after she’s out of there? Will there be enough institutional memory to learn from the lessons of the past? Or should we be resigned to the fact that it is impossible to keep the itchy fingers of politicians from our pension fund?

The problem is urgent. In 10 years or so, the fund is no more. If you didn‚t discount the SSS in your retirement plans, the thought that you will get nothing from it in your golden years is almost enough for anyone to get mad enough to try and capture another airport tower, if you know what I mean.

Roadmap

Commenting on the plan of the Philippine business sector to present our government officials with a roadmap for economic growth, Washington SyCip admonished them to make sure that the straight highway they want is not turned into a zigzag dirt road by the politicians.

But for Mr. SyCip, politicians shouldn’t take all the blame. We have the most number of lawyers and accountants in the region, he observed and in his wisdom arising from more than 50 years in business, Mr. SyCip declared that our lawyers and accountants have not contributed much to dropping our country‚s poverty levels.

It was obvious Mr. SyCip was getting pretty tired of being asked to talk about what went wrong with us. I, for one, share his increasingly acerbic views.

Playing The Market

Speaking of investment portfolios, Dr. Ernie E has this warning about the vagaries of the market.

My broker called me this morning and said, "Remember that stock we bought and I said you’d be able to retire at age 65?"

"Yes, I remember," I said.

"Well," my broker continued, "your retirement age is now 108."

Boo Chanco’s e-mail address is [email protected]