Exclusive by Raïssa Robles
When I interviewed President Benigno Aquino III on April 16, 2015, one of the very first things he told me was that he intends to fix the pension system for the military and policemen. This includes passing an amended law and identifying ways to fund its seed capital, which is estimated to cost over P1.7 trillion.
According to news reports, as of the year 2000, unpaid pensions had reached a total of P18 billion. A Senate study, posted at the end of this piece, warns of a “looming pension crisis.”
I did not write about this for South China Morning Post since my main topic for the one-on-one interview with President Aquino was the South China Sea dispute.
So I asked my SCMP editor if I could write about this on my blog and he said yes.
I am not very familiar with the pension system for the uniformed services. So I’ve decided to simply post word-for-word what Aquino told me about it. Here it is below:
PRESIDENT AQUINO: Then, I’m tackling ‘yung pension system… Pension system for the uniformed services does not have a pension system per se. They are not members of GSIS (Government Service Insurance System), not the SSS (Social Security System). They used to have their own. In the AFP (Armed Forces of the Philippines), it was RSBS (Retirement Separation and Benefit System), and then mismanaged.
So, by next year, I think the figure they are demanding about that will come from the budget and no contributions from the members — about 80-plus billion. When you look at the budget… Can we just use last year’s budget of about two trillion? Iyong figure between 25 to 35 percent is the one that you can use. Everything else is parang override expenses, ‘yung personal service or MOOE (maintenance and other operating expenses). So assumed 25 percent, so 500 [billion] tapos 80 [billion] of the 500 [billion] is already earmarked for just paying the pensions and benefits.
Now, so there’s no system then it’s index to current salaries and wages. Every time you increase for the active, you increase, correspondingly, for the retired. The whole concept of pension system is, you have seed capital, you invest; by the time there are obligations, the interest, parang the growth of that fund based on the obligations…Iyong contrast to the pay as you go systems that we are…Now, we don’t have it.
So, we’re asking for amendments to the law. Number one, take away the indexing feature, then… In the sum kasi, for seed capital is from a low of about 1.7 trillion to 4.3 trillion and the national budget is 2.6 trillion. So how do we fund it? ‘Yung we will reclaim land, the coastline, et cetera, then sell this as one of the principal methods for funding their pension system.
Raissa Robles: For the military?
PRESIDENT AQUINO: Military, the police. Uniformed services kasama na BuCor (Bureau of Corrections), BJMP —
Raissa Robles: Just to clarify, sir. Are you saying that they have never been under GSIS?
PRESIDENT AQUINO: I don’t know if they have never been. Basta, by that time, it was my responsibility. ‘Yon nga may RSBS, and then to some, parang may mga savings and loan yata e.
Raissa Robles: AFPSLAI (Armed Forces and Police Savings & Loan Association, Inc.)?
PRESIDENT AQUINO: AFPSLAI is not, ano, is not actually part of the Armed Forces. I’m not even sure kung sa GOCC (government-owned and controlled corporation). Parang it’s their savings and loan association. They elect their members. So ‘yon ang problema. That was left to me; and it keeps on growing.
Raissa Robles: And so you’re trying to rectify that?
PRESIDENT AQUINO: Yeah. It is also a hindrance to increasing the number of our security sector. Iyong our security sector is exactly the same number it was in EDSA, where our population was half. So, ‘di ba, parang you’re asking the same number of people to do a lot more work.
Pakikuha pala kay Mar ‘yung latest sa crime statistics niya. Ipinakita niya sa akin noong isang ‘yung rundown niya. Really impressive. We don’t know about half to a third of the crime rate incidences and really… They have this… I forgot the catchy name for the project pero all of these most wanted. We’ve been catching a lot of them. I’m just getting this really most wanted brought a substantial decrease in the number of crime incidences.
Now, I am digressing. Any question you want? Sonny (Coloma) is so eager to answer all of them.
Aquino’s critics would probably say this is a political move on his part, to garner votes for his anointed in next year’s polls. Tell that to the Marines. And the cops who are about to retire and are worried about their pension.
duquemarino says
The DU30 government is operating on a 2016 budget approved during the term of PNoy.
RJP Cavosora says
One proponent in the creation of RSBS was then Undersecretary of National Defense and US Navy Academy graduate Alejandro Melchor Jr. who was one of FM’s bright boys.
RJP Cavosora says
On RSBS
FB Cavosora, who was not involved in the creation of RSBS, once opined that the RSBS plan was actuarially infirm, and that it was never going to reach sufficiency to begin supplementary contributions as a pension fund. “Like a mentally challenged child,” he expressed, “RSBS will physically grow fat and fatter but it will never enter college.”
He explained that RSBS was not meant as a real pension system. It was designed to provide supplementary retirement benefits from the one-time government grant of P200 million plus the additional monthly contributions of each active soldier only upon reaching actuarial sufficiency as a pension fund.
However, it would & could never be actuarially sufficient because the returns from RSBS investments would never be enough to pay off benefits due. Liabilities (payable benefits) would always be growing at faster rate than assets (returns on investments) since each monthly member contribution (a payable liability) WAS NOT matched by an on-going employer contribution (an additional cash asset).
So while the fund keeps on growing and growing with additional monthly contributions from each soldier, there can be no actual pay out of benefits because actuarial sufficiency was just a pie in the sky. So from 1973 to 2006 (when it the contributions were stopped), NOT A SINGLE CENTAVO AS A PENSION BENEFIT WAS PAID OUT to contributors other than the total of their contributions. Essentially, soldiers were forced to park 4% of their monthly base pay for RSBS management to invest in any scheme it thought worthwhile such as country golf clubs, commercial properties, and etcetera. In 2006 it was closed
In the wake of the the 1996 Asian Financial Crisis, RSBS assets that were acquired through dollar denominated loans (such as a popular golf course in Cavite) exposed the risks it had taken, it forced the AFP leadership and th DND to review its viability.
RSBS still exists as a corporate entity to preserve its remaining assets until final liquidation (may be towards a contribution to a new system)
raissa says
So parang naging pyramid scam?
R Cavosora says
In effect, ganoon na nga. For all those years, since the Martial Law years to 2006, ang nakinabang yung RSBS management (typically headed by some retired officer assigned by the AFP Chief-of-Staff), board members, and favored pricinpals of investment programs.
Also, since RSBS was not like AFPSLAI (a savings & loan watched by the Banko Sentral) or AFPMBAI (an insurance coop overseen by the Insurance Commission), there was weak government oversight. It became a milking cow, providing behest loans for bad investment schemes.
Ang problema ngayon, the AFP & PNP leadership will probably resist the creation of a retirement system THAT WILL NOT PROVIDE PENSIONS AT THE SAME LEVELSwhic these national security institutions have gotten used to even if they may also be actuarially unsustainable. The high end of 4.3 trillion liabilities is probably based on the assumption that government will payout on the same levels. But, what pension systems do you know of that pays out nearly on the same levels of regular salaries?
And so at the end of the day, maybe the late Sen. Diokno was right, the AFP & PNP retirement system should be administered and be part of the GSIS system (but with a different defined benefits plan). Yes, it has indeed proven that having a separate pension and retirement system for uniformed security personnel is dangerous.
Any FIX PNoy proposes that does not meet AFP & PNP expectations will be politically problematic even if it is fiscally sound for the nation.