The administration of President Ferdinand “Bongbong” Marcos Jr is stirring up a hornet’s nest by introducing reforms in the military and uniformed personnels’ pension plan.
Retired generals, the officers’ corps, and enlisted men in the military and police organizations are expected to strongly protest Finance Secretary Benjamin Diokno’s proposal to ask them to pay a monthly contribution to a pension fund.
For many years, soldiers, police officers, firemen, jail guards, and coast guardsmen have enjoyed higher pension plans without contributing a peso from their monthly salaries.
Unlike millions of civilian workers in both the public and private sectors, a certain percentage of their monthly pay was deducted to pay for contributions to either the Social Security System (SSS) and the Government Service Insurance System (GSIS).
State workers have enjoyed better pension benefits from private sector employees who are only entitled to a pension of roughly P15,000 a month if they have been paying SSS contribution religiously for 10 years.
Civil service workers get as much as 90 percent of the last salary before they retire if they have served for 30 years.
But the military and uniformed personnel (MUP) were even luckier. They did not contribute any peso yet they are guaranteed to receive a pension equal to their last pay when they were in the active service.
There’s more. The pension they get is equal to the pay of the next higher rank in the active service. So, if an army colonel retires, his pension is equivalent to the pay of a brigadier general.
Diokno said the existing MUPs’ pension plan is not sustainable, warning of a fiscal collapse as the number of soldiers and uniformed personnel keeps on growing with the number of retirees.
The government shoulders the pension fund for MUPS and the budget requirement also grows bigger every year.
Actually, about 60 percent of the defense budget every year goes to salaries, allowances, and pensions of the officer corps and enlisted personnel.
Only a smaller percentage of the budgets goes to capital outlay as maintenance and operating expenses takes up the bulk of the budget.
Diokno said the president has already agreed in principle to the changes in the pension plan.
These include the removal of automatic indexation of pension to the salary of active duty personnel. Mandatory contributions will be required for active duty personnel and new entrants similar to GSIS pensioners. Retirees will get their pension a year after their mandatory retirement age of 56 years old.
Diokno’s proposal appears sound to avoid the total collapse of the pension fund, but the MUPs will definitely oppose the proposal.
It may become a source of unrest in the uniformed services. When you introduce changes in the pension fund, it can create problems for the administration.
In France, for instance, when President Emmanuel Macron introduced pension reforms, increasing the retirement age from 62 years old to 64 years old by 2030, it was met with a general strike from teachers, rail workers, oil refinery workers, and labor unions.
Macron wanted French workers to serve for 43 years before getting their pension, up from 42 years. France has one of the youngest retirement ages and its pension fund is running into a deficit.
The Philippines faces a similar problem but on a smaller scale, affecting only soldiers, police officers, firefighters, jail guards, and coast guardsmen.
Like Macron, Marcos could see unrest in the military service in the months ahead if Diokno’s proposal pushes through.
Marcos is no stranger to military unrest. His father, the late dictator Ferdinand Sr, was removed from power in 1986 through a military-backed popular uprising because the officers’ corps was unhappy over political patronage and corruption.
However, it was not Bongbong’s own doing that the government was in this current state of a potential fiscal collapse in the MUP’s pension fund.
Blame it on the past leaders who pampered the MUPs with fat salaries and allowances without requiring them to contribute to the pension fund.
Rodrigo Duterte, for instance, doubled the MUPs’ take-home pay and recruited more soldiers and police officers.
In the 1990s, when the administration of the late president Fidel V. Ramos envisioned a modern army, he planned to reduce the number of personnel and invest more on equipment.
But it did not happen, the resilient Communist insurgency forced succeeding governments to enlarge the army to defeat the New People’s Army (NPA) as well as the Islamist militants from the Abu Sayyaf Group.
Bongbong’s father had foreseen this pension problem in the 1970s by creating the Retirement and Separation Benefit System (RSBS), putting in seed money to start a pension fund for the military.
All soldiers, from generals down to lowly privates, were required to contribute from their pay to the RSBS.
However, at the end of their active-duty careers, they can only get back the total amount they had contributed without any interest.
In the 1980s, the RSBS was the bellwether of sound investments in the business community. The pension fund grew but it over-invested in property, golf courses, and other risky businesses. It lost so much during the Asian financial crisis that hit in the late 1990s.
Eventually, the government decided to scrap RSBS and decided to shoulder the MUP pension fund through GSIS without asking military personnel to contribute to the GSIS.
Marcos can avoid military unrest if the government could fully explain to the soldiers and other uniformed personnel why they needed to pay monthly contributions to the pension fund.
While there could be opposition, they would probably understand if Bongbong and his economic team would hold a dialogue and give a complete picture of the problem.
But, perhaps, Diokno can modify his proposal by allowing the present pension system to continue and impose the changes to the new entrants.
The Armed Forces of the Philippines and the Philippine National Police have been actively recruiting thousands every year to replace those who retire, those who die and those who are attrited for various reasons.
There will come a time in the future when all MUPs could be paying monthly contributions, the monthly pensions are not pegged to the next higher rank, and retirees can get only a certain percentage similar to a GSIS retiree.
The MUPs are reasonable enough to understand the state of finances of the government, especially coming from the pandemic when the Republic is buried neck-deep in debt.
MUP pension reform is necessary and urgent but proper messaging is needed to explain how important the changes are to avoid some quarters from exploiting the situation and creating a crisis.