May 31st, 2021
House MUP supercommittee reaches consensus on pension reforms; Substitute bill being drafted by secretariat for Committee approval
The House ad hoc Committee on the Military and Uniformed Personnel (MUP) Pension System arrived at a consensus this morning on the key parts and principles of the proposed reform of the MUP pension structure to ensure its fiscal sustainability. The agreements were made during the ad hoc supercommittee’s inaugural meeting today, led by its chair, House Ways and Means Committee chairperson Joey Sarte Salceda (Albay, 2nd district).
The panel tasked the Secretariat to draft a substitute bill for its consideration, incorporating features where consensus has already been achieved.
The key agreements were the removal of automatic indexation (which accounts for the bulk of unfunded pension liabilities), the provision of Cost-of-Living Adjustment (COLA) to ensure that monthly pensions remain on track with changes in prices, the retention of the no-contribution scheme, and the adjustment of pensionable age to 60 years old.
The panel members also proposed to earmark proceeds from the disposition and use of MUP assets and the Ninoy Aquino International Airport (NAIA) and the New Bilibid Prison for the Armed Forces of the Philippines (AFP) modernization and the Philippine National Police (PNP) revitalization program.
Salceda also assured MUP pensioners that no cuts will be made to their present pensions.
“There will be no diminution of benefits. That is our most fundamental commitment in this reform. No one will receive less than what they already get,” Salceda said.
Salceda also laid out other principles for the proposed reform.
“We seek to decisively address the hazard of being an MUP. My proposal is to have a life insurance system that takes those risks into account. But a basic principle of insurance is that risk should be compensated when actually incurred such as when the MUP is killed or wounded in action. We can’t compensate heroism, but at least we should try,” Salceda said.
Salceda also warned against the consequences of a no-reform scenario.
“No reform risks the budget itself. The unfunded pension liability means that at some point, the government will be unable to pay retirees their full pension, if at all. The budget itself is at serious risk as MUP pension liability could account for 2/3 of deficit space in 2040. This is a question of little pain now versus big pain in the future,” Salceda said.
Reform needed for strategic defense modernization
Citing that pension spending now exceeds capital outlays and maintenance and other operating expenses (MOOE) for the MUP services, Salceda says that pension reform will be needed “to ensure that we can fund a credible fighting force.”
“In the 1980s, the US also undertook a series of reforms of its military pension system to keep their defense budget sustainable. The fiscal space it opened allowed the US to invest in the Strategic Defense Initiative or the “Star Wars Initiative.’ That show of credible force allowed them to defeat the USSR in the Cold War and become the world’s only superpower,” Salceda said.
“A credible, modern, and world-class fighting force is essential. We keep saying we want to have a credible defense system. In truth, we have the lowest military personnel per capita in ASEAN. We have one of the oldest fleets in the region. We have to invest in our active forces and in military capability if we will adopt a strong posture in the West Philippine Sea. We can’t afford it unless we prevent the pension budget from bloating,” Salceda explained.
“Keeping the military pension system affordable for the government is a matter of the nation’s very existence. Allow it to explode financially, and we will be both militarily defenseless and fiscally bankrupt,” Salceda warned.
Committee to expedite reforms
Asked about the timeline, Salceda said the House will approve its version before the budget hearings.
“That’s around August. The Committee will finish sooner than that, of course. We already have a consensus.
I will confer with my co-members, all of whom have leadership positions in the House, to see how we can accelerate the passage. But we are broadly aligned, and we have already instructed the secretariat to prepare a substitute bill for our consideration.” Salceda said.