Understanding the SSS fund cycle
For 63 years, the Social Security System (SSS) has been continuously providing meaningful social security protection to its members and their families. This wouldn’t have been possible if its fund management is not at par with international standards, norms, and best practices as followed by our Asian social security counterparts.
So, how does SSS manage the hard-earned money of its members?
The fund cycle starts with what we call the “lifeblood of SSS,” which refers to the paid contributions of SSS employers and members, particularly the covered employees, self-employed and voluntary members, OFW members including nonworking spouses. All of these contributions are deposited to the SSS Reserve Fund.
A part of the reserve fund, however, is being used for the operating expenses and benefit disbursements. Operating expenses pertains to employees’ salaries and wages, supplies and materials, depreciation, as well as the maintenance and upgrading of SSS offices. Benefit disbursement, on the other hand, refers to the release of sickness, maternity, disability, retirement benefit, unemployment, and death benefits to qualified members and their beneficiaries. In fact, we are guided by the specific provision of Section 25 of Republic Act 11199 which reads,
“…all money paid to or collected by the SSS every year under this Act, and all accruals thereto, shall be deposited, administered and disbursed in the same manner and under the same conditions and requirements as provided by law for other public special funds.” The same provision also grants a permissible portion of the reserve fund to be utilized for disbursement of administrative and operational expenses, which is not more than 12 percent of the total yearly contributions plus 3 percent of other revenues. Historically, the administrative and operational expenses of SSS are always way below the permissible percentage. In 2019, the Operational Expenses versus charter limit were brought down to 36 percent from 53 percent in 2015.
Other portions of the reserve funds that are not needed to fulfill our benefit obligations are placed in the “Investment Reserve Fund” which is currently managed by the Social Security Commission (SSC). Based on Section 26 of the Social
From January to July 2020, SSS posted total revenues of P136.98 billion, which came from P119.20 billion worth of members’ contribution and P17.78 billion worth of investment and other income. Meanwhile, SSS paid P112.76 billion worth of benefits and incurred P4.80 billion in operation expenses, which translate to net revenue of P19.41 billion and reserve fund of P601.53 billion.
Security Act of 2018, the Commission “shall manage and invest with the skill, care, prudence and diligence necessary to earn an annual income not less than the average rates of treasury bills or any other acceptable market yield indicator in any or in all of the following undertaking, under such rules and regulations as may be prescribed by the Commission.”
For this purpose, a portion of the SSS Reserve Fund is allocated for investments wherein income derived from it goes back to the reserve fund.
The past and present fund managers of SSS have put in all their talents and expertise to ensure the stability, sustainability, and viability of the pension fund by striking a balance between the revenues and expenditures. Further, they ensured that investments shall satisfy the requirements of liquidity, safety/security and yield in order to ensure the actuarial solvency of the funds of the System, as mandated by law.
From January to July 2020, SSS posted total revenues of P136.98 billion, which came from P119.20 billion worth of members’ contribution and P17.78 billion worth of investment and other income. Meanwhile, SSS paid P112.76 billion worth of benefits and incurred P4.80 billion in operation expenses, which translate to net revenue of P19.41 billion and reserve fund of P601.53 billion.
Indeed, managing the fund is very similar to the balancing act of a tightrope artist high above our heads. The tightrope artist has to maintain a balanced center so as not to fall. Too far left, and he falls. Too far right, and he also falls. Just like the tightrope artist, the SSS has to maintain a balanced center between revenues and expenditures. Too little revenues from employers and members’ contributions, and the SSS’ funds will quickly diminish. Too much expenditures through various forms of benefit enhancements, and the SSS’ funds will also be drained.
With our current finances, the SSS Fund Cycle will not continue to function without our members’ and employers’ contributions and our dedicated work force who run our institution. Keeping this in mind, the SSS Management with their expertise and sound decisions will continue to perform its mandate of ensuring the maximum profitability of investible funds and adequate resources for various benefit releases to members and pensioners through a culture that is based on efficient and beneficial policies.