WHY is admin worried about bloating military pension cost?

The Duterte administration is worried about the ballooning pension of uniformed personnel such that the interagency Development Budget Coordination Committee (DBCC) is pushing for a seed fund worth trillions of pesos to generate incomefor retired military officers.

In its Fiscal Risks Statement 2017 report, the DBCC noted that the problem on ballooning pension costs for uniformed personnel was “mainly attributable to the features present in all existing retirement laws of the uniformed services—pension entitlement of a retiree is automatically adjusted based on the prevailing scale of base pay for similarly ranked active personnel; pension is noncontributory in nature hence the budget comes from the annual general appropriations of the government, and early entitlement to pension benefits even before attaining the compulsory retirement age of 56.”

The DBCC said that last year, uniformed personnel’s pension reached P71 billion and this was expected to more than double in eight years’ time to P187.9 billion.

“In view of the foregoing, a reform must be effected for a more sustainable pension system,” the DBCC noted.

According to the DBCC, a technical working group comprised of the Departments of Budget and Management, Finance, Interior and Local Government and National Defense as well as the Government Service Insurance System recommended the creation of a seed fund solely for the purpose of generating sufficient interest income to fund the annual pension requirements of all uniformed services.

According to the latest actuarial study conducted by GSIS, if no reforms are introduced to the existing pension system, the seed fund will reach P5.57 trillion, the DBCC said.

“However, if reforms are implemented, specifically the deletion of the automatic indexation feature, the formulation of a mandatory contribution and the designation of a minimum pensionable age, then the amount required for the seed fund is significantly lowered to P2.04 trillion, the DBCC added.

In April, Finance Secretary Carlos G. Dominguez III said the government was planning to put in place a new pension system for uniformed personnel to arrest the ballooning pension benefits, possibly by including them under the coverage of state-run pension fund GSIS.