Military pension ‘butterfly effect’
No president should have allowed the camel’s nose to enter the national government’s budgetary tent.
Text size
No president should have allowed the camel’s nose to enter the national government’s budgetary tent.
The contemporary pension landscape for so-called MUP (military and uniformed personnel) is a cloud on the horizon. Invariably having served in the AFP, PNP, BFP, BJMP, PCG, BuCor, or NAMRIA toward optional or mandatory retirement, their pension pay is wholly funded by the annual General Appropriations Act.
Not long ago, the pay gap between active MUP in terms of salary and retired MUP in terms of pension was made to disappear and their respective payouts made equal and even. As a career path, service as an MUP offers front-and back-end packages of pecuniary benefits.
With pension pay based on salaries of the incumbent or active personnel, how's that for a legacy during Fidel V. Ramos' final months as president? It's deemed the "most generous pension system for the military in the entire world."
Increases in military pension have created a "butterfly effect" in the years that followed. Retiring military officers are promoted to the next rank thereby increasing the base pay of their retirement pay.
For better or for worse, the monthly pension of retirees is automatically adjusted to the prevailing salary rates of their counterparts in active service.
Any salary increase of active MUP implies additional funding for corresponding pension adjustments for retired MUP. With their pay now equal and even — by presidential fiat — the resultant costs of pay adjustments have been overlooked.
Pension pay not only caught up with active pay but even set off a "financial tsunami" in the national budget. Then Rodrigo Duterte even doubled up the basic salary thus making active and retired MUPs enjoy the same incremental rates of pay. Financed in years, the military pension has become the "big elephant in the room."
In years 2014 and 2015, some P64.2 billion and P65.1 billion were appropriated, respectively — anachronistically higher than the conditional cash transfer — that benefitted four million families in 2015. By 2017, the GAA allocation for MUP pension was at P102.4 billion causing severe "fiscal strain."
The problem was hardly dealt with urgency so for "each day of inaction, the size of military pension balloons." The culprit is a feature called "indexation" in the current military and police pension system wherein retirees enjoyed "the same increase in benefits each year alongside rising salaries of active personnel".
Thus, on one side of the scale is a yearly increase in the number of retirees pegged at the average of 5,419 in 2005-2010 and about 6,000 in 2011-2018. On the other hand, the pay of active MUP rose by an average of 19.6 percent annually from 2008 to 2019. Since pension pay follows suit, the fiscal burden is beyond GAA's loading capacity.
Future payouts for both active and current pensioners would peak to P850 billion yearly during the next two decades per GSIS estimates. If the size of military pension continues to grow leaving the government with not enough fiscal space for economic maneuver, the economy may well be on its way to an imminent financial sinkhole.
There's a need to backpedal to the old rules of the game albeit such a move might trigger massive migration by candidate retirees opting to get the best pension shelter under the current pension scheme. Verily, no pension system should source its funding directly from the government budget except its own scheme of self-sufficiency.
Whatever happened to the AFP Retirement and Separation Benefits System established in 1973 becomes an artifact of "financial mismanagement." Nothing should impel a president to "babysit" for a pension system gone wicked — its accumulated funds from contributions bled dry. No government must (mis)appropriate "criminal" amounts to buoy up MUP's pension pay.
Per AFP-Pension and Gratuity Management Center data, the projected pension versus active military pay started to break even in 2016 with an upward linear increase every year thereafter until 2026 overtaking active MUP payroll or payout.
No president should have allowed the camel's nose to enter the national government's budgetary tent. The MUP pension system should be left to its own device than be fully funded out of NG's annual budgetary appropriations.
