The SSS in the Philippines
By Bill in Oz
My thanks to Society of Honor members for providing information and insight for this article. I would particularly like to thank Edgar, Karl, Mary Grace, Irineo, Chempo, Giancarlo, NHerrera and Caliphman.
I want to start with a couple of definitions. Knowing what we are talking about is very important.
The “SSS” (Social Security System) in the Philippines is not a welfare program. It is an insurance system. And like every other type of insurance program, the beneficiary’s contributions to the insurance policy determine the benefits. If a beneficiary pays a lot in contributions s/he will get a lot. If s/he has contributed very little, then s/he will get very little. If s/he contributed less than the minimum number of contributions s/he will get bugger all. Stating that another way: those who have given, shall receive; those who have not given, get zip.
This is very different to a national ‘welfare’ based social security program which pays all citizens (and permanent residents) on the basis of their need, not on the basis of what they have contributed. For example, the Australian Social Security system is a welfare based system. All money paid comes from taxes and none from contributions by ‘members’. Any Australian citizen, if unemployed, can seek to be paid unemployment benefits. (This is commonly called the “dole”. Persons who attempt to avoid getting a job and live on the dole are colloquially called “Dole bludgers”. It is no complement!) The application will be assessed on the basis of need. Similarly, a person retiring at 65 can apply for a retirement pension. And the application will be assessed on the basis of need. However if s/he is stinking rich s/he will get nothing. If middling s/he will get middling. And if s/he is in desperate need s/he will get the maximum available. The same process applies for sickness, maternity benefits or unemployment benefits or disability benefits.
In Australia there is also a government regulated joint employee/employer contributory retirement program. We call it “Superannuation” or ‘Super’. However, all the funds are managed by private corporations. And all employees have (by law) the right to nominate the superannuation fund of their own choice. Superannuation fund companies thus compete with each other for membership by employees. Some superannuation funds are ‘industry funds’ established by trade unions with trade union members on the boards. Finally, Superannuation funds are a huge source of investment money in Australia.
In recent years, the Aquino governmental has started to create a Philippine welfare program. This is the “Pantawid Pamilyang Pilipino Program” (also known as the Conditional Cash Transfer program). This attempts to offer some minimal care of the very old and very poor by providing 500 pesos a month to the indigent elderly and unmarried mothers. As well as the 500 pesos, these individuals have automatic PhilHealth coverage. However the Pantawid Pamilyang Pilipino Program is a program instituted by the current President under his executive powers. It is not part of the regular Phillipines budget. Thus the next President could just decide to end this welfare program.
I mention all these things so all involved in the discussion are able to compare and contrast the various ways that an insurance based system and a welfare based system differ. The comparison helps with evaluations. It also helps avoid confusion.
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The SSS was first proposed by President Roxas in 1947. But he died before he could initiate any legislation. President Quirino then introduced legislation in the early 1950’s. It came into effect in 1958. My guess is that it was modeled on the USA insurance based social security system of the time.
Who is Covered
The SSS ‘insurance’ system in the Philippines is not ‘universal’ for the Philippine workforce. It does not cover government employees and military personnel. They have their own separate systems.
SSS only effectively covers permanent private-sector employees and their families. A ‘permanent’ worker is defined as a worker who has worked continuously in a company for more than 6 months. For such employees, coverage is compulsory by law. Also, in order to gain access to the retirement benefits offered by SSS, a member has to have made monthly contributions for at least 120 months.
There are a large number of workers who are not covered. Almost all casuals, temporary workers and sub-contractors are not members as the law is not enforced for such workers. So almost none are. Peasant farmers and their families are not covered. The multitude of small ‘informal’ family based businesses like sari sari stores are also not covered. As a result, only a small percentage of Filipino workers are covered by the SSS at any one time. One estimate puts the coverage at just 15% of the workforce.
Another problem is that there also are a large number of members who are no longer active members and who no longer make any contributions. Women who have left the workforce because of being mothers form a high percentage of these ‘not active’ members. Others former members have left the Philippines to get work in other countries such as Hong Kong, South Korea, Singapore, Malaysia, the UK, the USA, and Middle Eastern countries.
Mary Grace commented that there are more than thirty million SSS Members. Two million have retired. Eighteen million are not actively paying members. Only 12 million are active paying members.
What is covered?
The SSS offers members the following benefits: retirement pensions; sickness benefits; maternity benefits, disability benefits and work injury benefits. It does not offer any benefits if a member becomes unemployed. If person is injured, disabled or gets pregnant while unemployed, they are also not covered. An aged person retiring who was a member before becoming unemployed can claim a retirement pension. However, the amount will depend on the value of contributions made while employed. And there is no ‘indexation’ of payments to retired persons to negate the impact of inflation.
How is the SSS funded?
The SSS is not funded by taxes or by the Philippines government even though it is a government statutory authority regulated by law passed by the House and Senate. By law, the SSS is funded by contributions from employers and employees.
Each month, 3.3% of employees’ gross monthly earnings is supposed to be deducted by employers and then forwarded to the SSS. But there is a ‘cap’ at 15,000 pesos earned per month. So the maximum compulsory contribution per person is 499.50 pesos. Employers also contribute an amount equal to 7.07% of an employee’s gross monthly earnings.
Impact of Inflation?
I remember staying in a 2 star hotel for a night in Baguio in 1974. It cost 20 pesos. I stayed in a similar type of hotel last December. The cost per night was 1,350 pesos. The inflation rate is now quite low in the Philippines and the BSP’s monetary policy is now ‘to ensure a low and stable inflation rate conducive with balanced & sustainable economic growth’. But there was significant high inflation over the past 40 years. For example, inflation hit 62.80 % in 1984 when Marcos was in control as the dictator. Poor economic policies during his dictatorship created economic chaos and high inflation.
Many of the 2,000,000 SSS retired pensioners started their working lives about 40 years ago. Wages & salaries and the cost of living were so much, much much lower then. And these people paid contributions to the SS in those times set according to the then current wage & salary levels. I wonder how many of them only paid the required 120 monthly payments in the expectation that this would guarantee their livelihood when retired ?
There has been some minor adjustment upwards by SSS for retired pensioners. Mary Grace mentions a relative who’s monthly pension went up from 1,200 pesos to 1,500 pesos. But SSS has not indexed the contributions made by members to account for the hyper Marcos-created inflation rate of the 1980’s, or the high inflation of the 1990’s, or the period 2007-9. This means that older members have been treated unfairly compared to members who joined in more recent times when inflation was much lower.
More importantly, this inflation was caused by the Filipino government of the time. Grossly irresponsible actions & policies by the Marcos dictatorship caused the high inflation of 1983-5. There is thus a strong equity argument that older SSS members should be compensated by the Philippine government for the impact that high inflation has had on the value of the SSS Insurance scheme policy. I wonder if the Philippine government has ever acknowledged this culpability.
A study done of SSS in 2009 discussed this issue briefly:
“There is also a need to further improve the protection provided to pensioners. At present, pensions are adjusted in an ad hoc manner over time. The value of pensions may be better protected from erosion due to inflation if pensions are adjusted in a systematic manner through inflation indexation.” (Pp16, “Reforming Social Protection Policy: Responding to the Global Financial Crisis and Beyond“)
However nothing has changed since that paper was published.
There are some serious consequences for Philippine society from the way this worker Insurance system is structured:
- There is no unemployment benefit for anyone in the workforce, whether permanent, casual, temporary or contract. This is a major defect.
- Casuals, temporary workers and sub contractors have no coverage at all under the Philippines SSS. If casual employees are injured or disabled at work, they are not covered. Women who get pregnant are not covered. And there is no welfare system to provide for such people. The only option available is to rely on help from family. This is a major defect.
- When casuals, temporary workers, or trainees get old, there is no real pension available for them. They may get a little from Aquino’s Pantawid Pamilyang Pilipino Program (CCT). They, again, have to rely on help for everything from family. This is a major defect.
- When peasant farmers and their families are injured or become disabled there is no coverage apart from what is granted under Aquino’s Pantawid Pamilyang Pilipino Program (CCT).
- Because there is a significant extra employment cost for employers with ‘permanent’ employees, there is a big incentive for employers to avoid hiring permanent employees. Instead there is an incentive to hire ‘endos’ (casuals), temporaries or ‘trainees’ for 5 months and then let them go with the more skilled or ‘valued’ ones being rehired after a break. This causes churn in the workforce, with constant anxiety. I suggest it also causes loss of job skills. In recent years, permanent employees as a percentage of the workforce has been falling.
- The “Cap’ on contributions to SSS at 15,000 pesos has perverse consequences. Hypothetically, it ‘helps’ permanent workers now by limiting what they are compelled to pay. But is this reality? I suggest it is not. The cap prevents individual workers from providing for their own futures by making extra SSS payments. (This is a feature of Superannuation in Australia where such extra contributions can also be tax deductible). More importantly, the cap functions as a ‘get out of jail card’ for employers. They do not have to pay the 7.7% to SSS for permanent employees above the 15,000 peso cap. This reduces labor costs for employers and saves them money.
- In these situations, the threat of poverty is all pervading. Anyone with a permanent job is reluctant to leave it unless a better position is being offered. This is true even if the job entails long, unpaid extra hours, or if the employer is abusive. The same is true for workers in casual positions. As Giancarlo commented recently, “I suspect that most lower income working families are really living hand to mouth and not that interested in the long term. The NOW pervades everything.”
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The origin of this blog post was the decision by President Aquino on the 14th of January, 2016, to veto a Congressional bill ordering the SSS to pay the lowest pensioners an additional 2,000 pesos a month. This decision generated a lot of comments and also a lot of information. Aquino’s reason for his veto was that Congress had not passed the complementary bill authorizing the SSS to increase the contributions made by active members and employers. Such a bill was passed in the House of Representatives. But was not passed in the senate. He said that, without such supporting legislation, the SSS would in the long term be forced into bankruptcy.
Many commentators (including myself) suggested that the Senate was being irresponsible in blocking the supporting legislation. I still think this.
However, I also now see that the current impoverished condition of SSS pensioners living on 1,200 or 1,500 pesos a month is not just because of the SSS. It is also a consequence of the catastrophic loss in value of contributions made before and during the period of hyper inflation during the Marcos regime in the 1980’s and also, to a lessor extent, the high inflation during the 1990’s and during Gloria Arroyo’s presidency from 2007 to 2009.
Government actions and policies caused this loss in value of members compulsory contributions. Maybe the government should now recognize this and make amends by allocating funds to compensate for the loss in value.