HALL OF SHAME – SSS PAYOUT HIKE
Of all the economic planning that the government undertakes, policy decisions regarding SSS payout hike are actually the easiest. The simple reason being they are based on actuarial sciences. The actuary works on certain assumptions like life expectancy, demographics, interest rate, inflation rate, when a person retires, etc etc. Re-calibrate anyway we want, the outcomes are empirical, in other words, statistically proven.
Actuarial accounting is very complicated as it goes into computation of future liabilities worked in present day values, stuff like like that. I shall discuss it here in simple lay language.
SSS in a nutshell:
The SSS is simply your savings computed in a manner that if you contribute ‘x’ pesos per month, you will receive ‘y’ pesos monthly after you retire, till death. The ‘y’ that you receive is dependent on 3 things —
(a) The ‘x’ that you put in. It should be apparent that you cannot expect other members to contribute to your ‘x’. You want more when you retire, pay up more ‘x’ when you are working. After retirement, if the retirees are lucky enough and the government increases their ‘y’, you are actually taking the extra ‘y’ from other members’ ‘x’.
(b) Earnings from your ‘x’. All members’ contributions go into an Investment Reserve Fund (IRF). This is managed by SSS and income from this fund is used to pay the operating cost of SSS (including the huge compensation SSS board members pay themselves) and interest to members. Your ‘x’ earns interest which is capitalized and goes into the IRF. Because the investment earnings are volatile, SSS has to work on some fixed factor, that is why they have a guaranteed interest rate that your ‘x’ earns.
(c) How long you live. When a member retires, his/her monthly ‘y’ comes from the funds in the IRF. Based on the ‘x’ and the guaranteed rate, the actuary computes that by the time the retiree dies, the total ‘x’ plus interest LESS total ‘y’ = 0. So all SSS members are actually taking back all their savings (plus interest), that’s all there is to it.
For the math to work out, the actuary has to know how long a member can live. This is of course impossible, so they base it on historical averages. The life expectancy in the Philippines is 69 for males and 75 for females. I don’t know what numbers the SSS actuary uses but it should be close to 69/75. If a retiree lives shorter than the expected age, the balance of unpaid ‘x’ + interest goes to beneficiaries. If a retiree lives longer than 69/75 years, then SSS loses because they need to pay out more ‘y’ than what was contributed. Statistically the SSS can compute such situations and ensures sufficient IRF to meet these excess liabilities.
Status of SSS:
I could not download the SSS annual report, so I’ll just look at figures that Pnoy used in 2015.
a. Active contributors — 31,000,000,000 +
b. Retirees receiving monthly payouts — 2,000,000 +
c. Total additional payout per year if every recipient gets a 2,000 peso hike — 56b pesos per year.
d. Annual investment income from the IRF — 30b to 40b pesos (assumed gross)
e. Shortfall expected — 16b to 26b each year.
f. Fund expected to last till — about 2029.
The actuarial model relies on various assumptions as explained above. It’s a balancing act. You cannot expect everything to remain intact if one factor alone is changed. If the payout hike is allowed, the expected shortfall (e) means SSS will be taking out more than putting into the IRF which will deplete the funds gradually, this is what we have been told.
The annual investment income (d) is used to pay operating expenses, other deductions like transfers to reserves, other contingencies, or some adjustment account and most importantly, the interest to members funds which are then capitalized into the IRF. If my interpretation of the figures are correct, there is really very little left in NET investment income. So I don’t really understand what (e) is, except maybe using it as just a simplistic way to explain things to folks.
Actuarial Life of the fund :
I’m also not sure what (f) is although media and everyone mentions SSS will be bankrupt by 2029. The data was computed in 2015 and they said the fund will be bankrupted in 14 years. I assume the 14 years is derived from an actuarial computation and it can only refer to the Actuarial Life of the fund. This ’14 years’ can be interpreted in 2 ways :
1. To borrow an accounting term, on a realization basis, if the fund were to stop now, and every member collects their monthly ‘y’ as if they were all retired, the cash will all be gone in 14 years time.
2. If we want the fund to be sustainable, to continue on, then what this actuarial life of 14 years means is that, if the retirement age is 60, pensioners can receive monthly payouts up to age 74 only.
Either way, members are short-changed in (1) and (2) above. To have a better perspective, since the fund started in 1935 all the way to 1980s, the Actuarial Life was to perpetuity. After 4 increases in premiums against 22 increases in payouts over the years, the Actuarial Life has decreased to 31 years presently. The lowest was during Estrada’s admin when it slipped to 16 years — a real-life illustration that populism and irresponsibility in governance are often companions.
What if we just listen to the proponents of the bill to hike the 2,000 peso payout and continue with the fund and pay retirees till death, that is, disregard what the experts tell us. Will the fund go bankrupt in 2029? The answer is an emphatic NO. Am I contradicting myself? Absolutely not. I will even go further to say this — even if we were to increase the payout hike astronomically such as to cause the actuarial life to drop to 1 year, the fund will not go bankrupt next year. This is simple math, but needs some explaining.
The SSS manages an extremely huge fund. I googled and found a number US$8b in 2006. I have no idea what it is today but it has to be huge. New collections and members’ interest earnings add to the fund whilst payouts to retirees reduce the funds. Should the 2,000 peso hike be effected, the huge pool of funds is sufficient to meet these payments. As SSS is paying the 2m retirees, the 31m will still be putting money in. Come 2029 there will still be a substantial pool of funds. But this pool of funds will no longer be sufficient to pay other members who will retire in due time. The fund is not sustainable because it has been using Peter’s money to pay Paul. There won’t be enough left to pay all the Peter’s who retire in due time. Yes, it is a Ponzi scheme, but as to when it will collapse, not even the SSS will know. Not 2029, but collapse it will.
With a life expectancy of 69/75, having an actuarial life of 14 years seems recklessly risky. What is the optimum, or some standards that actuaries adopt? I don’t know.
Why those in favor of SSS payout hike were wrong:
The arguments against Pnoy were :
1. Increase contributions – Increase SSS rates so the IRF will grow.
This goes against the core of a retirement fund. Your ‘x’ is meant for your own ‘y’. You cannot get your ‘y’ from another member’s ‘x’. If contributing members pay more ‘x’, they expect their own retirement plans will increase their ‘y’ accordingly. If the SSS retirement plans do not measure up to private insurers’ plans, SSS may collapse due to membership desertion to competitive insurers. There cannot be 31 million suckers.
2. Improve collections – Go after workers who are not contributing to SSS
Whilst it is true that improved collection will go towards increasing the IRF, the increased funds cannot be used to foot the increased payout to 2 million+ retirees. It is wrong for the same reason in (1) above – a contributor’s ‘x’ is for his own future ‘y’. Any payment arrangement that relies on the contributions of new members to pay old members is a pyramid or ponzi scheme, which is illegal. Ordinary Filipinos may not see through this, but it’s amazing that a lawman in Congress proposed this.
3. Govt funding – the govt can simply top up the difference
Many have suggested that the shortfall (f) can simply be funded out of the govt budget, in other words, tax-payers will foot the bill. I believe it is not just (f) but the full 56b pesos that need to be covered. It is lost on proponents that this is unacceptable as it will mean socializing a cost in an inequitable manner. SSS members are employees in private enterprises, public employees are covered by their own pension funds. Why should everyone pay for a special segment of retirees?
Do proponents actually know what they are talking about? The govt top up will not only be for the 2 million plus retirees, but eventually the 31 million when they retire. Try computing the contingent social cost involved.
4. SSS can overcome shortfall
Angry proponents point out the fact that there have been increases in payouts so many times in the past and SSS had resisted and pointed to a bankruptcy deadline, but they have managed and there is no bankruptcy. The misunderstanding here, I think, is that actuarial life has not been explained properly. The 22 increases in payouts in the past have caused the actuarial life to plummet to the current 31 years. Do we want to bring it down to the dangerous level of 14 years?
5. Increases in collections from (1) and (2) and actuarial life
(1) and (2) as mentioned above are not acceptable. The collections will go to increase the IRF. When the premium goes up, of course the benefits are adjusted. So there will be no change in the actuarial life. The possibility for improvements in the actuarial life will be if the premium increase is onerous, that is, not accompanied by adjustment in the benefits. Would you contribute to such a scheme?
Is Aquino anti-poor, heartless? :
14 Jan 2016 Pnoy vetoed the bill for SSS payout hike and probably incurred the wrath of more than half the population of Filipinos. The SSS payout hike is one of those situations where even the best of intentions need to be restrained in light of known unacceptable outcomes. This was the reason Pnoy vetoed the proposal by Congress. It shows the real strength of a President who rightly prioritized national interest above personal and party interests. In his last few months in office, he could have passed the bill and vacated office with more blessings from his countrymen. Instead, he made a stand knowing full well the damage it will cause his party mates in the coming election.
Against the trend of populists lambasting Pnoy, two persons stood up to support the president’s veto knowing full well that by doing so, they had the most to lose in the coming elections. Mar Roxs and Leni Robredo showed the whole nation what it means to put national interest above self interest.
Hall of shame:
The payout hike was an election promise by Duterte, but he has recently been convinced by Secretaries Dominguez, Pernia and Diokno to reluctantly change his mind. This is good, it shows the president can be persuaded if the arguments are convincing. In the face of cold data, President Duterte has made the same strong stand as Pnoy in rejecting the SSS payhike. I will therefore not consign the president to the Hall of Shame.
Many proponents of the payout hike care less whether SSS will be in jeopardy or whether retirees get any additional money. It is simply politics and the unsavory ones will just use whatever ammunition they can. To them we ask, what now? President Duterte has made a tough and right decision, what say you now? Silence means sycophancy. To those who push personal interest over national, there should be a place reserved for them.
Here are some of the game-players:
“For the sake of our struggling people, I will do everything in my power to counter this veto. It is an uphill battle but a fight that must be waged nonetheless. We owe it to the people especially the vulnerable such as the elderly, the sick and the unemployed who are at the bottom barrel. Sobra-sobra na ang hirap nila,” .
Philstar…15 Jan 2016
Sen. Ferdinand “Bongbong” Marcos Jr.
“…. the next president should implement a P1,000 minimum increase in pension of all Social Security Security (SSS) retirees in the first month of his or her presidency.”
Tribune.net.ph….28 Mar 2016
Rep. Fernando Hicap of Anakpawis
“…. The veto on the SSS pension hike is symptomatic of Aquino’s anti-people governance. He ruled against the interest and welfare of the workers, farmers, urban poor, government employees, calamity victims, youth-students, even sending government forces to their deaths. Now, he is heartlessly spoiling the pension hike for the elderly section of our population,”
Manilastandard.net….2 Feb 2016
Rep Martin Romualdez
“We can weather the storm and win an uphill battle especially if our cause is about championing people’s interests as a show of malasakit to their welfare. All we need is to show a strong political will with our sincere desire to serve public interest,”
Journal.com.ph…22 Jan 2016
Senator Chiz Escudero
“There is no better time than now to have the SSS pension hike bill enacted into law, and I urge my colleagues in the Senate and members of the House of Representatives to do the right thing and vote to override the President’s ill-advised veto of this bill,”
Enquirer….14 Jan 2016
Senator Grace Poe
“I dare SSS to provide concrete alternatives because I think it has sufficient funds to increase the members’ benefits.
Inquirer.net….14 Jan 2016
Senator Cynthia Villa
“We don’t believe (that the SSS cannot afford the hike) that that’s why we are saddened. In behalf of our pensioners, they can expect that we will try again next Congress to pass this into law…It remains my position that the additional P2,000 can be given without putting the stability of the SSS fund in jeopardy,”
Inquirer.net….14 Jan 2016.
Rep Neri Colmenares
“Walang puso ba talaga si Pres.Aquino? This is patently anti-pensioner, anti-poor and anti-worker! The P2,000 hike is very reasonable and is badly needed by pensioners and their dependents,” said Colmenares, one of the authors of the proposed pension increase.
Politics.com.ph….5 Jan 2016
57 Reps of 16th Congress
This bunch tried an underhand act to hijack a Congress session Feb 2016 to override Pnoy’s veto of the SSS hike. They created a circus by bringing in a group of old folks to heckle the proceedings.
1. Rep. Ronaldo B. Zamora (San Juan, Lone District)
2. Rep. Thelma Z. Almario (Davao Oriental, 2nd District)
3. Rep. Roman T. Romulo (Pasig, Lone District)
4. Rep. Silvestre H. Bello III (1BAP)
5. Rep. Jose L. Atienza Jr. (Buhay)
6. Rep. Ana Cristina Siquian Go (Isabela, 2nd District)
7. Rep. Samuel D. Pagdilao (ACT-CIS)
8. Rep. Martin Romualdez (Leyte,1st District)
9. Rep. Evelina G. Escudero (Sorsogon, 1st District)
10. Rep. Juan Johnny R. Revilla (OFW)
11. Rep. Irwin C. Tieng (Buhay)
12. Rep. Nicanor M. Briones (Agap)
13. Rep. Luzviminda C. Ilagan (Gabriela)
14. Rep. Carlos Isagani T. Zarate (Bayan Muna)
15. Rep. Antonio L. Tinio (ACT Teachers)
16. Rep. Terry L. Ridon (Kabataan)
17. Rep. Fernando L. Hicap (Anakpawis)
18. Rep. Emmi de Jesus (Gabriela)
19. Rep. Neri Colmenares (Bayan Muna)
20. Rep. Jonathan dela Cruz (ABAKADA)
21. Rep. Enrique T. Garcia Jr. (Bataan, 2nd District)
22. Rep. Sherwin Gatchalian (Valenzuela City, 1st District)
23. Rep. Angelina L. Tan (Quezon, 4th District)
24. Rep. Napoleon S. Dy (Isabela, 3rd District)
25. Rep. Mark M. Enverga (Quezon, 1st District)
26. Rep. Florencio T. Flores Jr. (Bukidnon, 2nd District)
27. Rep. Isidro S. Rodriguez (Rizal, 2nd District)
28. Rep. Rose Marie J. Arenas (Pangasinan, 3rd District)
29. Rep. Mercedes C. Cagas (Davao del Sur, 1st District)
30. Rep. Aleta C. Suarez (Quezon, 3rd District)
31. Rep. Leah S. Paquiz (ANG NARS)
32. Rep. Bellaflor J. Angara-Castillo (Aurora, Lone District)
33. Rep. Victor J. Yu (Zamboanga Del Sur, 1st District)
34. Rep. Lilia Macrohon-Nuno (Zamboanga City, 2nd District)
35. Rep. Mar-Len Abigail S. Binay (Makati City, 2nd District)
36. Rep. Susan A. Yap (Tarlac, 2nd District)37. Rep. Gus S. Tambunting (Paranaque City, 2nd District)
38. Rep. Giorgidi B. Aggabao (Isabela, 4th District)
39. Rep. Pryde Henry A. Teves (Negros Oriental 3rd District)
40. Rep. Harlin C. Abayon (Northern Samar, 1st District)|
41. Rep. Jeffrey D. Khonghun (Zambales, 1st District)
42. Rep. Joseph Stephen S. Paduano (ABANG LINGKOD)
43. Rep. Amado S. Bagatsing (Manila, 5th District)
44. Rep. Diosdado Macapagal Arroyo (Camarines Sur, 2nd District)
45. Rep. Rodolfo G. Biazon (Muntinlupa, Lone District)
46. Rep. Arnel U. Ty (LPGMA)
47. Rep. Agapito H. Guanlao (Butil)
48. Rep. Edgardo R. Masongsong (1-CARE)
49. Rep. Rogelio Neil Pepito Roque (Bukidnon, 4th District)
50. Rep. Celso L. Lobregat (Zamboanga City, 1st District)
51. Rep. Noel L. Villanueva (Tarlac, 3rd District)
52. Rep. Aurora E. Cerilles (Zamboanga Del Sur, 2nd District)
53. Rep. Jose T. Panganiban Jr. (ANAC-IP)
54. Rep. Pedro B. Acharon Jr. (South Cotabato, 1st District)
55. Rep. Ferdinand L. Hernandez (South Cotabato, 2nd District)
56. Rep. Manuel M. Iway (Negros Oriental, 1st District)
57. Rep. George P. Arnaiz (Negros Oriental, 2nd District)
ABS-CBN….4 Feb 2016
CBCP Bishop Broderick Pabillo
“…. this action of PNoy only shows his lack of empathy for ordinary Filipinos. By vetoing the bill for increase of pension of SSS members, PNoy has clearly shown that his program of ‘inclusive growth’ is mere rhetoric. Do we vote those who will continue this anti-poor policy?”
Wheninmanila.com…16 Jan 2016
Blessed Association of Retired Persons (BARP)
…. marched with militant groups on January 28 down Session Road to the SSS regional office calling on congress and senateto override President Benigno Aquino III’s veto of the additional Php2,000 to SSS pension as part of nationally coordinated action of pensioners.
Nordis.net….31 Jan 2016
Feel free to submit your own nomination.