The Philippines' pension authority is planning to raise an extra Ps13 billion ($288.3 million) a year for the country's central pension fund scheme to help fund increased benefits for retirees, prompting calls from employers for consultation before any decision is made.
Carlos A Arellano, chairman of the Social Security System (SSS), revealed last week the regulator would have to lift the pension contribution rate from the current 8.4% to 12% because of increases in benefits recently announced, under which all pension benefits will receive a 10% boost, while funeral benefits will rise by Ps5000 to Ps20,000. The increases are estimated to cost Ps10 billion and Ps3.5 billion respectively over the next five years.
"We are the lowest in the region," Arellano told reporters about the region's pension contribution rates, saying: "Singapore has 40%, Malaysia has 30%, even GSIS [the Philippines' Government Service Insurance System] has 21%."
Arellano claims the rate increase proposal has the support of the private sector. But Vicente Leogardo, director general of the peak employer group, Employer Confederation of the Philippines (ECP), says his association has not been consulted about the plan. The ECP is an umbrella group of about 40 major employer associations and has three representatives on the SSS board. The others on the board include three representatives from the trade unions and a number of government officials.
Leogardo believes the present pension system is working "fine" and he does not know why a rate rise is necessary.
The proposed contribution rate hike came after a drop in the fund's earnings by about 35%, from Ps15.6 billion a year ago to last month's Ps10.19 billion. Edgar Solilapsi, SSS senior vice president for investments, says the fall in earnings is the result of "a slowdown in the equities market compared with last year". He emphasized the SSS has not incurred losses, saying that it is simply a drop in earnings.
Arellano told reporters at the pension authority's 43rd anniversary that the fund cannot always rely on investment income to support higher benefits. Any contribution rate rise will have to be passed by the SSS board and approved by the president. The Philippines will have its presidential election around May next year and it is expected that any pension contribution rate changes would be made after the election.
According to Joel Palacios, SSS vice president of media affairs, current pension payments range from Ps1200 to Ps9000, and the average salary is Ps6000 a month. Workers earning less than Ps1000 a month do not have to make contributions.
With an estimated membership of 22 million, including overseas workers and the self-employed, the SSS has about Ps183.9 billion in assets under management. The SSS shifted its investment from treasury bills to equities about three years ago because of a drastic drop in interest rates, from 20% to 8%. The return on investment by the fund was 13.4% in 1998 and 12.5% in 1999.