From time to time a chief executive officer, whether he be the President of the Philippines or a top corporate official, comes to a crossroads of decision-making. One road leads to The Right Place; the other leads to The Wrong Place. Recently President Rodrigo Duterte was at a decision-making crossroads on the proposal to increase by P2,000 the monthly pension of Social Security System pensioners. He chose the road leading to The Wrong Place.
Why was it The Wrong Place? Because the nation’s top economists and actuaries—the members of Duterte’s economic team and the actuaries of the SSS, respectively—said so. They said from the very start that if the P2,000 monthly pension increase came to pass, the actuarial soundness of this country’s leading social security entity would cease by 2029, fourteen years earlier than the previous estimate. They said that any increase in the pensions of the 2 million-plus SSS members would have to be matched by an increase in the monthly contribution of the active members of the System, whose membership now approximates 32 million.
Duterte’s Executive Order allowing a P1,000 increase—the P2,000 figure was split, the other P1,000 to be given in 2019—places him in sharp contrast to his predecessor. Many bad things have been said about Benigno Aquino’s handling of this country’s affairs, but in his favor it can be said that he accepted the counsel of his economic advisers and the SSS actuaries and vetoed the Congressional action allowing the increase. In so doing, former President Aquino acted in a statesmanlike, not a political, manner.
Why did Duterte totally disregard the position taken by his top economic advisers, namely, the Secretary of Finance (Carlos Dominguez), the Director-General of Neda (Ernesto Pernia) and the Secretary of Budget and Management (Benjamin Diokno)? Two reasons. First, he wanted to make good on a campaign promise. And, second, he wanted to appease the Left, especially its Bayan Muna element, which was in full cry in support of the sought-after pension increase.
Worthy of note, in this connection, is the claim made by Bayan Muna leader Neri Colmenares that the actuarial soundness of the SSS has a way of restoring itself in the face of a pension increase sans a member-contribution increase. It has happened before, Colmenares claims; it can happen again. A more soft-headed approach to fiscal policymaking it is difficult to find.
The Dominguez-Pernia-Diokno trio (and, I dare say, most other economists) and the actuarial staff of the SSS surely do not enjoy saying No to additional benefits to the SSS pensioners. But it is their mandated job to say No when they see a need to put down their collective feet.
And how about Republic Act 8282 (the amended Social Security Act), particularly Section 4 (a) thereof? That law states, in the said section, that the SSS may “provide feasible increases in benefits… provided that the actuarial soundness of the reserve funds shall be guaranteed.” This legal provision could well be used as basis for a legal challenge to Duterte’s Executive Order granting the monthly-pension increase.
More than a legal challenge, there is the financial challenge that has to be addressed. The job of a trained economist is to ensure the most efficient use of resources, and the job of an actuary is to ensure the foreseeable inflow of resources into a social-insurance system at least matches the outflow of benefits payments. They are the best guides—not the likes of Duterte and Colmenares—as to whether the SSS can remain actuarially sound in the face of a pension increase unaccompanied by a member-contribution increase.