MUP pension reform and ‘A’ credit ratings
August 20, 2024 | 12:02 am
My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2024/08/20/614899/mup-pension-reform-and-a-credit-ratings/
One important fiscal news last week was the move by the Department of Finance (DoF) to review the pension system of military and uniformed personnel (MUP).
The MUP is composed of eight agencies — the Armed Forces of the Philippines, Philippine National Police, Philippine Coast Guard, Bureau of Fire Protection, Bureau of Jail Management and Penology, Bureau of Corrections, National Mapping and Resource Information Authority and Philippine Veterans Affairs Office.
The MUP pension system is unique for two reasons. One, while government doctors and nurses, government teachers and professors, government engineers and agriculturists, and so on contribute to their own pension via monthly deductions for GSIS, MUPs contribute zero, and so taxpayers pay for their pension. No. 2, the MUP pension is indexed to the salaries of active personnel, so a soldier or policeman who retired a few years ago with P75,000/month will get a pension equivalent to the salary of same-rank active personnel at P150,000/month. The amount rises yearly, is tax free and can be passed on to the spouse upon death.
I checked again the figures for MUP spending. They have basic pay, compensation common to all (longevity pay, subsistence allowance, clothing allowance, bonuses, etc.), compensation for specific groups (hazard pay, combat duty pay, combat incentive pay, etc.) and other benefits (retirement gratuity, terminal leave, PhilHealth contribution, etc.).
These are for compensations alone. Capex and operation and maintenance costs are excluded. When soldiers are sent to fight rebels, they are provided with tanks, trucks, helicopters, boats and other hardware so that their chances of beating the rebels are high, while their chances of dying in combat are low.
Look at Table 1 based on the Budget of Expenditures and Sources of Financing (BESF) from various years. Since the government is in perennial deficit and the MUP pension fund is nonproductive spending (no new roads, no new healthcare or education provided, etc.), the money to finance it is borrowed funds plus interest payments. So the computed total taxpayers’ burden (pension plus interest) ranged from P110 billion in 2020 to P129 billion in 2021, P136 billion this year and P150 billion next year.
While spending on roads, bridges and education has social benefits, pensions are for personal benefits, and contributions should be personal, not social.
PHILIPPINES GETTING ‘A’ CREDIT RATINGS
Also last week, R&I rating agency upgraded the country’s ratings from BBB+, Positive (Oct. 7, 2023) to A-, Stable on Aug. 14. It was reported also in BusinessWorld, “R&I upgrades PHL credit rating to ‘A-’” (Aug. 15). So the Philippines has left the B league and is now at par with Thailand, and soon be at par with Malaysia (Table 2).
Finance Secretary Ralph G. Recto celebrated it in their press statement as a “milestone achievement.” He said this was the first credit rating upgrade under President Ferdinand R. Marcos, Jr. and is proof that investors and creditors trust his way of running the economy. “Our refined medium-term fiscal program is our blueprint for our road to A rating,” Recto said. “This ensures that we can reduce our deficit and debt gradually in a realistic manner, while creating more jobs, increasing our people’s incomes, growing the economy further and decreasing poverty in the process.”
Budget Secretary Amenah F. Pangandaman in a separate statement said: “Let’s get all A’s. I am confident we can achieve an “A” rating for all credit rating agencies.” She could be referring to Fitch, Moody’s and S&P.
The economic team is on the right path at macroeconomic stabilization that can lead to more rating upgrades in the coming months. We need to sustain it and do more in fiscal consolidation, control some spending, reduce deficit and borrowings so that the public debt stock, the principal amortization and interest payment can be reduced also.
Significant reforms in the MUP pension will help achieve this. I believe that our MUP personnel have a high degree of patriotism and they will understand that they need to help the country by contributing to their personal pension someday and not further burden taxpayers.
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