MANILA, Philippines – The House of Representatives has come up with a single proposal to reform the generous pension system for military and uniformed personnel (MUP).

The MUP Pension System Act is a pet project of the Marcos administration, which has set a goal to pass it before end of 2023.

On September 26, the chamber passed House Bill No. 8969 on final reading, putting the ball in the Senate’s court. 

The proposal is the result of the House’s accommodation of the suggestions raised by Defense Secretary Gilbert Teodoro.

Here are key facts on the said measure.

How many trust funds will be created?

There will be two, namely:

• Armed Forces of the Philippines (AFP) Trust Fund
• Uniformed Personnel Services Trust Fund, intended for the Philippine National Police (PNP), Philippine Coast Guard (PCG), Bureau of Fire Protection (BFP), Bureau of Jail Management and Penology (BJMP), Bureau of Corrections (BuCor), and commissioned officers of the Hydrography Branch of the National Mapping and Resource Information Authority (NAMRIA)

Who will contribute to the fund?

Only new entrants will be required to contribute 9% of their monthly compensation to the fund, with the national government providing 12% as its share.

Bill sponsor Joey Salceda of Albay’s 2nd District said on September 12 that the provision for mandatory contribution of MUP in active service has been dropped.

Who will comprise the MUP Trust Fund Committee, and what will it do?

The MUP Trust Fund Committee will manage the trust funds and direct how their assets are managed. It will have the power to authorize necessary expenses to administer the trust funds.

The following will be the members of the MUP Trust Fund Committee:

• Department of Finance secretary (chairperson) – tasked to come up with policies to ensure the MUP pension system is fiscally sustainable, and that its risks are manageable
• Department of Budget and Management secretary
• Department of National Defense (DND) secretary
• Department of the Interior and Local Government secretary
• Department of Justice
• Department of Transportation
• Executive secretary
• President and general manager of the Government Service Insurance System (GSIS)
• AFP chief of staff
• PNP chief

The Bureau of the Treasury will be the committee secretariat in charge of record-keeping, while the GSIS will serve as the fund manager tasked to come up with an investment management strategy.

Where will the funds come from?

The trust funds will be funded through capitalization and mandatory contributions.

Other funding source options include:

• savings of the national government
• unprogrammed appropriations and proceeds derived from the lease, joint development, auction of development rights, or disposition of government properties
• investment income from the MUP Trust Fund

The AFP Trust Fund may also get funding from:

• residual assets of the AFP retirement separation benefits system
• sale of military reservations as authorized by Congress
• lease or joint development of military reservations, as authorized by the president 
• shares of the AFP from sale of military camps
• income derived from public-private partnerships of which the DND or AFP is a part of 
• non-strategic real estate assets of  the DND or AFP

When the measure takes effect, the MUP Trust Fund Committee Secretariat will receive an initial amount of P50 million from the national government. Subsequent funding will come from the annual budget.

What happens to indexation?

The pension of retired MUPs will be automatically indexed at a rate not beyond 100% of the increase in the base pay of the MUP in active service holding the same rank during the same year.

For the first 10 years of the measure’s implementation, active MUPs’ base pay will have an annual adjustment of 3%.

Beneficiaries of deceased MUP will also get the same automatic indexation perks.

The MUP Trust Fund Committee will be allowed to raise the retirement benefit by up to 1.5% within a given year if the move is supported by an actuarial study.

If there are adverse fiscal or economic conditions, the Philippine president has the power to adjust the pension at a rate lower than the adjustment prescribed, upon recommendation of the MUP Trust Fund Committee, subject to consultation with the Senate president and the House speaker, and upon certification of the Development Budget Coordination Committee.

When can MUPs retire?

The mandatory age of retirement is set to 57 across all MUPs, or upon accumulation of 30 years of active service, whichever comes later.

Key military officers are compulsorily retired as well upon completion of tour of duty or upon relief by the president.

If an MUP wounded-in-action becomes permanently disabled, they shall also be compulsorily retired. 

Optional retirement will also be made available for those who accumulated 20 years of satisfactory active service.

An MUP who retires will automatically be granted a promotion of one rank higher.

What’s the retirement pay?

The retirement and separation pay across all MUPs who entered the active service prior to the passage of the law will be harmonized. 

• MUPs prior to law’s implementation: monthly retirement pay will be 50% of base pay and longevity pay of the grade next higher than the permanent grade last held by the personnel in case of 20 years of active service, increasing by 2.5% for every year of active service rendered beyond 20 years to a maximum of 90% for 36 years of active service and over
• New entrants: monthly retirement pay will be 50% of base pay and longevity pay of the permanent grade last held by the personnel in case of 20 years of active service, increasing by 2.5% for every year of active service rendered beyond 20 years to a maximum of 90% for 36 years of active service and over

What happens to indigent pensioners?

The MUP Trust Fund Committee is directed to formulate guidelines that would allow indigent pensioners to benefit from the trust funds.

Beneficiaries are those:

• not gainfully employed
• do not have a means of livelihood
• are frail, sickly, or with a disability
• have a high risk of subsequently falling back into survival level because they have little to no cushion from potential economic shocks
• whose combined income from all sources do not meet their daily needs

Why is there a push for MUP pension reform?

The national government digs deep into its pockets every year to fully fund the pensions of MUP because active duty personnel do not contribute to the fund.

Military pension spending in 2022 reached P164 billion, already outpacing maintenance and other operating expenses as well as capital outlays.

Attempts to review the pension system date back to the early 2000s, but it’s a delicate subject that sometimes leads to decreased morale among military and uniformed personnel.

President Ferdinand Marcos Jr. has made military pension reform a priority, and is “willing to spend his political capital” to make it happen, according to Finance Secretary Benjamin Diokno. – Rappler.com