the value and continuing relevance of the social security system talk of pceo manny...

The Value and Continuing Relevance of the Social Security System

Presented by:

Emmanuel F. DoocPresident and Chief Executive Officer

Social Security System

Trust Officers Association of the Philippines (TOAP) 2017 Summit17 October 2017 * New World Hotel, Makati City

Outline

Introduction

Social Security as Social Insurance

The SSS in 60 Years

The Value of SSS Membership

The SSS Reform Agenda

Conclusion

01 Social Security as Social Insurance

What is Social Security?

Insure individuals against the risks of interruption or loss of earning power

Sickness, unemployment, disability, death, and for expenditures arising from childbirth or death

Allowances to families for the support of children

Income-maintenance programs: cash benefits aimed to replace lost income

Benefits-in-kind: measures that finance or provide direct services

The Social Security System

Provides protection for private sector workers and their dependents

Administers two (2) kinds of programs:

1. Social Security - SS Fund, PESO Fund, and Flexi-Fund

2. Employees Compensation (EC)

Re-distributes income through cross-subsidies

Serves as a catalyst for national growth and economic development through loan programs and investments

Does not yet provide Unemployment Insurance and Family Allowances (but legislations are pending)

02 The SSS in 60 Years

Progress of Operations

Progress of Operations

As of August 2017 and covers regular SSS employees only

02 The Value of SSS Membership

SSS Retirement Pension

Ideally, through continuous and adequate contributions, members would be financially secure in their old age

When SSS started, contribution rate was adequate to provide economically-relevant pension benefits

As the economy grew, along with wage levels and living costs, SSS benefits were also increased over time

However, members’ contribution rate and monthly salary credits did not keep pace with these increases

Pensions are now hardly enough to meet sustenance needs

SSS Retirement Pension

Employees, even after 30 to 40 years of service, get a retirement pension that is nowhere near their last salary levels

Private sector employees receive retirement pensions that are less than half of their counterparts in government service

High-income workers receive almost the same amount of retirement pension as lower-income workers

SSS Retirement Pension: Two Comparative Cases

Case 1: PETER MENDOZA

A company manager earning about P150,000 a month

Started working in 1978; set to retire after 40 years of service in 2018, at the age of 60 (with no minor dependents)

SSS contributions at the maximum monthly salary credit level (MSC); last monthly contribution paid is P1,760

Pension payout period of 23 years

Dies at age 83; survived by wife

Basic Monthly Pension (BMP) P 12,940

Additional Pension Allowance (APA) 1,000

Total Monthly Pension 13,940

13th Month Pension (every December) 13,940


Family receives Funeral Grant of P40,000

Wife receives Death Pension of P13,940 (BMP + APA) every month and 13th month pension annually, until she remarries or dies

Wife dies after 11 years

Total Contributions Paid to SSS (A) P 416,088.00

Benefits Received

Retirement Pension for 23 years (for Mr. Mendoza) 3,571,440.00

Death Pension for 11 years (for Mrs. Mendoza) 1,708,080.00

APA to Retirement Pension for 23 years 276,000.00

APA to Death Pension for 11 years 132,000.00

13th Month Pension for 34 years (for both Mr. & Mrs. Mendoza) 473,960.00

Funeral Grant (for Mrs. Mendoza/Family) 40,000.00

Total Benefits Paid out by SSS (B) P 6,201,480.00

Ratio of Total Benefits to Total Contributions (B/A) 14.90

Internal Rate of Return 9.95%

SSS Retirement Pension: Two Comparative Cases

Case 2: ALFREDO SANTOS

A janitor earning P10,000 a month in last five years of service

Started working in 1978; set to retire after 40 years of service in 2018, at the age of 60 (with no minor dependents)

Last monthly contribution paid is P1,100

Pension payout period of 23 years

Dies at age 83; survived by wife

Basic Monthly Pension (BMP) P 8,300

Additional Pension Allowance (APA) 1,000

Total Monthly Pension 9,300

13th Month Pension (every December) 9,300


Family receives Funeral Grant of P40,000

Wife receives Death Pension of P9,300 (BMP + APA) every month and 13th month pension annually, until she remarries or dies

Wife dies after 11 years

Total Contributions Paid to SSS (A) P 251,160.00

Benefits Received

Retirement Pension for 23 years (for Mr. Santos) 2,290,800.00

Death Pension for 11 years (for Mrs. Santos) 1,095,600.00

APA to Retirement Pension for 23 years 276,000.00

APA to Death Pension for 11 years 132,000.00

13th Month Pension for 34 years (for both Mr. & Mrs. Santos) 316,200.00

Funeral Grant (for Mrs. Santos/Family) 40,000.00

Total Benefits Paid out by SSS (B) P 4,150,600.00

Ratio of Total Benefits to Total Contributions (B/A) 16.53

Internal Rate of Return 9.82%

Factors Affecting Basic Monthly Pension (BMP)

Average Monthly Salary Credit (AMSC)

Credited Years of Service (CYS)

Number of Minor Dependents

• Minimum BMP for a member with at least 120

monthly contributions or 10 CYS = P1,200

• P1,200 is the pension amount set by 20-year-old SS

Law (Republic Act 8282 of 1997)

• SSS pension to provide “partial income

replacement” at a replacement rate of about 40%


• It’s not just amount of contributions

Monthly Salary Credit is the compensation base that determines the amount of contributions to be paid, as well as the benefits that may be derived in the future

Contributions are based NOT on a member’s entire monthly salary, but only up to a set MSC ceiling of P16,000 (since 2014)

A social security scheme becomes more relevant if a greater portion of the members’ incomes are covered by the contribution

Maximum MSC is set at P16,000 and contribution rate at 11%; translates to a maximum monthly contribution of only P1,760 – even if the member’s salary goes way above P16,000


• Credited Years of Service (CYS) also has impact

Additional contributory years or CYS may make a significant

difference on improving BMP – but depending on the MSC

upon which the additional contributions are based

SSS vis-à-vis GSIS

Peter MendozaSSS Member

Carlos TrinidadGSIS Member

Monthly Salary P 150,000 P 150,000

Contribution Rate 11% 21%

Maximum Monthly Salary Credit Up to P 16,000 None/Actual Salary

Monthly Contributions P 1,760 P 31,500

Monthly Retirement Pension P 12,940*+ P 1,000 APA

P 13,940

*Based on last five years at maximum

monthly salary credit

P 135,000**

**Based on 90% of monthly salary in last three years, if with at

least 36 years ofservice


• Impact of additional CYS

Age at Retirement 60 65


Total Contributions Paid P 416,088 P 521,688

Credited Years of Service 40 45

Average MSC P 15,800 P 16,000

Basic Monthly Pension P 12,940 P 14,700


Total Contributions Paid P 251,160 P 317,160

Credited Years of Service 40 45

Average MSC P 10,000 P 10,000

Basic Monthly Pension P 8,300 P 9,300

03 The SSS Reform Agenda

What is an “Unfunded Liability” (UL)?

UL is the gap between the contributions collected and the benefits and expenses paid out by the System

A contribution rate increase will reduce the UL

What is the Actuarial Life of the Social Security Fund?

Based on the 2011 Actuarial Study, the life of the SSF was up to year 2039, without any increase in contribution rate

In 2014, SSS implemented a contribution rate increase and other reforms that lengthened actuarial life by three years

Based on the 2015 Actuarial Valuation, fund life was at 2042

Ideal fund life is 70 years

The P1,000 APA reduced the fund life from 2042 to 2032

Considerations in the SSS Reform Agenda

Actuarial and Financial Viability

Strengthened Link between Contributions and Benefits

Provision of Minimum Level of Protection

Feasibility of Implementation

Proposed Implementation of the SSS Reform Agenda

Reform ActionsFund Life(FL)

No. of Years in FL as of Impl. Year*

Unfunded Liability**

(in Trillion Pesos)

Change in UL (Stepwise)

Amount %

BASELINE 2042 3.5

2017 : P1,000 Additional Pension Allowance (across-the-board)

2032 15 5.0 1.5 42%

2018 : 1.5% Contribution Rate Increase

2037 19 4.7 (0.3) (-5%)

: P20K Maximum MSC 2040 22 5.1 0.4 9%

** Implementation Year refers to the year the reforms are started*** Unfunded Liability computed as of January 1 of implementation year (except for Baseline, which is 2016)

Sample Pension Computation if the Increase in Maximum MSC is implemented

Actual Monthly Salary at Retirement: P 30,000

Credited Years of Service (CYS): 30

Effectivity Current 2018

MSC Ceiling 16,000 20,000

AMSC* 16,000 20,000

Basic Monthly Pension P 9,900 P 13,300 % of Pension vs. Last Salary 33% 41%

+

Additional Pension Allowance (eff. 2017) 1,000 1,000

Total Pension P 10,900 P 14,300 % of Pension vs. Last Salary 36% 44%

*AMSC if the member contributed at least 60 months at same MSC before retiring.

Factors Affecting Basic Monthly Pension (BMP)• Impact of changing maximum MSC from P16K to P20K

starting 2018Age at Retirement 65 y/o

Case 1: PETER MENDOZA Earning P150K/mo. in last 5 years Files for retirement at age 65 in

2023 BMP if he retires at 65 but using the

current maximum MSC of P16K:

P14,700

Total Contributions Paid P 548,088

Credited Years of Service 45

Average MSC P 20,000

Basic Monthly Pension P 18,300

Increase in BMP due to maximum MSC increase P 3,600

Case 2: ALFREDO SANTOS Earning P10K/mo. in last 5 years Files for retirement at age 65 in

2023

Total Contributions Paid P 317,160

Credited Years of Service 45

Average MSC P 10,000

Basic Monthly Pension P 9,300

Increase in BMP None

Other Strategies in the SSS Reform Agenda

Improve contribution collection and employer compliance

Mandatory coverage of overseas Filipino workers

Explore high-yield investment opportunities

Outsourcing of investment management through placements in domestic mutual funds and hiring of external local fund managers

Forming joint venture partnerships to develop SSS real estate assets

Amendment of the SSS Charter

“When historians write a retrospective of the 20th Century, Social Security – which is observing its 50th Anniversary – will undoubtedly be identified as the most significant piece of domestic legislation enacted during that 100-year period. Born in adversity and tempered by crisis, Social Security –amended on numerous occasions over the years – has done more to lift and keep Americans out of poverty than any other government initiative.”

Margaret Heckler, US Secretary of Health and Human Serviceson the occasion of the 50th Anniversary of the Social Security Administration

“To every Filipino out there on Social Security, to every Filipino supporting that system today, and to everyone counting on it when they retire, we made a promise to you, and we are going to keep it.”

Emmanuel F. Dooc, SSS President and CEOparaphrasing part of the 1990 State of the Union Address of

US President George H. W. Bush

End of presentation. Thank you.

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