Government needs P120 B in 10 years to sustain new AFP retirement system

MANILA, Philippines - The government needs P120 billion for 10 years to support a new and reformed military retirement system and to address its pension arrears, an official of the armed forces’ Retirement and Separation Benefits System (RSBS) said.

RSBS president Emilio Marayag said allotting the amount as seed money would allow the new retirement body to invest in profitable ventures and be self-sufficient.

“In order to be self-sufficient, you have to post earnings. This (P120 billion) will allow the retirement body to generate income,” he told The STAR in a phone interview over the weekend.

Marayag said allotting P120 billion for the new body is included in their draft bill that seeks to reform the existing military retirement system.

He noted that RSBS had been underfunded from the start as it was given a seed money of just P220 million.

“This time, we are proposing seed money worth P120 billion payable in 10 years,” Marayag said.

Marayag said under their proposal, the new retirement body would receive an initial funding of P30 billion in its first year of operations. The body will then receive P10 billion every year for the next nine years until the P120 billion is completed.

The draft bill calls for the deactivation of RSBS in three years to be replaced by a state-run firm called Philippine Military Pension System.

The RSBS was formed in 1973 by the late president Ferdinand Marcos to serve as a funding scheme for the payment of retirement and separation benefits to military personnel.

The payments are funded by deductions from soldiers’ salaries. The pension fund collected 5 percent of a soldier’s basic monthly pay and ensured a 6 percent return upon retirement plus pension benefits.

In 2006, the RSBS announced that it was losing money as its funds were invested on low-return real estate projects and loans. RSBS, which was intended to be self-sufficient, currently subsists solely on the contributions of its members.

The national government shoulders the benefits given to retired military personnel. However, the amount of pension arrears is growing due to the increasing number of retirees.

Officials also blamed a provision of a retirement law or Presidential Decree 1638 that raises the benefits of retirees whenever the salaries of active soldiers are upgraded.

Marayag said the draft bill scraps this provision and allows the board of trustees of the new retirement body to determine pension upgrades.

“The pension will be adjusted every five years by the board of trustees,” he said in a separate interview aired over radio dwDD.

Marayag said this reform would allow the government to save roughly P1 billion a year since it would hold off annual pension increases.

“The average increase of pensions in the last 30 years is 11 percent for officers and 16 percent for enlisted personnel,” he said, adding that such adjustments meant more obligations for the government.

Marayag is also proposing that soldiers be required to put in 25 years in the service before they can retire instead of the current 20 years. The provision would only apply to incoming soldiers and not to those already in service.

“Once a soldier retires after 20 years of service, given the longetivity of people, he will receive pension for a long time,” Marayag said.

He said they will present their draft bill to the military leadership and the defense department before they discuss it with lawmakers.

Latest data from the Armed Forces Pension and Gratuity Management Center showed that the government has allotted some P24 billion for pension requirements this year. The government owes around P16 billion to about 112,000 military pensioners.