Government banks on highly paid cops, troops to clinch war for peace and order in PHL (Part 2)

From the Business Mirror (Aug 23): Government banks on highly paid cops, troops to clinch war for peace and order in PHL (Part 2)



WHEN he said he will do it, expect that it will be done—no ifs or buts.
This led to a groundswell of support for then-Davao City Mayor Rodrigo R. Duterte that catapulted him to the presidency.

Now, as President, the public expects him to make good on his promises.
 During the campaign, he vowed to raise salaries of soldiers and policemen to P50,000 a month within three years of becoming the country’s Chief Executive.
However, turning this promise to reality will not be easy, especially when the matter is about military salaries.

Salaries, pensions

THE root of the difficulty for Mr. Duterte to deliver on his presidential campaign promise lies in one link: salaries for active military personnel and the pension for military retirees are directly tied together.

The relationship between salaries and pension of military personnel is due to the automatic pension-hike provision in Presidential Decree (PD) 1638, otherwise known as the Armed Forces of the Philippines (AFP) Retirement Law of 1979. The automatic pension hike provision means any salary hike for active military personnel will lead to a corresponding increase in the military pension backlog.

Unintended consequences

THE Department of National Defense (DND) and the AFP had their hands full in meeting pension  payments for military retirees after the mandated increase in the base pay of those in the active service was fully implemented in 2012.

The salary increase that emanated from the Salary Standardization Law (SSL) signed by then- President Gloria Macapagal-Arroyo in 2008 was the cause of that unintended pension backlog.

Fortunately, military personnel who retired after the implementation of the salary increase were not affected. Only those who had retired before the pay hike came into being bore the financial brunt of this problem.

This onus was acknowledged  by then National Defense Secretary Gilberto Teodoro Jr. in 2009 when he asked Congress to pass a law abolishing the Retirement Service Benefits System (RSBS) and to set up a system to return the contributions of RSBS members.

Teodoro also suggested that  military personnel could be enrolled as members of the Government Service Insurance System (GSIS).

However, because military service is considered a hazardous occupation, financial and insurance experts warned that having soldiers as GSIS members could bloat the agency’s yearly expenses to the point the agency would no longer be financially viable.

Rep. Leopoldo N. Bataoil of the Second District of Pangasinan has said in February he estimates that by year 2022, the total pension costs of the AFP will eventually surpass the salaries paid to its active personnel.

“If this condition is allowed to persist, the government will eventually fail to provide adequate retirement pensions to the uniformed personnel.”

RSBS rationale

PENSION support to military personnel required a viable financial institution, the reason the RSBS was created in 1973 the first place.

PD 361 gave it the mandate to provide a self-reliant funding scheme and continuous financial support to the AFP retirement system. Unfortunately, RSBS failed.

Memorandum Order 90, which Aquino signed on April 8, 2016, said the Feliciano Commission Report established that the AFP-RSBS was “fundamentally flawed” and had not discharged its mandate.

As early as 2006, it was already proposed that a new agency be formed to replace the RSBS. It was then National Defense Secretary Avelino J. Cruz Jr. who first raised the idea. The other suggestion involved retaining the RSBS and infusing it with new funds to make the agency viable again.

The idea into pumping more funds met resistance.

In 2009 Teodoro said the main stumbling block was that those who were currently in active military service would end up paying for those who will be retiring. The only way to get around this problem is for the government to provide the capital contribution to the pension plan for a number of years. Teodoro said any government would find it difficult to meet such a huge financial outlay.

For the next four years of the Arroyo administration, the matter was consigned to Congressional limbo without any action on the DND’s proposal and the other suggestions to avert the military pension problem.

And then the Aquino administration entered the picture.

Payment shortfalls

THE Aquino administration acknowledged the problem.

“There will come a time when our budget may not be able to support the increasing number of pensioners,” then-National Defense Secretary Voltaire T. Gazmin said in an interview shortly after the Aquino administration took over. “The government shoulders the complete pension payments of military retirees, especially after the AFP’s RSBS entered troubled financial waters.”

The RSBS was created in 1973 with an initial seed money of P200 million ($1.351 million at $1=P6.7563 in 1973 average currency exchange rate).

Under the Arroyo administration, the government resorted to asking for supplemental budgets to meet pension shortfalls. However, this was only possible because military pensions were lumped together with pensions of retirees from other government departments. At the beginning of the Aquino administration, a new set up was made.

The AFP Finance Center became responsible for making sure pensions and benefits were paid on time. Under this set up, the DND could tap into its savings to meet pension payment shortfalls.

Growing shortfall

HOWEVER, tapping into savings to meet pension payment shortfalls was a short-term solution at best because, in the long run, the shortfall would grow and the government would end up paying more. It was going to be a cycle difficult to break. As much as possible, pension payments and retirement benefits that were coming due would have to be directly incorporated in the General Appropriations Act. This can be seen clearly when the Aquino administration upped the DND budget by 81 percent, from P57.8 billion in 2010, to P104.7 billion in 2011.

Mr. Aquino explained that much of the increase in the DND budget was meant to meet the required pension payments.

Unfortunately, there was still the matter of the SSL, which kicked in in 2012.
So the matter of creating a new agency exclusively for dealing with the matter of military pensions was resurrected. But there was resistance to this idea. The shadow of the failure of RSBS was felt.

According to government reports, there were three main reasons RSBS failed: first, it had an inadequate starting capital; second, it was not run in the manner of GSIS or the Social Security System; third, the RSBS relied solely from contributions from soldiers, which were taken from their salaries. Neither the DND nor the AFP could contribute to the old RSBS pension plan. It was an insidious cycle that fed on itself with the RSBS bleeding financially to meet pension payments until it could no longer cope. The matter was compounded when the institution’s executives tied up the assets of the RSBS in what was later termed as “questionable deals.”

Writer’s note: Parts of this article originally appeared in several issues of the Philippines Graphic magazine from 2010 to 2014.

To be concluded

http://www.businessmirror.com.ph/2016/08/22/government-banks-on-highly-paid-cops-troops-to-clinch-war-for-peace-and-order-in-phl/