Aging Risks: Are Filipinos
sufficiently protected?
REGULATION AND GOVERNANCE OF
PHILIPPINE PENSION FUNDS
Study Objective
To determine if there are sufficient
mechanisms in the regulation and
governance of the Philippine pension
funds to protect the interests of the
principal stakeholders of the funds –
the member contributors
Social Insurance
“programs that seek to mitigate income risks by
pooling resources and spreading risks across time and
classes. These are designed in such a way that
beneficiaries pay a premium over a given period of
time to cover or protect them from loss of income
and unemployment as a result of illness, injury,
disability, retrenchment, harvest failure, maternity, old
age, etc..”
NEDA, 2007
Replacement Rate: GSIS and SSS
Source: Pang-Rey, M. (2016)
Key Differences in Pension Design:
GSIS and SSS
GSIS SSS
Replacement rate Up to 90% of average
monthly salary in last 3
years of retirement
Up to 40% of “monthly
salary credit”- currently
max MSC is P16,000
Contribution rate 21% of monthly salary Up to 14% of monthly
salary
Retirement benefits Based on credited years
of service and average
salary in last 3 years of
employment
Based on credited years
of service and “monthly
salary credit”
PH
Pu
blic
Pe
nsi
on
Fu
nd
sSSS GSIS
Social Security Benefits Per RA 1161
1. Retirement
2. Death
3. Disability
4. Maternity
5. Sickness
6. Funeral
Per RA 8291
1. Separation
2. Retirement
3. Disability
4. Funeral benefit
5. Survivorship
6. Life Insurance
Type of Retirement Benefits
Plan
Defined benefits Defined benefits
Number of Members 33.56 million (registered employee,
self-employed and voluntary members as of
Nov 2015)
1.5 million (active members as of 31
Dec 2015)
Number of Pensioners 1.8 million (as of November 2015) 0.4 million (as of 31 December 2015)
Selected Financial Information (as of or for the year ended 31 December 2015)
Total Assets P444.4 billion P960 billion
Value of Social Insurance Fund P402.6 billion P865 billion
Total Contributions (SIF) P130.8 billion P83 billion
Total Benefits Paid (SIF) P111.5 billion P85 billion
Total Operating Expenses P8.85 billion P5.8 billion
Participation in the SSS
Source: Pang-Rey, M. (2016)
CAGR 3% 6% 7%
Active
Contri-
butors as % of Total
Employees
34%
34%
37%
37%
38%
Size of the PH Pre-Need Industry
Of which:
97% are
“life” plans
3% are
pension
plans
PH
Pu
blic
Pe
nsi
on
Fu
nd
s
Relevant Laws
Enabling Laws
RA 10149 GOCC Governance Act of 2011
to enable the State to “actively exercise its ownership
rights in GOCCs and to promote growth by ensuring
that operations are consistent with national
development policies and programs” (RA 10149, Sec. 2)
Classified SSS and GSIS as GOCCs, in particular,
Government Financial Institutions
Created the Governance Commission for GOCCs
(GCG), which was given authority to act as the agent
of the State in exercising ownership rights in GOCCs
Sp
ec
ific
“O
wn
ers
hip
” r
igh
ts
wh
ich
GC
G c
an
Exe
rcis
e
Investment of Social Insurance Funds
Principal criteria: safety/security, yield, liquidity
Policy re investment of fund in loans to real estate sector
For the SSS "xxx (e) in bonds, securities, promissory notes or other evidence of indebtedness
of agencies of the National Government or financial intermediaries to finance
housing loans of members; and in long‐term direct individual or group housing loans giving priority to the low‐income groups, up to a maximum of ninety percent (90%) of the appraised value of the properties to be mortgaged by the borrowers; xxx Provided, That not more than thirty five percent (35%) of the Investment Reserve Fund at any time shall be invested for housing purposes; xxx” (RA 8282 Sec. 26)
Investment of Insurance Funds
Policy re investment of fund in loans to real estate sector
For the GSIS
“ xxx (c) in direct housing loans to members and group housing projects
secured by first mortgage, giving priority to the low income groups and in short and medium term loans to members such as salary, policy,
educational, emergency stock purchase plan and other similar loans: Provided,
That no less than forty percent (40%) of the investible fund of the GSIS Social
Insurance Fund shall be invested for these purposes;
(d) in bonds, securities, promissory notes or other evidence of indebtedness of
educational or medical institutions to finance the construction, improvement and
maintenance of schools and hospitals; xxx” (RA 8291 Sec. 36)
The National Home Mortgage Finance Corporation (NHMFC) administered
the United Home Lending Program (UHLP) created by the Aquino
administration in 1988. The SSS, together with the GSIS and the Home
Development Mutual Fund, provided funds for home mortgages of its
members through UHLP. Loans released to NHMFC on various dates from
1988 through 1995 amounted to P30.075 billion.
On December 17, 2003, the SS Commission … approved the restructuring of
the P40.5 billion obligation of NHMFC to SSS. One of the conditions of the
restructuring agreement is the sale by NHMFC of its highly delinquent
portfolio. On May 18, 2004, said portfolio was successfully bidded (sic) out
and the SSS net share in the proceeds is P3.464 billion. This amount is
reflected in the accounts as a receivable from NHMFC.
- 2004 Financial Statements of the SSS (Note 11)
Restructuring of National Home Mortgage and Finance Corporation
(NHMFC) account
The GSIS Board of Trustees in its Resolution No. 89 dated March 31,
2011, approved the 100 per cent provision for impairment loss in 2010
for the NHMFC account, both for the outstanding balance of the
principal obligation and interest due to non-payment of the account for
the past seven years. Details are as follows:
Principal 6,214,907,610
Interest 1,669,353,075
Balance per books as at December 31, 2010 7,884,260,685
- GSIS 2011 Financial Statements (Note 6.3)
SSS Financial Statements
NHMFC Financial Statements
On the Proposed P2000 Across-the-
Board Increase
Estimated Returns on Monthly
Contributions
SSS GSIS
Beginning salary - P10,000/mo
If member retires at 65 and dies at 70 1.67% 3.42%
If member retires at 60 and dies at 70 4.04% 5.40%
Beginning salary - P28,000/mo
If member retires at 65 and dies at 70 1.40% 3.06%
If member retires at 60 and dies at 70 3.66% 5.26%
Quality of Financial Reporting
Non-disclosure of actuarial present value of promised benefits
Year of
Actuarial
Valuation
1999 2003 20072011
(Original)
2011
(Updated)
Unfunded
LiabilityNot reported Not reported P748.99 B P1.19 T P1.22 T
Year Fund
Will Last2015 2031 2039 2043 2042
As explained in Note 23, Unfunded Liability is “the difference between the present value of future
benefits and operating expenses vis-à-vis current assets and the present value of future contributions.”
Unfunded liability is not the “present value of promised retirement benefits” required to be disclosed
by PAS 26 para. 17.
Quality of Financial Reporting
Non-recognition of insurance liabilities
According to Note 2, the fund was established
“to provide a package of benefits for public
and private sector employees and their
dependents in the event of work-connected
contingencies such as sickness, injury,
disability or death.” (SSS 2014, p. 57)
Quality of Financial Reporting
Recognition of Members’ Contributions as
Revenue on a Cash, rather than Accrual, basis
Administrative and Operating Costs
Both the SSS and the GSIS are allowed by their
respective charters to incur up to 12 percent of revenues
for their operating expenses
Revenues are defined to include contributions of plan
participants to the pension funds
Administrative and Operating Costs
“Pension systems represent a
commitment between governments
and their populations. Thus, confidence
and trust are imperative for long-term
sustainability.” (Reilly, 2015)
Important Reforms
Significantly increase the participation of SSS and
GSIS members in the governing boards of the
institutions. Isolate the funds from political influence.
Revise the investment guidelines of the social security
funds to consider its principal mandate
Ensure that operating costs of the funds are capped
considering appropriate cost drivers
Improve the quality of financial reporting of the funds
Spearhead an intensive educational campaign on
retirement planning for Filipinos