By abandoning SSS, are we shooting ourselves in the foot?

Nature bathing time with FH

I must preface this post by saying that I used to be a Social Security Sytem (SSS) non-believer. I don’t even account for it in my net worth updates. In my Money Manager app, I log my SSS contribution payments as an expense (I still do, for consistency and convenience). It may be more appropriate as an asset–for retirement. But when I started monitoring my income and expenses in 2015, there was no way for me to conveniently check my SSS contribution payments so I just logged them as expenses.

SSS was such a pain to deal with

I recall opening my SSS account when I was about to start my first real corporate job more than 10 years ago. One of the first pre-employment requirements was an SSS number. I was given a login name and password to conveniently open my SSS account online. So I get home and log in, and voila, the SSS website would not even load!**

Ten years and a pandemic later, SSS finally entered the digital age and started an app! It conveniently shows your real-time contributions and status of any applications for sickness, maternity, or other loan benefit. You can now even estimate your monthly retirement pension using the now-improved SSS website. The app also generates your payment reference number (PRN) which you can use to remit your SSS contributions online or with some other payment center. You just need your login and password.

I’ve had my SSS login and password written down and filed for over 10 years. I excitedly logged in, and the password wouldn’t work. Thankfully, SSS is now very prompt in responding to emails so I quickly received a new password and changed it.

Paying SSS by GCash

Full disclosure, frugal mom used to remit our SSS contributions for us by physically paying it at the SSS office.* When I joined government service, I was all about ready to give up on my SSS, deeming it fully useless and too tedious to pay for. I mean, really, how has it been useful, with the long queues, mysterious benefits, and unaccommodating personnel? I had no idea I can claim a sickness benefit if I get sick, but one could, if you wanted the trouble of physically filing documents and queueing at a government office.# Frugal mom, however, always encouraged my siblings and me, and even frugal husband to continue our SSS contributions.

The lockdowns ended this convenient arrangement and we had to become full adults by remitting for SSS contributions ourselves. An SSS office is pretty close to our home, as with everything, if you live in a city, but a quick drive-by at SSS will turn you off once you see the long queue of people as early as 7:00 a.m.! During a pandemic. Why???

My bank wouldn’t accept online (or over-the-counter) SSS payments either. Thankfully, payment centers (no fees) do. But with the move toward going digital, we learned to now pay through GCash, which doesn’t charge convenience fees. You just need your PRN, and contributions are reflected real-time on the SSS app.

We ask so little of the government already, you wouldn’t want the government to think you no longer need an SSS pension when you turn 60

An SSS pension is one of the few social safety nets that we enjoy in the Philippines. We have a four-tiered system of social protection but let’s talk only about the stuff that are fairly accessible to most of us at retirement: (1) SSS (pension for private workers, voluntary contributors, etc.), Government Service Insurance System (GSIS) (pension for government workers), (2) mandatory deposits/contributions maintained at PAGIBIG*** (or simply, the MP1, that PAGIBIG deduction on your paycheck), and lastly, (3) private pensions maintained by your corporate employer.

The SSS and GSIS also provide for other benefits other than a pension. The GSIS allows for disability benefits, separation benefits (for members separated from government service before retirement age but rendered at least 3 years of service), life insurance, lending program, and GSIS mutual fund program. The SSS, on the other hand, provides for death, funeral and survivorship benefits, disability benefits, sickness and maternity benefits, lending programs (salary, housing and business loans). The SSS also provides for employees compensation benefits which may be enjoyed simultaneously with benefits under the SSS. This post is limited to the retirement pension benefit.

Lately, the government has exhibited signs that it is moving towards privatizing our pensions, with the PERA law**** and recently, there is a move to interfere with private corporate pensions.

SSS has always been hounded by talks of not being viable for years, but why not for GSIS? Not everyone has the privilege or even the slightest interest in joining the public sector so most of us should make do and fix what is available to most of us, the SSS. Corporate private pensions are vulnerable to the company’s bankruptcy. The PAGIBIG MP1 or MP2 is only designed to supplement your pension.

The PERA law, or any attempt to shift the onus of saving unto us, is not a good substitute for SSS. First, it assumes that everyone has had the privilege of acquiring financial literacy at an early age. I wasn’t even aware of SSS at 20 years old, let alone aware of the importance of retirement savings at that age. And I studied Economics! How much more for the marginalized Pinoy, who only had access to High School or Elementary School? We need to retain a compulsory SSS.

I’m a diligent saver but I am tempted to abandon my PERA from time to time as retirement seems so remote, far into the future. How much more for the average person that doesn’t make saving a priority? They might give up on saving for retirement completely. Who’s going to support these people in their old age? Shifting the onus of saving on us, also shifts the burden of financing our retirement on us. Are we even ready? Without a government safety net, we are always vulnerable to job loss, illness or disability, or an economic depression or recession as we are experiencing now.

The current trend of Pinoys DIY-ing their personal finance (as I do in this blog) by investing in our primitive stock market, in bonds, and other investments is a welcome development but these investments are always vulnerable to risk. The stock market, after all, makes no guarantee of returns and always subject to sequence of returns risk (i.e. at the time you retire and cash out your investment, the market could be at a huge low, completely wiping out all your gains from previous years.). There’s just no escape from sequence risk. We need a reliable backup or safety net.

Second, we need a mandatory scheme for retirement pension to ensure that the marginalized sector of society is forced (or at the very least made aware of the need) to save for retirement and we need it to be run by the government. If the government hires professional money managers to run our pension fund, we should be assured of cheaper management fees as institutional bodies deal with each other on equal bargaining footing. Contrasted from a PERA account where we, individuals, are forced to deal with financial institutions from a disadvantage. We have zero bargaining power as to fees while the financial institutions are free to make money off of us.

Case in point: My PERA administrator is BPI which sells me its own products, any of the PERA UITFs run by of course, BPI. I’m a captive market, under the guise of a retirement pension. BPI charges me double in fees. There is the administrator fee for my “privilege” of opening an account with them, and then the murkier and undisclosed management fees (i.e. BPI PERA Equity charges Trustee fee 1.5%, Custodianship Fees 0.0023% (this is per month, too), External Auditor Fees 1.59%) charged by the particular BPI PERA UITF that one may buy. The PERA law has no provision regulating these fees.

Also, why do we need an outside and private entity as PERA administrator? So private financial institutions can make money in management fees? Why is Landbank a mere cash custodian that only comes into play when we withdraw our investments upon retiring at 50 (through PERA)? I’m pretty sure Landbank has some talented money managers in its ranks. Landbank can currently act as your broker in buying corporate or government bonds. With its merger with UCPB, it should have more resources to run a PERA mutual fund or something akin to one, shouldn’t it? Note that even the GSIS runs a mutual fund, professionally managed by Philam Asset Management Inc.

Lastly, the PERA merely requires a measly minimum contribution of PhP1,000.00 or about 10% of the minimum monthly wage (I’m assuming it at PhP10,000.00/mo). I have no idea on corporate pensions (if you have one, what’s the minimum monthly contribution like?) but I don’t think a fixed amount is fully reflective of a person’s capacity or retirement needs. The minimum should be pegged to your monthly salary. If you want your general population to have a forced saving rate of 10%, set the minimum contribution at 10% i.e. 10% of monthly pay. A fixed amount of PhP1,000.00 wouldn’t be future-proof with salary increases in the future.

The point is, the PERA and private corporate pensions are poor substitutes for an SSS pension. This is why we cannot abandon our SSS contributions.

The government isn’t unaware of the problem with SSS. As early as 2010, this government paper has advised that any sitting administration should refrain from treating the SSS as its personal form of piggy bank that it breaks into every time it needs to buy or fund something. Or when politicians want an increase in payout of benefits despite the dismal state of the SSS, like this and this.

The paper noted that appointments to the governing board are allegedly not based on merit or technical expertise but based on political favor (sidebar: The current SSS head actually has a background in banking and finance). The paper is also quite detailed on demystifying certain things like: when exactly you can apply for optional retirement with the GSIS.*****

Notice that the GSIS isn’t treated in the same way (as in, like a cash cow). I am paraphrasing and you should read the paper yourself as my personal opinions may taint my impression of it. The paper essentially says that the GSIS is very liquid while the SSS is not and makes suggestions to rectify the problem. It questions why the SSS has refused to employ a professional money manager unlike the GSIS and why the SSS treats our SSS monthly contributions as income on its financial statements (I checked and indeed, the SSS financial statement I saw treated members contributions as “revenues,” on a profit and loss statement, just.. Lol), making it appear more efficient than it actually is.

The latest SSS scorecard (based on 2015 actuarial valuation) projects that the life of the SSS fund will last until 2032 but targets to improve the fund life to 2042 and beyond. Please note that your premiums will never go to waste as the solvency of the SSS is guaranteed by the Government of the Republic of the Philippines.

The paper ends on a positive note and makes the GSIS a model fund from which the SSS can copy from–keep contributions comfortably higher than benefits (which the SSS can now do on its own with the passage of Republic Act No. 11199), intensify collection of premium arrears, and improve investment income.

If we abandon our SSS contributions or stop contributing to it altogether, we will be giving the government full license to abolish the SSS, shift to private pensions, which will leave us, individual retirees, at the mercy of private financial institutions and their high, unregulated management fees.

Do you maintain or monitor your SSS contributions?
George

*Past experience showed her that paying at banks, while more convenient, wasn’t very effective as there had been times when banks did not / delayed remitting the contributions to SSS.

**I was also told that my SSS ID would be sent by mail to my home. Over 10 years later, I’m still waiting, SSS.

***Don’t fret about your MP1 PAGIBIG deductions. They’re forced savings and are invested by PAGIBIG in home loans. If you log on to your virtual PAGIBIG, you’ll see that these earn a nice dividend. In 2020, it earned 5.62% in dividends. Not bad, right? I’ve found that these measly PhP100/mo contributions have earned better than my bank deposit. I think I’m going to increase my MP1 contributions as soon as things normalize soon!

Also, you can always take out / withdraw your MP1 contributions upon maturity at 20 years, retirement at 60 years old, separation from work due to health reasons, permanent departure from the country, disability, death, critical illness or that illness of your family.

#Sickness benefit = a daily cash allowance from SSS for every day that you missed work. Not too shabby, indeed.

****Having tried out PERA for a while now, I have found that it isn’t perfect. But I will continue to contribute to it as I intend only for it to be a supplement to my retirement nest egg.

*****Will fully quote Mr. Aniceto Orbeta here, for my convenience as I might want to check back here someday:

“x x x a government employee may apply for any of the  following four retirement modes as soon as he/ she meets the corresponding eligibility criteria, which include length of service, age and date of entry into the service:

1) RA 1616 (Gratuity/ Optional Retirement) – The retirement benefits include a refund of the retiree’s personal contributions with 3% interest and the corresponding government share without interest and a gratuity benefit equivalent to one month’s salary for every year of service, based on the highest rate received, but not to exceed 24 months. To be eligible, a member must have at least 20 years of service regardless of age, must be in service on or before May 31, 1977 and must have no previous record of retirement under RA 1616 or RA 660.

2) RA 660 (Annuity/ Pension Retirement) – Under this mode, the GSIS grants a maximum monthly pension equivalent to 75% of the average monthly salary (AMS)received during the last 3 years immediately preceding retirement for retirees aged 57 and below and 80% of the AMS for those above 57 years old. The benefits can be taken in the form of a) an automatic pension or b) a three-year or five-year lump sum (60 months x basic monthly pension (BMP4)). For a member to be eligible, he/she must pass the “Magic 87” criteria, i.e., when the length of service and age of retirement are summed up, the total is at least “87”; he/ she must have been in the service on or before May 31, 1977; and he/ she must have a continuous last three years of service, except in cases of death, disability, abolition and phase-out of position due to reorganization.

4 The basic monthly compensation (BMP) is computed as follows: 37.5% of the revalued average monthly compensation (AMC) in the last three years plus 2.5% of the AMC in the last three years for each year of service in excess of 15 years. The BMP shall not exceed 90% of the AMC nor shall it be less than PhP1,300 for those who have served at least 15 years or PhP2,400 for those who have rendered 20 years of service after RA 8291 (Sec. 9) took effect.

3) RA 8291 – A retiree may choose from any of two retirement benefit options: (1) a 5-year lump sum (60 x basic monthly pension (BMP)) payable at the time of retirement plus an old age pension benefit payable monthly for life after the 5-year guaranteed period or (2) a cash payment (18 x BMP) plus a monthly pension for life payable immediately, without the 5-year guarantee. The BMP is subject to periodic adjustment as may be recommended by the GSIS’s actuary and approved by the Board. The BMP has been increased by 10% every year. To be eligible, the retiree must have been in government service on or after June 1, 1977, have rendered at

least 15 years of service, be at least 60 years of age, and not be receiving a monthly pension benefit due to permanent total disability (PTD) (RA 8291, Sec. 13).

4) PD 1146 – The retirement benefit options include a BMP for life guaranteed for 5 years or a 5-year lump sum (60 x BMP) and BMP after 5 years or a cash payment equivalent to 100% of the average monthly compensation for every year of service payable upon reaching age 60 or upon separation after age 60. If a pensioner is reemployed, payment of the pension shall be suspended and the retiree shall refund the GSIS an amount corresponding to the unexpired period.”

Source: Social Protection in the Philippines: Current State and Challenges, Aniceto C. Orbeta, Jr. (March 2010)


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