Wednesday, June 15, 2005

RSBS Blues

Up for Early Retirement
By Roel Landingin
Newsbreak Contributing Writer
NOT yet 30 years old, the AFP Retirement and Separation Benefit System (RSBS), the pension fund for the military that was set up in 1976, may be due for retirement itself, and an early one at that.

Top defense and military officials say they want a totally new agency, preferably independent of the military establishment, to replace the RSBS. They are giving up hope the pension fund can ever be self-sufficient in providing funds for the former soldiers' pension benefits.

Defense Secretary Avelino Cruz told NEWSBREAK his department is working on a draft of a bill that will overhaul the military pension system and create a new pension fund that will be managed by civilians. The new fund will be supervised by the Department of Finance, much like the Government Service and Insurance System (GSIS) and the Social Security System (SSS), he said.

AFP chief of staff Gen. Efren Abu, whose military career included a stint at the pension fund, said there is little or no hope the RSBS can ever achieve self-sufficiency because of fundamental weaknesses in the military pension system. "We need to create a totally new pension system," he told NEWSBREAK.

Almost three decades after the late dictator Ferdinand Marcos created the RSBS, the military pension still comes from budgetary appropriations of the national government. In contrast, retirement benefits for civilian government employees do not come from the cash-strapped government but from the GSIS. Despite the many controversies hounding its president, Winston Garcia, the GSIS remains financially healthy and should be able to meet pension benefits of its members for years to come.

Total dependence on the national government for military pensions is now proving a shaky—even dangerous—proposition. On average, former soldiers are getting only about 60 percent of the benefits due them because government lacks the money to fund recent increases in pensions.

A series of pay increases since 2000 saw the average basic salary of enlisted men and officers rise by 73 percent. Because of the "equalization" feature of the Philippine military retirement system, whenever the pay of those in active duty is increased, pensions of retirees must go up at the same rate. However, the government had been unable to implement this provision of the law because of fiscal problems. While those in active service are already receiving additional pay, their retired or separated counterparts have yet to enjoy the benefit adjustments.

As of end-2004, the unpaid portion of the former soldiers' pensions stood at P17 billion, and is growing at the rate of P5 billion a year. For the almost 100,000 military retirees and their survivors, the fiscal crisis is not a danger that lies far off in the future but an injustice they've been living with for the past five years.

The problem has also ceased being merely a financial issue but has moved into the political and security realm. Retired generals, fed up with government inaction, have resorted to political action to press more forcefully for payment.

Government officials see the former generals' actions as nothing but another destabilization try against Ms. Arroyo. In fact, they are desperate acts that reflect the crisis in the current system for funding military retirement and benefits.

The RSBS and the military leadership themselves realize that the military pension system needs a lot of changing. In 2002, RSBS began consultations with stakeholders on how best to reform the pension fund while the AFP formed a special working group to draft proposed legislation on military pension reforms. The proposals are now being firmed up at the Department of National Defense and will be submitted to Congress later this year.

The reform initiatives were triggered by congressional investigations into allegations of corruption and gross negligence in the management of RSBS investments that resulted in losses averaging P444 million between 1998 and 2000, the first time the pension fund ever incurred losses. The inquiries led to the filing of charges against former RSBS officials and the appointment of civilian finance professionals in the top posts of the pension fund.

Another impetus for the reforms was the recommendation of the Feliciano Commission, which investigated the July 2003 Oakwood mutiny, for the abolition of the RSBS and the establishment of an entirely new military pension structure.

It may seem odd that top defense and military officials are talking of abolishing the RSBS at a time when the pension fund is clearly on the path to recovery from the financial disasters of the 1998 to 2000 period. Last year, it posted a net profit of P223 million, almost double its P119 million net income the previous year.

But it is clear that even if it were well managed, the RSBS could never achieve financial self-sufficiency. RSBS officials say the pension fund is hobbled by a fundamental imbalance between generous benefits and meager contributions.

Only 5 percent of soldiers' pay is contributed to the RSBS compared to 21 percent for GSIS members and 9.3 percent for SSS members. Government agencies and private employers add about half of the monthly premiums paid on behalf of GSIS and SSS members. The AFP does not add anything to soldiers' premium contributions to the RSBS.

Yet, former soldiers' pension and other retirement benefits are far more generous than those of their civilian counterparts. Their monthly pension is equivalent to about 85 percent of the pay of those in active duty while civilian retirees get only 40 percent at most.

Moreover, the retired Filipino soldier's pension automatically goes up when active servicemen are given a pay increase. In addition to monthly pensions, they get back, in lump sum, all of their contributions to RSBS plus a 6-percent cumulative interest shortly after retirement or separation.

The new military pension system will have to bring benefits in line with contributions to make the future pension fund financially viable. One of the proposals is to remove the so-called "equalization" feature, which requires pensions to be increased automatically at the same rate as the pay of those in active duty. Instead, pensions will just be indexed to inflation.

Retirement benefits for the Philippine military have been called one of the most generous in the world, but that is little comfort for ex-soldiers who have not been receiving their full pensions. Future military retirees may have to settle for a modest package that gives them real cash instead of empty promises.