Philippines’ SSS calls for less state interference
The head of the Philippines’s Social Security System (SSS) has urged the government to stop politicising social security institutions, which are struggling with funding issues, and threatening future retirees with economic hardship.
“Among the biggest challenges facing the Philippines pension industry are funding, viability and sufficiency,” Emmanuel Dooc, SSS president and chief executive of the P491 billion ($9.1 billion) told AsianInvestor last month.
“The government can help if it stops politicising social security institutions,” he added.
One example of such “politicisation” was the January 2017 decision by President Rodrigo Duterte to increase pension payouts by P2,000 for SSS policy holders − without requiring an increase in member contribution rates. It was one of the promises Duterte made on the campaign trail.
The first P1,000 was approved in 2017 and a second tranche of P1,000 is expected by 2019.
Dooc said the first P1,000 increase has helped to reduce the SSS fund's life to 2032 from 2042 as it had to disburse an additional P33.5 billion to pensioners.
He warned that if the second hike went ahead as planned, SSS’s projected life would be slashed further to 2026 unless a more appropriate funding mechanism was settled upon.
Dooc is not alone in warning of the negative consequences. Pushing through with this plan is just bad economics, noted an opinion piece in May in Rappler, a Philippines-based news website.
“The first tranche in January 2017 had the immediate effect of reducing the profits of the SSS by 37% in 2017,” JC Punongbayan, teaching fellow at the University of Philippines’s School of Economics, said in the article.
Not only does it endanger the future retirement of SSS members, it also adds to the economic hardship and uncertainty that they feel today, he warned.
SEPARATION OF POWERS
Dooc believes the social security industry could benefit as a whole if their key activities (lifting pension payouts or member contribution rates) were not dictated completely by the government. Currently, an increase in contribution rates requires an executive order from the president or an amendment to the Social Security Act of 1997, which is a proposal currently pending in the Senate.
“Regulations instituting detachment from elected offices (executive/legislative) may help improve prospects for investing for pension/social security funds in the Philippines,” Dooc said.
SSS has been trying to increase contributions to cope with the increased payouts – in 2017, it raked in P159 billion in contributions as its members grew and is targeting an 18%-20% increase over that figure this year.
The increase in payouts, combined with current restrictions on its investments, has taken a toll on SSS's profitability.
In the first six months of this year, the social security fund reportedly recorded a 55% drop in net income to P2.8 billion as the rise in costs driven by the pension hike outpaced the incremental increase in revenue.
Still, as Dooc emphasised, the SSS is a "social institution" with "investment" activities: “We look into the social impact of our investments, job generation and quality of life improvements.”
As such, SSS invested significantly in schools and hospitals in the 1980s, when even banks shied away from lending, he told AsianInvestor.
SSS is a firm advocate of environmental, social and governance (ESG) principles. “SSS uses ESG principles when making investments, particularly in compliance to labour and social security laws,” Dooc said, noting that the fund does not invest in gaming and tobacco stocks.
“We are also aware that ESG practices continue to evolve and we are maintaining openness to further embrace best practices,” he added.