MANILA, Philippines – Even if the Philippines still enjoys a relatively young population, the Asian Development Bank (ADB) said the government could better prepare for the future of aging Filipinos by merging the state-run pension funds Social Security System (SSS) and the Government Service Insurance System (GSIS).
In a study titled Pension Systems in East and Southeast Asia: Promoting Fairness and Sustainability released on Tuesday, September 25, the ADB said merging the two government-owned-and-controlled corporations (GOCC) can help improve the pension system in the country.
“To preserve the pension system, the government should consider raising the retirement age, increasing contributions, combining the two programs, gradually shifting to a defined-contribution system, and expanding the economy although the current population growth rate of 2%, one of the highest in Asia, will make sustained economic growth a challenge,” the study stated.
Inequities in coverage
The ADB report said combining the SSS and the GSIS will remove inequities between the two programs. The report stated that there is a large discrepancy between the contribution rate of the GSIS at 21% and the SSS at 10.4%.
The report said this reflects the “significant imbalance” between contributions and benefits in the SSS. This, the ADB study said, explains the SSS’ shorter fund life compared to GSIS since the GSIS has a fund life of until 2055 while the SSS only has until 2031.
The ADB publication, however, acknowledged that there are constraints to this recommendation such as the “natural bias” toward keeping the two programs separate and maintaining the “superiority” of the GSIS.
“The significant disparities between the SSS and GSIS test the fairness and sustainability of the entire system for present and future retirees,” the ADB said. “The gap is quite wide; it will take some time to narrow it.”
Pension systems in the region
The ADB said that pension systems need to be fair in coverage, net benefits and retirement age. These systems need to be financially sustainable to assure that the benefits promised at the end of people’s working lives are delivered.
The increase in Asia’s working population significantly contributed to the expansion of the labor force, widespread growth and greater savings. The ADB said Asia’s demographic dividend is tailing off and falling fertility. This means Asia’s median age is rapidly becoming older.
“Across Asia, great divides exist in pensions available in rural and urban areas, between retirees from the public and private sectors, and those leaving the informal and formal job sectors,” ADB Principal Economist Donghyun Park said. “Without far-reaching reforms, the financial burden of these schemes on future workers may become more than they can bear.”
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Source: Cai Ordinario, Rappler. (26 September 2012)
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