Tatanda Ka Rin: Social Security for Lolo and Lola

sss-vetoed

Hard to imagine that Pres. Aquino and Social Security Service (SSS) officials would have opposed the Php2,000 pension hike if they were low-income senior citizens on the receiving end of meagre SSS pensions

By Sonny Africa

Manila Archbishop Cardinal Luis Antonio Tagle, at the recently concluded International Eucharistic Congress (IEC) in Cebu City, lamented individualism which skews people’s values and the emerging “throwaway” culture. It’s no coincidence that these themes resonate in the current controversy around the Php2,000 pension hike vetoed by Pres. Benigno Aquino, III. They have a common root: capitalist-driven economics that deifies the market economy, exalts individual self-interest, and promotes materialistic values instead of the ethical norms of a humane society.

Social insecurity

The philosopher John Rawls famously proposed his “veil of ignorance” as a way to test for the justness or fairness of something. When designing rules for society, he argued, you should be ignorant of what social position you yourself will occupy – a variation of the maxim “Do unto others as you would have them do unto you.”

So it’s hard to imagine that Pres. Aquino and Social Security Service (SSS) officials would have opposed the Php2,000 pension hike if they were low-income senior citizens on the receiving end of meagre SSS pensions. Unfortunately most Filipino lolos and lolas do not have savings, incomes from investments, or children with high-paying jobs to keep them secure as they grow old. Pensions, for millions of elderly in the country, are not just pocket money but a literal lifeline.

The “heartless” presidential veto of the Php2,000 pension hike bill draws attention to necessary reforms within the SSS. The central issue is how the SSS can pay for more decent pensions. Pres. Aquino and SSS officials argued that the additional Php56 billion cost of the proposed hike is unaffordable.

However the principal author of the bill, Rep. Neri Colmenares of Bayan Muna and the Makabayan bloc, has tirelessly pointed out reasonable measures to pay for this. The SSS has Php447 billion in assets as of October 2015 which can be tapped until around 2029. There is also Php198 million in foregone revenues from idle assets, as much as Php13.5 billion in collections from delinquent employers, and any balance from up to Php325 billion in uncollected revenue as of 2008.

SSS officials agree to the figures and, at least in principle, the need for higher pensions. But the actuarial life until 2043 of the reserve fund is given more importance than the welfare of low-income pensioners and the hike is narrowly seen as possible only with a significant increase in member contributions. The terms of the debate are straightforward if somewhat perverse: fund managers invoke “fiduciary responsibility” to the SSS members while SSS members themselves, with a better grasp of the social responsibility of the government for their welfare, demand the pension hike.

The Php2,000 hike will immediately improve the welfare of up to 2.2 million Filipino pensioners. But many millions more will gain if the controversy surrounding the hike prompts radical reforms in the country’s pension system of which the SSS is just a small and, actually, intrinsically flawed part.

Thrown away

What is the state of our senior citizens? There are 7.8 million Filipinos over 60 years old. The Philippine Statistics Authority (PSA) officially reports that only 16.2% of senior citizens are poor but this uses a poverty threshold of just Php52 per day (or some Php1,582 monthly). This grossly underestimates real-world expenses for decent living and is also insensitive to the food and medical needs of senior citizens. Using a more realistic Php125 per day (or Php3,800 monthly), IBON estimates that at least two-thirds or over 5.1 million of our lolos and lolas are poor.

Filipino senior citizens can get income support from either of two pension schemes – SSS for private sector employees or Government Service Insurance System (GSIS) for government employees – or the monthly stipend under the Expanded Senior Citizens Act of 2010. Overall pension coverage is narrow and shallow despite these three options.

Only 3.4 million or 42.9% of our elderly receive pensions from the SSS, GSIS, and under the senior citizens law. The 2.2 million (27% of elderly) SSS pensioners today receive at least the minimum Php1,200 per month with the average reportedly at some Php3,200 per month. There are around 272,000 (3.5%) GSIS pensioners receiving at least the minimum of Php5,000 per month. Lastly, some 940,000 (12%) senior citizens receive a fixed amount of Php500 monthly.

This means that almost six out of ten (57%) elderly Filipinos, or some 4.5 million, are outright not covered at all and don’t receive any pensions. This also means that almost 97% of elderly Filipinos, or around 7.5 million, are either not covered or receive pensions below a reasonable poverty threshold. Only the 3.5% of elderly receiving GSIS pensions are brought above the poverty threshold.

Coverage is poor because the country’s main pension schemes are designed as an individualistic mechanism more than real social security. The SSS and GSIS are contributory schemes that only cover their members, whose membership depends on member contributions, and whose level of benefit depends on the level of member contributions.

This appeals to neoliberally-minded folks whose guiding principle for society is that individuals are only to be rewarded based on personal effort and who believe structural inequities are natural, just, necessary, or all of these. But the problems of basing pensions on regular work-based contributions in the Philippine context of so much joblessness and pervasive irregular and low-paying employment are clear.

IBON’s estimates some 4.2-4.3 unemployed Filipinos. This is already some 10% of the labour force who are likely to have difficulty making consistent payments, if any. Having employment is not even assurance of becoming an active and qualified SSS member. IBON estimates that 22.4 million Filipinos, or almost six out of ten (58%) of total employed, are non-regular workers, agency-hired workers, or in the informal sector with at best erratic ability to pay contributions. This is consistent with how SSS officials themselves explain that they are unable to collect from over six out of ten (62%) of their members – hence collecting payments from only 12 million, or 38%, of their some 32 million members.

Most families cannot really afford to spare cash for the premiums because of their very low incomes. Around 11.2 million Filipino families try to make do with just Php10,413 or much less a month and another 5.8 million with only up to around Php18,128. These family incomes are below the Php19,000 realistically needed to keep an average family with five members just barely out of poverty.

These mean that strictly linking benefit levels to member contributions is self-defeating. Low incomes in the present will be reduced further, while pensions in the future will still be inadequate. And yet these are the very workers, farmers, fisherfolk, informal sector workers, and their families on the knife edge of subsistence and without wealth whose elderly face insecurity in their old age.

State responsibility

So what is to be done? The Php2,000 SSS pension hike is a start and the SSS unambiguously has the resources for this. The SSS Act of 1997 (Republic Act No. 8282) also authorizes the national government (NG) to appropriate the necessary funds for SSS expenses. But this should merely be the start of a far-reaching overhaul of the country’s pension system.

The government has to confront Philippine underdevelopment realities head-on and aim for a non-contributory tax-financed universal social security system. The “social” in “social security” means that society, through the government, should be assuming primary responsibility for the security of its most vulnerable citizens including the elderly. Contributory member-financed schemes such as SSS and GSIS should just be complementary measures to a central scheme designed to reach the majority of Filipinos.

The government already has something to work with: the Expanded Senior Citizens Act of 2010 or Republic Act No. 9994. Among the various benefits and privileges the law gives to senior citizens is a monthly stipend of Php500 funded by the national government from its annual budget. The law can be amended to increase this amount – for instance to a minimum of Php5,000 or more – and to expand the coverage to all Filipino senior citizens with only the barest minimum of requirements needed to establish eligibility. As much of the country’s 7.8 million elderly should be reached beginning with the poorest and most vulnerable among them.

The limited stipend to a few elderly today shows how far the scheme still has to go. The monthly Php500 (about US$12) stipend reportedly reaches 12% of Filipinos over 60 years old. The equivalent scheme in Thailand covers 69% of Thai over 60 years old and gives them 600 baht or the equivalent of US$20 monthly. Indonesia’s and Malaysia’s schemes have much less coverage but respectively give US$32 and US$94 monthly. Brunei’s scheme with 82% coverage gives US$199 monthly.

As it is, the Philippine government only spends 0.04% of gross domestic product (GDP) on pensions for the elderly versus the 0.33% of GDP by the Thai government.

The government is so enthusiastic about public-private partnerships (PPP) that it is not unlikely for proposals to be made to privatize the country’s social security system. This is an undesirable path. Pension schemes were privatized across Latin America, Central Europe and Eastern Europe over the globalization decades 1980s-2000s supposedly to ease the fiscal burden on governments and to improve efficiency. These privatizations failed though and there have already been partial or complete reversals in Chile, Uruguay, Argentina, Bolivia, Poland, Hungary, Russia and other countries.

Taxing the rich

Income security for all lolos and lolas is possible if the country’s political leadership so chooses. Creating a universal pension system is complex thing and has to consider demographics, risk, eligibility, machinery, and administration. But the biggest issue is where the financing for such a far-reaching overhaul of social protection for the elderly will come from. Again, Philippine realities point policy in a clear direction.

The Aquino administration already has considerable leeway from the improved fiscal situation under it that is has played up so much. The NG budget deficit is down from Php314.5 billion in 2010 to just Php46.5 billion in the first 11 months of 2015, corresponding to its declining share in GDP from 3.5% to just 0.3% over the same period.

The Php268 billion reduction in the deficit between 2010 and 2015 represents the leeway for the government to subsidize the SSS pension hike. The additional Php56 billion outlay needed for the Php2,000 pension hike is well within this range, as well the supposed Php16-26 billion deficit that the SSS will supposedly incur as its revenues fall short of expenses. The SSS had earlier reported to Congress just a Php4 billion deficit.

This leeway is temporary though and more sustainable sources of financing are needed. For this to happen some deeply entrenched practices have to be corrected. The last decades of neoliberal globalization promoted capitalist values of individualism, self-interest, praise of wealth accumulation, admiration of affluence, and esteem of high incomes. Private property was disconnected from any sense of social function or social responsibility beyond voluntary charity.

Markets more efficiently concentrated wealth in the hands of a few at the expense of the many and a supportive liberal tax system was built. This has to be changed and the tax system made more progressive to raise resources for genuine social security.

As much as Php409 billion in additional revenue can be raised from more aggressive collection of corporate income taxes especially from large corporations. IBON estimates up to Php780 billion in potential tax revenues from firms in 2012 yet only Php371 billion was actually collected by the Bureau of Internal Revenue (BIR). Restoring the corporate income tax to its 35% rate before 2009 would also immediately raise at least Php20-30 billion.

Increasing taxes on just the richest 1.5% of Filipino families will not only raise some Php91 billion but also reduce the extreme inequality in the country. The richest 156,000 or 0.7% of families had a cumulative income of Php356.9 billion in 2012 with an average annual income of Php2,287,836. Taxing just an additional 20% of this income will raise Php71 billion. The next richest 170,000 or 0.8% of families had a cumulative income of Php198.4 billion with an average annual income of Php1,271,484. Taxing just an additional 10% of this income will raise Php20 billion.

The country’s 100-150 super rich families have incomes of at least Php50-500 million annually. Doubling income taxes on them could raise some Php1-2 billion. More effective collection of estate taxes over time will also raise hundreds of billions in revenues. The BIR’s average annual collection of estate taxes of less than Php600 million in the decade 2000-2009 compares poorly with, for instance, the Php3.2 trillion in wealth accumulated today by just the 40 richest Filipinos.

Valuing our elderly

Old age pensions are vital for ensuring the income security and well-being of Filipino senior citizens. Only some two-fifths of our elderly receive pensions and only a small minority receive pensions big enough to lift them out of poverty. Ironically, those most in need of pensions are among those who get the least or none at all while those who have the least need receive the largest pensions. The gap has to filled in by non-contributory tax-financed pensions by a government unafraid to confront the country’s wealthiest families and biggest corporations.

The elections are nearing and how candidates propose to meet the challenge of ensuring the rights, dignity and income security of all Filipino senior citizens will give insight as to their underlying values. The stand they take will reveal much about their beliefs about the gross inequality in the country, wealth redistribution, and the crafting of an economic system more in line with the morality and ethics of human values. ###

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