Military pension reform shelved; analysts warn of ‘fiscal time bomb’

The Marcos administration has shelved a plan to overhaul the pension system for military and uniformed personnel (MUP), Finance Secretary Ralph G. Recto said.

Analysts have warned that the current pension system for MUPs is a “fiscal time bomb” that threatens the Philippines’ fiscal sustainability.

“I think we discussed that already,” he told reporters on the sidelines of a House Committee on Appropriations briefing late on Monday. “Wala na ’yung  (There will be no) MUP reform so far for the remainder of the term.”

“The reform will be costly at this point in time,” Mr. Recto said without providing details.

However, Budget Secretary Amenah F. Pangandaman said the fate of the MUP reform bill will still be discussed in the Legislative-Executive Development Advisory Council (LEDAC) meeting next month.

“We’ll have to sit down. We still have a LEDAC (meeting),” she told BusinessWorld when asked about Mr. Recto’s statement.

Ms. Pangandaman warned that government allocations for MUP pensions will consume a larger share of the national budget in the coming years and could pose a possible fiscal burden if left unchecked.

“As you know, we have a limited fiscal space — so the pension will eat up a chunk of the budget. It will keep piling up, and it’s going to grow even more,” she told BusinessWorld on the sidelines of the briefing late on Monday.

Under the 2026 National Expenditure Program, the proposed allocation for the Pension and Gratuity Fund is at PHP 197.99 billion, 36.8% higher than PHP 144.72 billion this year.

Unlike government and private sector employees whose pension contributions are regularly remitted to the Government Service Insurance System and Social Security System, MUPs do not contribute to their own pension funds.

In 2023, the Department of Finance (DoF) under then-Secretary Benjamin E. Diokno pushed to reform the MUP pension system, warning of the risk of a “fiscal collapse.”

At that time, the DoF proposed to require contributions from all active personnel and new entrants and removed the full indexation of pensions.

However, the House in 2023 approved a version that does not require mandatory contributions from active personnel. Under the approved version, new entrants would be required to contribute 9% of their salary, while the National Government counterpart was set at 12%. It also provided for the automatic indexation of MUP pensions at 100% of the increase in the base pay of active personnel.

The Senate did not pass a counterpart bill for the MUP reform.

‘Fiscal time bomb’

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said it’s a “risky move” for the government to shelve plans to reform the MUP pension system.

“The current pension setup is a fiscal time bomb — fully funded by taxpayers, no contributions from personnel, and pensions indexed to active salaries,” he told BusinessWorld in a Viber message on Tuesday.

Mr. Ravelas said failure to reform the pension system could saddle the government with a PHP 14-trillion liability and a possible fiscal collapse in the long term.

“We need reform, but with care. Either set up a dedicated, government-backed pension fund seeded with revenues from privatization,” he said.

Mr. Ravelas suggested mandatory pension contributions from new entrants, while scrapping the current automatic indexation of benefits. He said the government should instead implement a fixed annual adjustment of pensions tied to inflation.

Filomeno S. Sta. Ana III, coordinator of Action for Economic Reforms, said delaying the MUP reform may ease political tension in the short term, but it risks long-term fiscal sustainability.

“The current pension system for military and uniformed personnel is noncontributory and ballooning. It consumes a growing portion of the national budget, crowding out funds for education, health, and infrastructure,” Mr. Sta. Ana said.

He also warned that the National Government may face bigger deficits and heavier borrowing down in the future.

“The sooner we address it, the better for long-term economic stability,” he added. — Aubrey Rose A. Inosante and Kenneth Christiane L. Basilio, Reporters