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Philippine Business Magazine: Volume 9
No. 2 - Policy
Calling Our Lifelines
SSS Chief Corazon S. De la Paz emphasizes
the need to increase member contributions to prevent the projected
depletion of its resources by 2015
By Michael B. Mundo
Can Cora Save SSS? SSS President and Chief Executive
Officer Corazon De la Paz is asking herself the same question thrown
at her several months ago, after replacing Vitaliano Nañagas
III.
After retiring from her career in public accounting at PriceWaterhouseCoopers,
De La Paz planned to take up courses in psychology at the Ateneo
de Manila University. She admits her “temporary insanity”
when she accepted the SSS appointment without knowing exactly what
happened to the social security institution.
Close to crisis
On the surface, SSS seemed to be doing well last year. It posted
a surplus, which partly explains why the consolidated deficit of
the entire public sector was under control. In 1999, however, actuaries
of the private sector pension fund already projected that its resources
would run out by 2015. In 2001, total assets of the Fund posted
its first decline in two decades and SSS will have to dip into its
reserves by 2004.
De La Paz believes the situation is not beyond repair. As the fund
continues to institute reforms and to preserve and safeguard its
assets, it also needs support from stakeholders and policy-makers.
The challenge is to avert a potential crisis in the life of the
fund. Now, she finds herself addressing various groups, particularly
the business community, justifying why SSS should hike contributions
and strictly enforce its mandatory program.
“In the language of a popular game show,” De La Paz points
out, “the SSS has only two lifelines – member contributions
and investment income.”
Only eight million out of 24 million SSS members are actively contributing
to the pension fund. Part of the problem with compliance is the
perception that SSS contribution is a cost rather than a form of
saving to provide for old age financial security. De La Paz cites
the experiences of Korea, Taiwan, Singapore, Mauritius and Chile
on savings and income growth: “increases in saving appear to
be the outcome of economic growth.” Improvements in the economy
also mean better investment opportunities for the SSS. Several steps
have been taken to ensure compliance. They include filing cases
against delinquent employers, expanding payment facilities network,
early payment for self-employed and voluntary members, encouraging
employers to settle delinquencies through installment, and working
with partner banks to improve collection.
From 1957 to 2001, the SSS collected P252 billion in contributions
but disbursed P249 billion in benefits. This left a difference of
P3 billion. Were it not for the investment income of P200 billion,
benefit payments would have long used up collections from SSS members.
In the past 22 years, SSS benefits have been raised 19 times at
an average of 15%. On the other hand, the contribution rate lagged
behind. No wonder the fund’s actuarial life has shortened.
The combined employer-employee contribution rate of 8.4% of monthly
salary since 1980 is lower than the GSIS contribution rate of 21.0%.
In the region, SSS also has one of the lowest contribution rates.
Malaysia has 23%. China has 30%. Singapore has 32%.
To lengthen the actuarial life of the fund, hikes in private social
security contributions should be staggered from 8.4% to as much
as 16%-22% in the very near future. De la Paz, however, says it
is irresponsible and wrong to say that the P16 billion decline in
total SSS assets from end-2000 to end-2001 was the reason why SSS
is seeking a contribution rate hike. At the start of the year, an
increase in employee and employer contributions took effect, affecting
workers whose monthly salary credits are above P12,000. SSS raised
the maximum salary credit to P15,000. According to the Social Security
Commission, the hike was necessary for SSS to provide for the growing
benefits to members in the form of sickness and maternity benefits;
and for the pensioners in the form of death, disability, and retirement
pensions. There is also a need for SSS to make available funds for
lending to members in the form of housing loans and member-employers
in the form of business loans. This is in support of President Arroyo’s
housing program.
Members' interests
The housing exposure of the SSS amounts to P46.8 billion. With some
P9 billion for multiwindow lending and direct lending programs,
the amount constitutes 34% of the investment reserve fund, just
below the 35% charter limit. SSS is exploring ways how to liquefy
P42 billion in housing mortgages through policy discussions with
Housing Secretary Michael Defensor and participating in legislative
deliberations on the special purpose asset vehicles. In the future,
De La Paz prefers SSS to invest in mortgage-backed securities instead
of dealing with individual housing loan accounts. For the government’s
housing program to become self-sustaining, she believes that housing
assistance must be distinguished from housing finance. She likewise
believes that lending at below market interest rates imposes a heavy
burden on the SSS but benefits those who are not supposed to have
them. In general, SSS is shifting its investment policy from socialized
lending to programs that yield market rates.
SSS is also reorienting its policy regarding the stock market, constituting
29% of its investment portfolio. In the equities market, SSS was
seen as a “whale in the tub” because of the relative size
of its holdings. Now, its investments are limited to safer and less
volatile investments towards a core of blue chips. SSS is likewise
studying investing in equities abroad as well as hiring foreign
fund managers. Its policy on sale or purchase of stocks, as a rule,
will be guided by the welfare of SSS members. When asked how she
was going to vote in the San Miguel-Kirin deal, she said, “I
am going to vote in the interest of the SSS members.”
Accountability
De La Paz upholds the constitutional principle that public office
is a public trust. She continues to implement the Covenant of Service
initiated at the time of her predecessor. Posters will be displayed
in every branch to make public SSS commitments on processing time.
“Through this covenant,” De La Paz explains, “members
can now hold us accountable for any delays in servicing their needs.”
Part of its good governance practices includes monitoring closely
its operating expenses. SSS costs are actually limited by its charter.
Its current austerity measures cover cutbacks in employee benefits,
training, and staff development.
Back to good health
All these things are being done, says De La Paz to prevent, if not
reverse, the financial deterioration of the SSS, and ensure fiscal
soundness. “I do not want to bring the SSS to the edge of the
precipice nor wait for the SSS to fail first before doing something.
That would be the greatest disservice to our members.”
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