Senior Citizens Plight After Early Retirement and What GSIS Can Do Under P-Noy Administration I.

Different Retirement Laws or Modes of Retirement

1. Commonwealth Act (CA) 186 of 1936 established the Government Service Insurance System (GSIS) and stipulates the insurance premiums as well as the benefits, among others. The retirement consists of gratuity pay by employer and pension for those (a) who reach the age of from 57 but with 30 years of government service and (b) who rendered 30 years of service, regardless of age. On the other hand, those with not less than 20 years of service, regardless of age, will have no pension but will be entitled to gratuity by employer and the Take All benefits (refund of personal share plus interest and payment of government share) payable by GSIS. Regardless of age means that employees with less than 57 years of age, e.g. 50 years old and could not wait for the age of 57 years applied for retirement under this mode to be able to immediately get the Take All benefits from GSIS. 2. RA 660 of 1951 is an amendment to CA 186 that grants pension for retirees (a) with not less than 15 years of service at maximum age 65 years and (b) with 35 years of service at minimum age of 52 years or so-called magic 87. RA 660 has recognized that 15 years of government service is long enough to show loyalty of employees in serving the public if retiree has reached the compulsory retirement age of 65 years. 3. RA 1616 of 1957 which is an amendment of CA 186 but on the mode of retirement only. Those with 30 years in the service, regardless of age, will receive pension. There is no pension for those with less than 30 years of service but not less than 20 years of service, regardless of age. They will be entitled to gratuity pay by employer and return of personal share plus interest (no more payment of government share). 4. RA 4968 of 1967 is an amendment of RA 1616 of 1957 which states that a retiree must be in government service (or retirement date must be) on or before May 31, 1977 and with not less not than 20 years of service, regardless of age and employment status, will have no pension but will be entitled to gratuity by employer and the Take All benefits (refund of personal share plus interest and payment of government share) payable by GSIS. 5. GSIS Board Resolution No. 160 dated 17 February 1977 states that An application for retirement or resignation once approve cannot be withdrawn, rescinded and recalled for any reason whatsoever. 6. PD 1146 approved on May 31, of 1977 is the Revised Government Service Insurance Act of 1977 which is the only retirement law that specifies the rationale and main objective, as follows:
WHEREAS, the Government Service Insurance System in promoting the efficiency and welfare of the employees of the Government of the Philippines, administers the laws that grant to its members social security and insurance benefits. WHEREAS, it is necessary to preserve at all times the actuarial solvency of the funds administered by the System; to guarantee to the government employee all the benefits due him; and to expand and increase the benefits made available to him and his dependents to the extent permitted by available resources;

WHEREAS, provisions of existing laws have impeded the efficient and effective discharge by the System of its functions and have unduly hampered the System from being more responsive to the dramatic changes of the times and from meeting the increasing needs and expectations of the Filipino public servant; WHEREAS, provisions of existing laws that have prejudiced, rather than benefited, the government employee; restricted, rather than broadened, his benefits, prolonged, rather than facilitated the payment of benefits, must now yield to his paramount welfare; WHEREAS, the social security and insurance benefits of government employees must be continuously reexamined and improved to assure comprehensive and integrated social security and insurance programs that will provide benefits responsive to their needs and those of their dependents in the event of sickness, disability, death, retirement, and other contingencies; and to serve as a filing reward for dedicated public service; WHEREAS, in the light of existing economic conditions affecting the welfare of government employees, there is need to expand and improve the social security and insurance programs administered by the Government Service Insurance System, specifically, among others, by increasing pension benefits, expanding disability benefits, introducing survivorship benefits, introducing sickness income benefits, and eventually extending the compulsory coverage of these programs to all government employees regardless of employment status;

a. PD 1146 states that a retiree must be in government service and must be at least 60 years of age upon retirement date on June 1, 1977 until June 23, 1997. Due to the reorganization of the government bureaucracy starting from mid -80s, those who separate (by retirement with not less than 60 years of age or resignation with less than 60 years of age) from the service can apply for retirement under PD 1146 with not less than 15 years of service. The pension for life can be granted only upon reaching 60 years of age. A retiring member under PD 1146 is entitled to either Old Age Pension or Cash Payment, depending on his age and years in service. The Basic Monthly Pension (BMP) is guaranteed for five (5) years. After the 5-year guaranteed period, he/she will receive a basic monthly pension for life. A retiree may also request to convert his/her five-year guaranteed BMP into a lump sum subject to a six (6) percent discount rate. Formula for BMP = .025 x RAMC (Average Monthly Compensation for the last 3 years of service plus P140) x Length of service. b. PD 1146 provides Section 13. Retirement Option which states that Employees who are in the government service upon the effectivity of this Act shall, at the time of their retirement, have the option to retire under this Act or under Commonwealth Act No. 186, as previously amended. This means that depending on eligibility requirement, an employee can also retire under RA 660, RA 1616 as amended by RA 4968 of 1967. 7. PD 1981 of 1985 Further amending PD 1146, as amended, otherwise known as the revised government service insurance act of 1977 Sec. 3. Sec. 4 is hereby amended to read as follows: "Sec. 4. Effect of Separation from the Service. A member separated from the service shall continue to be a member, and he shall be entitled to whatever benefits which shall have accrued or been earned at the time of his separation in the event of any contingency compensable under this Act: Provided, however, That if he is separated for cause or considered resigned, he automatically forfeits said benefits, unless the terms of his resignation or separation provide otherwise. In case of forfeiture of benefits, the separated employee shall still be entitled to receive one-half of the cash surrender

value of his life insurance." (deletes Section 11 (d) of CA 186 and Section 8 (d) of RA 660). 8. RA 8291 of 1997 states that a retiree must have rendered at least 15 years of service and must be at least 60 years. Computation of Basic Monthly Pay (BMP) = .025 x RAMC (Average Monthly Compensation for the last 3 years of service plus P700) x Length of service. . There are two options under RA 8291: (a) A five-year lump sum is paid as an advance of first five years pension. Payment of pension starts after five years from receipt of the lump sum. (b) A lump sum equivalent to 18 months of pension shall be given as advance payment to the retiree, plus automatic payment of pension from the day of retirement. a. RA 8291 is called the Revised Government Service Insurance Act of 1997 which carries the rationale and main objective of PD 1146 is an improvement in terms of benefits over PD 1146 which covers the period June 24, 1997 up to the present or until this will be amended in the near future. b. RA 8291 Section 20.3 of RA 8291 IRR does not allow conversion but gives option to those who became GSIS members prior to the implementation of RA 8291 to retire under PD 1146, RA 660, or RA 1616 (which is a reiteration of Sec. 13 of PD 1146), subject to eligibility. II. Implementation of Retirement Laws

1. Since 1936 up to the present time (2013), the mode of retirement under RA 1616 has still been selected by those retirees who were and are enticed by the Take All benefits which are granted right after retirement date. These are those who have not yet reached the retirement age of 60 years but who have rendered not less than 20 years of service. For example, a retiree whose age is 50 years and served for not less than 20 years of service at the time of retirement on January 1, 2000 can avail of the Take All benefits without waiting for 10 years to reach the age of 60 years. But said retiree is eligible to retire under RA 8291 with pension at 60 yrs of age. 2. But in the case of a retiree who served the government for less than 20 years and retired within the prescribed period (between June 1, 1977 to June 23, 1997) at the age below 60 years, he/she is qualified under PD 1146 with pension for life but only upon reaching the age of 60 years. GSIS would not allow said retiree - who would like to be granted the immediate Take All benefits - to change at any given time the mode of retirement to RA 1616 considering the fact that the retiree has less than 20 years of government service. If there is a precedent case on this, then GSIS will be flooded with petitions and applications from those who would like to retire at the age of way below 60 years and government service of way below 20 years. 3. The Graph below shows that PD 1146 which grants pension for those retirees with at least 15 years of service at the retirement age of 60 years was formulated in 1977 that was preceded and succeeded by the period when the country experienced the highest GDP growth rates.

4. The Graph above also shows that the period 1936-1980 had higher average GDP growth rate that made the government and GSIS in a better financial position to grant pensions under RA 660 of 1951 and PD 1146 of 1977. But RA 1616 that was enacted in 1957 and amended in 1967 that did not provide pension was the necessary scheme since economic crisis occurred from the 2nd half of 1950s until 1970 that was 2 years away from the declaration of Martial Law. Given the fact that the average GDP growth rate during the period 1981-2012 was relatively lower than the previous period, it was more necessary for GSIS to continue the implementation of RA 1616 that was supposed to end on May 31, 1977 upon the approval of PD 1146 of 1977 and RA 8291 of 1997. But there is a rider in PD 1146 which is stated in Section 13 on Retirement Option which provides the employee to take the option to retire under previous mode of retirement like RA 660 and RA 1616. Said option is also indicated under RA. 8291, subject to eligibility Those provision of RA 1616 that grants immediate cash benefit upon retirement became enticing to those who retired early after not less than 20 years in the service but below 60 years of age. 5. RA 1616 appears to be advantageous to both the retirees and GSIS. Those who retired at below retirement age of 60 yrs and with not less than 20 years of service can avail of the

immediate cash benefits under the Take All option. But it is more advantageous to GSIS since the retirees will not be paid the cumulative interest on the government share and in some cases only the personal share plus interest are granted. Given the large number of those who retired under RA 1616, the GSIS has been able to generate substantial savings. 6. The GSIS which engaged in investment and lending, among others is also like a bank wherein shares of both employee and employer are deposited. The employee share comes from the salary while the government share is granted as a form of benefit just like the bonuses,13th month pay, rice allowance, cost of living allowance, clothing allowance, hazard pay, among others. The personal share and government share remitted to GSIS starting from becoming a GSIS member until the date of retirement will generate accrued interests. Since GSIS under RA 1616 does not pay the accrued interest on the employer share and even the employer share in some cases, it will be included in the GSIS fund. Therefore, under RA 1616 the GSIS, strictly speaking, can not be considered to be catering to the social and economic needs after retirement from fruitful service rendered to the government. But, GSIS continues to implement RA 1616 because it caters to the immediate need of the retirees and contribute to the improvement of its financial position. III. Proposed amendments to RA 1616 Congressional review of retirement laws

1. Proposals from both the lower and upper house of congress had been filed. One of which is the granting of old-age pension benefits to retirees under RA 1616, as amended, for aged 70 years or over. 2. Senator Miriam Defensor Santiago had authored S.B. No. 1903 of 2005 which states that It is lamentable that at present the monthly pension being received by retired government personnel is inadequate for a decent life. Worse, the continuing devaluation of the peso helps trigger the never-ending increases in the prices of all commodities, including those of lifesustaining drugs and medicines for the senior citizen, illness-prone retirees, which have gone beyond their reach depriving the pensioners of a decent standard of living and financial security they deserve. . . What is even worst is that there is a class of elderly retired government employees under the lump sum, take-all gratuity system pursuant to RA 1616 who do not receive at all even a meager monthly pension. This class of now elderly former public servants, still numbering in the thousands all over the country, are lamentably existing at predominantly nearpauper, if miserable, lives surviving only out of the generosity of equally hard-pressed kin, if any. Because their meager, hence, ephemeral take-all gratuity received many years back from their respective last employers, instead of from the GSIS, under a deviant retirement scheme (RA 1616) --- that attempted to deviate from the ideally prescribed annuity system of retirement by way of monthly Old-Age Pension for Life. IV. Financial Position of GSIS

1. Given the move of Congress to address the plight of those who retired under RA 1616, it is necessary to analyze the GSIS data from internet search as shown below:

Financial Position

Comprehensive Income

2. The pattern of improving financial position and comprehensive income of GSIS during 2010-2011 is also manifested in 2012. This is presented in the news item titled GSIS is financially stable, can provide full benefits (Inquirer, 04/05/13) by Margie A. Jorillo, vice president, Corporate Communication Office of GSIS in response to the column of Conrado R. Banal III titled Stocks in traffic (Inquirer, 03/21/13). She stated that The net income of the Government Service Insurance System slightly dropped by .8 percent to reach P61.83 billion in 2012 (unaudited figure) from the audited net income of P62.30 billion in 2011. The slight reduction in income was due to the recognition of impairment loss and increase in the release of social insurance claims and benefits for members. . . Nevertheless, the operating expense last year amounted to P3.66 billion. Of this total, P2.19 billion is accounted for by an impairment loss, which pertains to doubtful accounts on loans, premiums and other receivables, and P.45 billion for depreciation expense. The actual operating expense for 2012 of P1.02 billion (without impairment loss and depreciation expense) is still below the P1.31 billion operating expense in

2011. . . The total expenditures for 2012 reached P74.89 billion, 84 percent or P62.97 billion of which made up social insurance claims and benefits for some 321,582 members and pensioners. This is 21.9 percent higher than the 2011 grant of P51.67 billion. . . As a result of the continued data cleansing and reconciliation of members records, the number of retirement claims processed increased from 32,765 in 2011 to 34,705 in 2012; monthly old-age pensions from 215,248 in 2011 to 230,285 in 2012; and life insurance claims from 55,206 in 2011 to 56,592 in 2012. . . The GSIS is financially stable and the current board and management remain committed to provide the full benefits of its 1.37 million members and pensioners. 3. The GSIS income data during the period 2001-2012 that span the Arroyo-Aquino period are presented in the form of Graphs as shown below. They reveal the following: a. There is moderate positive correlation (r = 0.43 between GSIS net income and the countrys GDP growth rate and a lower moderate positive correlation (r = 0.38) between corruption perception index (CPI) and net income. b. During the global recession in 2009, GDP growth rate was only 1.14% while GSIS net income deeply plunged to P24.3B from P46.4B in 2008. But while the global recession in 2011 resulted to a decrease in GDP growth at 3.7% from 7.6% in 2010, GSIS net income increased from P40.9B in 2010 to P62.4B in 2011 which is attributed to the significant increase in the revenue from investment despite the mild global recession. c. The GSIS net income of P62.4B in 2011 and P61.8B in 2012 are more than 30% higher than the highest net income of P46.4B attained in 2008 under Pres. Arroyos term.

d.

Graph below shows that between the period 2009-2012, the correlation of 0.47 between

Net Income and GDP growth rate and the 0.67 between CPI and Net Income are higher than those of 2001- 2012 which means that the good governance measures implemented by the P-Noy administration in the executive branches of government, particularly in GSIS, are successful.

e. The bulk of the revenues or income in 2011 came from insurance (56.5%), investment (26.3) and loans (14.2%). Given the improvement in the financial viability of GSIS, the new management of GSIS plans to expand its investment exposure to highly viable projects. f. The advent of increasing investment that will lead to the generation of higher income, then GSIS will be prepared to increase its expenses in claims and benefits for GSIS members and pensioners. V. What GSIS Can Do

Given the several proposals filed in congress and the improvement in the financial position of GSIS which is expected to improve further in the last 3 years of the Aquino administration, many are hoping that congress will enact a bill that will be approved and implemented during or after the term of President Aquino in order to squarely address the plight of senior citizens who retired from the government service without reaching the age of 60 years under RA 1616. . Prepared on April 5, 2013 by: Edmundo Enderez