In early 2017, the Social Security System (SSS) announced that it intends to increase the contribution rate for the national pension fund. According to the agency, the contribution per SSS member will pay 15 percent more than the usual amount, which is around Php15 to P240 extra every month.
At the moment, the implementation of the SSS contribution increase was postponed until 2018. If the implementation went according to plan, you would have seen the effect on your payslip last May. SSS president and chief executive officer Emmanuel F. Dooc said the agency wanted to wait for the tax reform to be implemented first so pension fund members can use the money saved on taxes to offset the contribution increase.
With the impending contribution increase, you’d probably wonder if this will have a real-life effect on your take-home pay. Here are 5 things to know about the SSS contribution increase and why it’s s actually a good thing for you.
1. The contribution increase will help extend the life of the SSS fund.
Why is this important: You are ensuring there’s enough money for SSS to pay your pension when you’re eligible to claim it.
Before we delve into this further, let’s brush up on what the SSS fund is exactly.. The SSS fund functions as a source of funding to provide social benefits, including your pension, that supports its contributing members.
In order for the account to not run out of money, the group needs to:
- admit new members who are willing to contribute to the account, and/or
- increase the contribution collected from existing members
As members claim their payout from the SSS fund, there’s also a possibility that the account will run out of money sooner than expected.
And we can see this from the actions taken early this year. During his campaign trail, then-presidential candidate Rodrigo Duterte promised to increase the pension receivables of over two million retirees. After winning the presidential election, Duterte approved the contribution hike, resulting in the SSS fund’s life getting shortened from 2042 to 2032. If the increase does not go through, there is a possibility people who will claim or retire after 2032 will not be able to receive their pension.
2. The fresh injection of money means more benefits for you.
Why this is important: Expanded maternity benefits and unemployment benefits.
At the moment, an SSS member can avail the following benefits:
- Cash allowance to cover the number of days absent due to injury or sickness
- Maternity benefit
- Retirement benefit that would come in either a monthly pension or lump sum payment
- Disability cash benefit that would come in either a monthly pension or lump sum payment
- Death and funeral benefits
- Eligibility for a salary or business loan
- Eligibility for financial assistance or mortgage loan
Recently, the SSS has said it is considering to offer more benefits for its members once the increase is implemented. This means expanding the allowed number of leaves from 60 to 120 days (and improved cash benefits), relaxed restrictions on childbirth and miscarriage, and changes to the maximum coverage amount, among other things. Moreover, the new funds from the contribution increase and the agency’s investments could also introduce a benefit that would financially assist members who are recently unemployed. If the contribution increase pushed through back in May, the agency was confident to declare that such additional benefits would have been made available to its members in the same year.
3. The contribution increase could also mean more pension payout.
Why this is important: Who doesn’t want more money for retirement?
To understand why is this so, let’s discuss how SSS computes your pension. Under the current law, SSS computes your pension based on two things:
- The number of contributions you made as a member, and
- the total amount of the contributions that have been paid
The agency then computes the average of all of your contributions from the date of your coverage as a member or compute the average of your contributions in the last five years. Whichever is higher, this will be the amount the SSS will use to compute for your pension.
Some enterprising members opt to contribute the maximum rate as long as they can afford it.
However, there are at least a couple of loopholes in the SSS that allows you to pay a higher contribution amount allowed by law to increase their computed pension amount. For example, a member who earns Php15,000 a month pays Php110 for his SSS contribution monthly. He then decides to increase his contribution six years before retirement to Php1,760 a month. This then leads him to receive a lifetime monthly pension of Php9,900 a month. Unfortunately, this is not something the current proposed laws would address.
4. The increase has a minimal effect on your take-home pay.
Why is this so: Your employer shares the burden of your contribution.
SSS members who are employed only shoulder one-third of the calculated contribution, while your employer shares two-thirds of it.
Once the increase is implemented, the total contribution will climb from 11 to 12.5 percent. The implementation will also see the increase in maximum monthly salary credit from Php16,000 to Php20,000.
Insurance and banking comparison experts GoBear created a computation table. It clearly shows that employers will take the brunt of the increase. When you think about it, the contribution hike essentially forces your employer to invest more in you.
But what if you are a self-employed or voluntary member? Well, it’s not that bad as well. Considering the fact that most of us are really bad when it comes to saving or investing money on ourselves, the SSS contribution increase is simply one way to change our attitude about money.
5. The SSS plans to introduce more increases in the next five years.
This means: Expect more annual contribution increases.
SSS President and CEO Emmanuel Dooc see these annual increases as a good thing for people who are aiming to increase the pension amounts they can claim in the future. Dooc added they aim to increase the member contribution rate from 11 percent to 17 percent over a six-year period.
Although the debate about the increases is still ongoing, let’s note the fact millennials make up a third of the Philippine population, and are expected to make up 75% of the workforce by 2030. Add that to the number of workers retiring, and you have a social services situation that could put a strain on the SSS fund. Budget Secretary Benjamin Diokno himself said earlier in an interview that an adjustment in member contribution rates will allow the fund provide better benefits, higher pension amounts, and services as cost of living and pension and benefit claims increases.
The SSS contribution increase ensures the long-term viability of the fund, provide more benefits and increase the pension amount you will receive upon retirement. Even if the increase will be implemented, the proposed collection amount will not really have an effect on your take-home pay, more so when the tax reform will take effect. Moreover, the increase is simply stage one of the SSS’s plans to revitalize the fund and improve the benefits and services it offers to members.
Are you still not convinced why there’s a need to increase the contributions? If you are willing to take on a high-risk, high-return investment like stocks, mutual funds, real estate, and even in a business you don’t understand, why not bet on a sure thing instead? The SSS fund is a government-backed fund that’s mandated by law to support you for a lifetime.
At the end of the day, it might be better to put a little more of your hard-earned money on a secured investment.