SSS eyes higher foreign debt exposure

Posted on January 06, 2017

THE SOCIAL Security System (SSS) is looking to expand its exposure to higher-yielding offshore investments opportunities, and is also proposing some amendments to the law on dollar-denominated debts, as it continues to explore its options to boosting its fund life to accommodate a P2,000 across-the-board hike in benefits.

SSS President and Chief Executive Officer Emmanuel F. Dooc told reporters in press briefing on Wednesday that the state-run pension fund is proposing an increase in its allowed foreign investments to 20% from the current level of 7.5%, which is still pending approval.

“But the increase will be gradual, [a] 2.5 [percentage point] increase every year until we hit the desired 20%,” Mr. Dooc said.

Republic Act 8282 or the Philippine Social Security Act of 1997 limits the allotment of SSS reserve funds per type of investment: 40% for private securities, 35% for housing, 30% in real estate, 10% in short and medium term member loans, 30% in government financial institutions and corporations, 30% in infrastructure projects, 15% in any particular industry, and 7.5% in foreign currency dominated investments.

Mr. Dooc said the SSS needs to pursue legislative initiatives in solidifying the pension fund amid recent developments, particularly a proposal to increase members’ pensions by P2,000 across the board.

Under the proposal, which was put on hold last week by the Executive branch, the first P1,000 tranche of the increase is expected to be released this month, while the second tranche will be in effect by 2022 at the latest.

“Because we do not want that every time there is a clamor for higher pension benefits, dagdag contribution na ang sagot namin (an increase in member contribution is our answer) to the pension hike,” he said. “We have to prove that we can also source funds other than from the contributions that we demand for our members.”

SSS has said that with the approval of the first tranche of P1,000, its fund life will only last until 2032.

Apart from contributions, SSS relies on investments and other income to pay the monthly pensions of retirees and other benefits claimed by its members.

“We feel that there are greater and better opportunities to get better income,” the SSS chief said. “[W]e also have to harness the opportunity to derive higher gains from investments.”

However, Mr. Dooc noted that the SSS has not yet ventured into any foreign investment opportunities, nothing that: “The idea was brought up and it was received favorably, pero nahinto (but it was halted).”

According to latest data from SSS, its total investment income as of end-October 2016 reached P470.193 billion with an average return on investment of 7%. Bulk of this came from local government securities at 39% or P182.275 billion, while 23% or P109.23 billion came from equity investments.

For SSS to be able to invest in any foreign debt, Mr. Dooc said the firm is also proposing that the law’s requirement of an “AAA” credit rating be relaxed.

“The change in credit rating from “AAA” to investment grade...kasi medyo mahirap maghanap ng ganoon (we will relax it a bit because it’s a bit difficult to find investments with that credit rating),” he noted. Bonds with a grade of “BBB-“ and above for Fitch Ratings and S&P Global Ratings -- equivalent to “Baa3” in Moody’s Investors Service’s scale -- are considered investment grade.

Mr. Dooc said if these proposals are approved, the SSS will “then adapt dividend requirement for foreign equity, to match that for domestic equities of dividend payment once in the past three years, so there is a dividend payment stream at least once during the past three years.”

Total revenues raked in by SSS reached P145.9 billion in the first ten months of 2016 while its contributions stood at P119.087 billion during the period.

The pension fund’s total benefits reached P108.198 billion in the same period, with beneficiaries totalling 2.88 million. -- Janine Marie D. Soliman