Taxwise Or Otherwise
By Bernadette R. Fama-Absolor
At the height of the pandemic and economic hardship, another threat to take-home pay has emerged: the hike in the mandatory social security contribution. Although these adjustments will further reduce an individual’s taxable income, is this the new regulation’s only silver lining?
Under Republic Act No. 11199, otherwise known as the Social Security Act of 2018, which was signed in February 2019, the Social Security System (SSS) implemented a contribution rate hike from the current 12% to 13%, and issued the new schedule of contributions for employers and employees effective Jan. 1, 2021.
In the new schedule, the minimum Monthly Salary Credit (MSC) increased to P3,000 and the maximum MSC to P25,000. For employees with the minimum MSC of P3,000, the increase in the monthly contribution amounts to P55 (i.e., a new rate of P135 as compared to the old rate of P80). For employees with the maximum MSC, on the other hand, the additional monthly contribution is P325 (i.e., a new rate of P1,125 versus the old rate of P800).
When every centavo counts during this crisis, the increase could understandably provide an occasion for ranting.
It is important to note that contributions to the new SSS Provident Fund, known as the Workers Investment and Savings Program (WISP), require active membership in the regular SSS program with an MSC of P20,000, i.e., with salary brackets of P20, 250 and above. Under the implementing guidelines (SSS Circular No. 2020-032), WISP contributions are integrated into the regular SSS program contributions to be shared proportionately between the employer and the employee. The funds will be managed, invested, and the realized earnings distributed proportionately based on the member’s contribution.
WISP is a defined-contribution plan that allows employers and employees to contribute and invest over a period of time to save more for retirement, disability, or death. This savings plan is compassionate as a portion of the savings is funded by the employer.
However, employees with a salary rate below P20,250 are excluded from the WISP’s coverage and are thus unentitled to the program’s additional benefits.
Benefits arising from the WISP are paid out either in a lump sum or by installments for retirement, total disability, and death survivorship, together with the SSS regular benefits. The WISP benefits are processed automatically when the member or beneficiaries file their benefit claim under the regular SSS program. The basis will be the total accumulated account value of the member from the time of approval of the claim.
The installments are given in the form of a fixed amount of monthly pension equal to the member’s total accumulated account value divided by 180. The pension is paid until the member’s account value is fully exhausted, covering at least 15 years. Upon the death of a WISP pensioner, any remaining balance in the accumulated account value is paid to the member’s beneficiary in a lump sum.
Overall, the increased contributions will make way for a better member benefits package and a more viable welfare fund for the future generation.
If the WISP provides additional benefits to members, why is it only mandatory for employees with higher MSCs and not all employee members? From my observations, those employees earning lower salaries are more in need of these additional benefits for unforeseen contingencies that threaten their financial capacity; comparably, higher-income earning employees can afford insurance to cover these risks. I wonder if the agency considered that.
It is possible that what the agency primarily considered is the burden that the additional contribution to the WISP will bring to the lower-income earning population, hence the decision to require it only from employees with higher MSCs.
Alternatively, to accommodate all members, the additional contribution can be reasonably proportioned between the employee, employer, and the government sharing to cover the deficiency, similar to other countries in Asia and the Pacific. Or, similar to the Pag-IBIG’s MP2 Savings Program, coverage may be optional, so members get to decide whether or not they want to avail of the WISP.
Currently pending before Congress is House Bill No. 8317, authorizing the President to suspend scheduled increases in SSS contributions. The proposed intervention is due to misgivings regarding the cost implications of the new contribution schedule. With the deliberations still underway, we can expect changes in policy direction once the suspension is implemented. It might be a good idea for Congress to also consider adding a provision about the government share in the contributions rather than just suspending or deferring the hike.
In my opinion, the long-term benefits of this additional contribution due to the new mandatory provident fund or the WISP outweigh the short-term burdens. The increased amount will help secure the employee’s lost income due to unforeseen contingencies. That said, it may also be equally important to address the current issue of reduced pay and increasing prices. Perhaps stricter policy implementation and monitoring of prices of basic goods is needed.
I hope a final directive will be released soon, allowing both employers and employees space to manage their expectations and time to comply accordingly.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Bernadette R. Fama-Absolor is a Manager at the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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