Home Editors' Picks On LBP-DBP merger and MUP pension reforms

On LBP-DBP merger and MUP pension reforms


My Cup Of Liberty

Yesterday, Department of Finance (DoF) Secretary Benjamin E. Diokno held a press briefing with the Malacañang press corps and shared his presentations in a meeting with President Ferdinand R. Marcos, Jr. Two big announcements, two big issues were discussed in one briefing.

One is the proposed merger of the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) with LBP as the surviving entity, the other was the military and uniformed personnel (MUP) pension reforms. Both the LBP and DBP are under the Finance department while getting money to fund the MUP pension is a DoF function, or headache.

At the onset, I support these two important reforms and I hope the public will also support them.

There are at least four reasons that the LBP-DBP merger will be favorable to the public.

One, the merger will create a bigger, stronger, more resilient government bank while contributing to the reduction in the size of the bureaucracy. In December 2022, their combined assets were P4.18 trillion, larger than Banco de Oro’s P3.92 trillion or BPI’s P2.6 trillion. Thus, LBP will become the largest bank in the country.

Two, this will encourage more consolidation and merger of smaller private banks, resulting in a stronger, more transparent banking system in the country.

Three, the high debt-equity ratio (DER) of the two banks, almost double the DER of the top three private banks (BDO, BPI, MetroBank) can be addressed better via reduced redundancy and inefficiency in operations, resulting in more savings. LBP is expected to have additional lending of P80.3 billion/year given the projected operational savings.

Four, proceeds from the sale of redundant assets of DBP — a big head office in prime land in Makati, a property in BGC, properties and equipment of the 125 branches that will be closed out of the existing 147 branches nationwide, etc. — can be used to retire some public debt, or raise LBP capitalization. The public will benefit via lower taxes to pay interest payments of public debt, or better LBP services, and lower interest cost.

The DoF says that DBP personnel who cannot be absorbed in LBP merger will be offered fair separation benefits.

Here is a background on the MUP pension reforms.

One, there are eight MUP agencies from four departments: the Armed Forces of the Philippines, Philippine National Police, Philippine Public Safety College, Bureau of Jail Management and Penology, Bureau of Fire Protection, Bureau of Corrections, Philippine Coast Guard, and National Mapping and Resource Information Authority.

Two, in 2020 there were 408,310 active personnel and 242,381 pensioners. In 2022, there were 455,781 active personnel and 234,180 pensioners, and in 2023, 460,781 active personnel and 239,097 pensioners (source: DBM projected authorized plantillas).

The main goal of reforms is to avoid a fiscal crisis or collapse. Straight and direct. This is a huge unsustainable pension that will punch a big hole in taxpayers’ pockets, and/or deprive additional funding for other agencies. This is a big fiscal burden to taxpayers for the past 25 years since the Ramos administration and, thus, reforms should be done now and not later.

Secretary Diokno showed two charts comparing the budgets of maintenance and other operating expenses (MOOE) and capital outlays (CO) of MUP — their uniforms, guns, tanks, airplanes, offices, etc. — and their pension. I combined the two charts in one table (Table 2) then I added a comparison with government consumption in the GDP.

The result for taxpayers is ugly. It is a black eye for the MUP pensioners.

One, the share of MUP pension/government consumption has increased from 3.9% in 2015 to 5.3% in 2021, and the increase from 2015 to 2022 was 95% for MOOE+CO, 117% for overall government consumption, and 178% for MUP pension.

Two, the projected increase from 2020 to 2030 of their MOOE+CO is almost 200% or three times the 2020 level, but their pension will rise more than 400% or five times the 2020 level (see Table 2).

Three, another chart shown by Mr. Diokno was about the average monthly pensions in 2022: P4,528 for the Social Security System (SSS), P13,600 for the Government Service Insurance System (GSIS), and P40,049 for the MUP. In other words, the MUP pension was almost nine times that of the SSS and almost three times that of the GSIS. The number of pensioners in the SSS in 2022 were 3.2 million, while there were 554,000 in GSIS, and 234,180 in MUP.

Four, while SSS and GSIS pensioners paid for the fund themselves via monthly salary deductions, the MUP pay zero, nothing — they keep all their monthly salaries and allowances from taxpayers, then their pension will be taken again from taxpayers.

Because of these and other factors, Mr. Diokno, with the concurrence of Defense Secretary Carlito Galvez, Jr. and Interior and Local Government Secretary Benhur Abalos, propose the following reforms:

One, the reform shall apply to all active personnel and new entrants.

Two, removal of automatic indexation of pension to the salary of active personnel of same rank.

Three, MUPs will receive their pension starting at the age of 57.

Four, mandatory contributions will be required of active personnel and new entrants similar to GSIS pensioners.

These are good sense proposals and compromises. I hope that most MUP pensioners and active personnel will agree to these.

I talked to the husband of a friend from UP Sapul in Diliman, retired Brigadier General Francisco “Jun” Mendoza, Jr., who was a former Assistant Deputy Chief of Staff for Education and Training, J8 of the AFP. I asked Jun if he thinks his fellow MUP pensioners will object to the proposed reforms.

Jun replied (he gave me permission to quote him) that he welcomes any reform that would guarantee the stability of funds of retirees. He was assigned at GHQ on several instances and was aware of the deeper problems sustaining the funds, especially when the base pay was increased during the time of former President Rodrigo Duterte. So, most pensioners and even those in active service would support reforms because their worst fear is that government can no longer provide the required amount in the future.

The Executive branch, led by the DoF, has done the computations and identified the proposed reforms. Congress should act swiftly in the needed legislation, especially in MUP pension.


Bienvenido S. Oplas, Jr. is the president of Bienvenido Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers