DBM to review MUP pension reform

By Chloe Mari A. Hufana, Reporter

THE Philippine government is studying a proposal to revamp the pension system for military and uniformed personnel (MUP), the Department of Budget and Management (DBM) said amid growing concerns over its sustainability.

Budget Acting Secretary Roland U. Toledo said the pension program remains under review, citing provisions under Executive Order No. 107 that mandate a study of retirement policies for MUP.

“I think [the MUP pension reform] needs to be studied again. The implications for the fiscal budget could be significant,” he told a Palace briefing in mixed English and Filipino.

“At the same time, Executive Order No. 107 has assigned a technical working group to look into it, focusing specifically on the pension requirements of our military and uniformed personnel.”

The Development Budget Coordination Committee (DBCC) has earlier flagged the rapidly rising pension costs for MUP as a growing threat to the Philippines’ fiscal stability.

In its Fiscal Risks Statement for 2026, the interagency body said the non-contributory MUP pension system — fully funded by the national budget — could strain government finances and expose pensioners to risks in the event of economic or fiscal shocks.

The DBCC noted that unfunded liabilities have ballooned over the years due to the automatic indexation of MUP pension. This could further strain the budget in the absence of reforms such as mandating contributions for new entrants, capping salary adjustments, and finding sustainable funding sources.

Earlier proposals have included removing automatic indexation, requiring contributions, raising retirement age, and creating a separate fund for new personnel, but the committee stressed that any changes must consider long-term fiscal sustainability and political realities.

The reassessment comes despite a 2023 recommendation by the Department of Finance under then-Secretary Benjamin E. Diokno to pursue legislative reforms to address the ballooning cost of the non-contributory pension system.

Asked whether that proposal would serve as the basis for reforms under the Marcos administration, Mr. Toledo said another review is warranted to factor in developments since then.

“That was several years ago and there have been developments during this administration,” he said. “This is subject to study again, especially because the fiscal implications could be significant.”

Mr. Toledo noted that a total of P21.7 billion has been allocated for MUP this year under the budget, with P15.4 billion earmarked for active service and P6.3 billion set aside for pension obligations.

Concerns have intensified over the indexation provision, which automatically adjusts pensions in line with salary increases of those in active service.

“There will come a time when those pension requirements will continue to increase and may no longer be sustainable,” Mr. Toledo said, adding that this was why the review remains ongoing.

For now, the Budget chief said the government has set aside funds to meet existing obligations.

Armed Forces of the Philippines Deputy Chief of Staff Lt. Gen. Rommel P. Roldan reassured retirees that any future reforms would not affect current pensioners or those nearing retirement.

He said previous reform efforts were designed to apply only to new entrants to the service.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in the short term an MUP pension reform could create transitional costs such as government top-ups, benefit harmonization or funding a shift to a new scheme.

“[This] may temporarily raise fiscal outlays and require careful sequencing. But these costs are typically front-loaded and manageable if reforms are phased,” he said via Viber.

Mr. Rivera added a well-crafted pension reform can reduce long-term budget pressures by curbing the growth of liabilities and freeing up funds for priority spending.

“Key trade-off is accepting short-term adjustment costs to secure durable fiscal savings and credibility over time,” he noted.

The MUP pension system, which is fully funded by the national government, has long been flagged by economic managers as a growing strain on public finances.

In December, Mr. Marcos ordered a review of the MUP pension system after granting pay and benefit hikes.

The review, ordered amid implementation of the recent pay hike, aims to assess sustainability and potential reforms to the non-contributory pension scheme.