Social security in the Philippines: is the private Filipino Labor force covered?

 Roma Amor C. Aguinaldo

Divine Word College of Laoag – Graduate School

ABSTRACT:

This paper reviews the evaluation by the World Bank in 2016 of the Philippine Social Security System focusing on the current state and challenges in the coverage of the labour force and exploring ways to improve the coverage of the Filipino labour force to further improve social protection.

KEYWORDS:

Benefits, Coverage, Labor Force, Social Protection, Social Security System, Social Security

INTRODUCTION:

Social security as defined by Abel-Smith (2022) is any of the measures established by legislation to maintain individual or family income or to provide income when some or all sources of income are disrupted or terminated or when exceptionally heavy expenditures have to be incurred.

Social security in the Philippines is administered through various commissions and agencies created through existing Republic Acts. There are seven major social protection institutions in the Philippines, the Government Service Insurance System (GSIS), the Employee's Compensation Commission (ECC), the Philippine Health Insurance Corporation (PHIC) or PhilHealth, the Home Development Mutual Fund (HDMF) or Pag-IBIG, the Armed Forces of the Philippines Retirement and Benefit System (AFP-RSBS), the Overseas Workers Welfare Administration (OWWA), and the Social Security System (SSS) for the private sector, which is the subject of this research.

The Social Security System (SSS)

According to Orbeta's (2011) discussion paper, the Social Security System was established in 1948 following a recommendation in Congress to enact a law to establish a system for the social security of wage earners and low-wage employees through Republic Act No. 1161, also known as the Social Security Act of 1954. It was then changed to Republic Act No. 8282, or the Social Security Act of 1997, and abolished in 2018 by Republic Act No. 11199, also known as the Social Security Act of 2018, to increase the system's powers and duties and ensure its long-term sustainability.

            The Social Security Act of 2018, is the policy of the State to establish, develop, promote and perfect a sound and viable tax-exempt social security system suitable to the needs of the people throughout the Philippines which shall promote social justice through savings, and ensure meaningful social security protection to members and their beneficiaries against the hazards of disability, sickness, maternity, old age, death, and other contingencies resulting in loss of income or financial burden. Retirement benefits, death and funeral benefits, permanent disability benefits, sickness benefits, and maternity benefits are among the social security benefits offered by the SSS.

Applications to join the SSS are welcome from self-employed individuals such as business owners, independent contractors, and workers in the unorganized sector as well as from overseas Filipino workers (OFWs) and the spouses of active members who are not employed. Through the SSS website, those who qualify for voluntary SSS membership—such as OFWs and non-working spouses of active SSS members—can apply for their own SSS number. By producing any approved supporting documentation, such as a valid passport or a certificate of birth or baptism, the granted SSS number can be changed from temporary to permanent status.

            As provided in Section 9 of the aforementioned act, the law provides the compulsory coverage of the following:

            Employees. Employees including kasambahays or domestic workers not over sixty (60) years of age and their employers.

            Non-Working Spouses. Spouses who devote full time to managing the household and family affairs.

            Self-Employed Individuals. Individuals who may be determined as such by the Social Security Commission.

            Overseas Filipino Workers (OFW). All sea-based and land-based OFWs as defined under the Republic Act No. 8042, otherwise known as the Migrant Worker and Overseas Filipino Act of 1995.

Social Security System Coverage

            Employers and all private sector workers under 60 years old, regardless of employment status, must be covered by the Social Security System. This includes Filipino seafarers. SSS coverage is also offered to separated members, non-working spouses of SSS members, and Filipino overseas workers.

According to the Philippine Statistics Authority LABSTAT Updates of January 2019, the proportion of the labour force that contributed to both private and public continued to steadily increase from 29.4 per cent in 2012 to 38.4 per cent in 2017. The share of the labour force who contributed to the SSS on this percentage was 26.0 per cent in 2012 and increased to 34.4 per cent in 2017, which contributed 8.4% of the increase over the said period.

Furthermore, the PSA LABSTAT also covered the fact that, from 2012 to 2017, the majority of participants in pension plans were consistently employed in the private sector. Its proportion increased from around 88.6%, or 10.824 million, of the total 12.223 million members in 2012 to 89.9%, or 15.287 million, in 2017.

Although the presented statistics have shown an increase in the percentage of contributing members of the SSS, there is still room for strengthening its coverage. As per the World Bank Review of the Philippine Social Security System (2016), around 75 percent of Filipino workers are informally employed and, while almost all workers are required to contribute, only about 22 per cent of them actively contribute to the SSS.

The World Bank identified in their review that although the legal requirement for coverage extends to all private sector employees regardless of the status of their employment, only about 25% of the employed contribute on an active basis. According to their presented statistics, in the year 2013, around 17.8% of the working-age population and 25.8 per cent of the labour force contributed more than a month.

Their evaluation also said that the Philippines has a relatively low average density of SSS contributions, indicating that many workers are not participating for a significant period of their working careers. Their data in 2013, when expressed as a percentage of a lifetime of employment from adolescence to retirement age, shows that the average contribution density at retirement was approximately 26.5. It shows that the sufficiency of benefits is impacted by such relatively low contribution densities, which diminish individual replacement rates.

According to World Bank (2016) data, just 14.2 per cent of people 60 years of age and beyond receive an old age pension from the SSS in terms of beneficiary coverage. Compared to the working population, the elderly have a lower coverage rate in part because many older workers reach retirement age without having accumulated enough years of contributed service to be eligible for annuitized payments. Extremely high rates of co-residency imply that the majority of people without pensions will be supported by other sources, such as the previously mentioned revenues from assets, remittances, and intra-household transfers.

The SSS has been striving diligently to broaden the scope of employees and companies that are required to contribute contributions to enhance coverage. Beginning in 1980, self-employed individuals had to pay into the system; in the 1990s, self-employed occupations expanded to include farmers, fishermen, and other occupations. However, as was previously mentioned, the labour market conditions of Filipino workers have made the actual execution of the legal requirement for coverage costly and challenging to enforce.

In summary, poor coverage and contribution densities are caused by the fact that many Filipino workers have few reliable wage-based sources of income. Payroll-based contributory social security programs are generally the most successful in providing coverage for people with regular incomes; but, the majority of Filipino workers have sporadic employment, frequently work in small businesses or in agriculture, or are self-employed or sole owners.

Improving Social Security System Coverage

The World Bank's (2016) evaluation offered numerous possibilities for improving SSS coverage, including reforms that might focus on steps to match its services with the preferences of all its members, thereby improving the access and efficiency of contributions and payment systems.

To facilitate the informal sector's participation, steps must first be taken to enhance the SSS administration. Even though the SSS has already made progress in this area—for instance, by implementing Automatic Debt Arrangements to enable informal worker contributions—more steps can be taken to significantly expand access, such as enhancing their online member interface and implementing creative mobile-money-based contributions and payments.

Another improvement suggested by the World Bank is to improve the benefits offered to the members who do not have a permanent employment contract and align them to the benefits of those who have permanent work contracts. The World Bank stated that the 10-year vesting requirement effectively excludes some workers with short work histories from participating. They also said that members are not subject to minimum contributions, they still benefit from minimum pensions.

The third suggestion of the World Bank is that SSS might want to consider introducing a special instrument for informal workers which is designed to align with their needs and preferences. A system of this kind may be designed as a defined-contribution savings plan with retirement annuitized benefits. Benefits from these sources can supplement those from the defined-benefit SSS pensions. Projected benefit levels at various retirement ages, including benefits for employees who have contributed to both the defined-contribution and defined-benefit SSS plans, could be communicated by pension calculators. Furthermore, in the event of specified occurrences like protracted unemployment, severe medical conditions or disabilities, and natural disasters, partial withdrawals might be allowed. Lastly, each worker should make voluntary contributions at a level and at a time that suits them. When combined, these characteristics may make such an SSS instrument more appealing to informal workers than the defined-benefit SSS instrument that is in place now. 

CONCLUSION

Given the Philippines' status as a young and growing country, delivering social security presents significant obstacles. One of the challenges it faces in providing social security is ensuring that its labour force is covered by the Social Security Act.

It is evident that the percentage of Filipinos covered by the system still needs numerous enhancements, despite statistics from preview reviews of the system showing an increase in coverage with the private labour force. These improvements could centre on how to better align the system's services with the preferences of all of its members, which would enhance contribution and payment systems' efficiency and accessibility.

REFERENCES

Abel-Smith, B. (2022, October 13). social security. Encyclopedia Britannica. https://www.britannica.com/topic/social-security-government-program

Orbeta Jr, A. (2011). Social protection in the Philippines: Current state and challenges. http://hdl.handle.net/10419/126838

Philippine Statistics Authority (January 2019). Decent Work in the Philippines: Statistics on Social Security. LABSTAT Updates, 23(1), ISSN 0118-8747.

Social Security Act of 2018, Republic Act No. 11199, 17th Cong. (2018)

World Bank. (2016). Republic of the Philippines Review of the Social Security System: Considerations for Strengthening Sustainability and Coverage. World Bank.