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August 29, 2015, Saturday
  • Classes at U.P. Manila’s College of Arts and Sciences cancelled on Friday afternoon due to INC rally along Padre Faura St. 9 hours ago |
  • Rains in the area of Padre Faura St. in Manila fail to dampen the spirit of INC members who are protesting at DOJ. 9 hours ago |
  • CBCP says government should not underestimate the message of ‘no remittance day.’ 9 hours ago |
  • Construction of LRT 2 Masinag Extension to begin on Sept. 26. 9 hours ago |
  • Body of a missing seaman found in Tagaytay. 9 hours ago |
  • Palace calls for sobriety as more INC members troop to Padre Faura in Manila to join vigil in front of DOJ. 9 hours ago |
  • PNP’s estimate of INC members gathered in front of DOJ in Padre Faura St. in Manila is 4,000. 9 hours ago |
  • Justice Secretary Leila de Lima not yet seen at DOJ premises as of Friday afternoon. 10 hours ago |
  • Schedule of hearing on libel case filed by Makati Mayor Binay vs. Sen. Trillanes among those postponed on Friday due to INC rally at DOJ. 10 hours ago |
  • INC rally in front of DOJ has prompted the postponement of some hearings in the department. 10 hours ago |
  • Sen. Trillanes says he is ready to face any complaint at Senate Ethics Cmte. with regard to his hiring of over 40 consultants. 10 hours ago |
  • 10 members of the Philippine Marines injured in a battle with about 300 ASG bandits in Patikul, Sulu on Friday morning. 10 hours ago |
  • Radio broadcaster Cosme Diez Maestrado killed in an ambush in Misamis Occidental. 10 hours ago |
  • Anthony Taberna’s wife Rossel says it is ‘business as usual’ in their QC coffee shop after it was fired upon by gunmen. 10 hours ago |
  • Anthony Taberna’s wife Rossel thanks those who are concerned for them after the shooting incident in their QC coffee shop. 10 hours ago |
  • Migrante International says OFWs in Hong Kong, Saudi Arabia & Italy are joining the ‘zero remittance day’ on Friday. 10 hours ago |
  • Migrante International leads a rally at Mendiola in Manila as part of their ‘zero remittance day’ protest. 10 hours ago |
  • OFW Amie Emuslan who has been in comatose in UAE for 4 years finally brought back home. 11 hours ago |
  • Pres. Aquino tells visiting Thai PM that Filipinos are offering their condolences to the Thai people who are Filipinos’ brothers. 11 hours ago |
  • Thai PM Gen. Prayut Chan-o-cha expresses sympathy for the Filipino who sustained injury in her hearing during the Aug. 17 Bangkok blast. 11 hours ago |
  • Thai PM who is visiting PH says situation in Thailand now under control since the Aug. 17 Bangkok blast that killed 20 persons. 11 hours ago |
  • Gunmen shot and killed a Chinese tourist who was on board a taxi in Vito Cruz, Manila. 14 hours ago |
  • Anthony Taberna says cops are looking at his job as a media man as possible motive behind the shooting incident at his coffee shop. 14 hours ago |
  • 2 men seen on CCTV firing at the coffee shop of ABS-CBN broadcaster Anthony Taberna in Visayas Ave., QC. 14 hours ago |
  • Padre Faura St. in Manila still closed to traffic on Friday morning due to INC rally in front of DOJ. 14 hours ago |
  • Some INC members continue their vigil in front of DOJ for the second day. 14 hours ago |
  • Sen. Alan Peter Cayetano tells court that part of his privilege as senator includes giving statements on subjects of senate probes. 14 hours ago |
  • Sen. Alan Peter Cayetano asks Makati RTC to dismiss the P 200-million damage suit filed against him by VP Binay. 14 hours ago |
  • BOC Chief Bert Lina shows at a press conference how prohibited items are being smuggled into PH using balikbayan boxes. 14 hours ago |
  • Customs Commissioner Bert Lina says he is listening to the sentiments of OFWs. 14 hours ago |
  • Customs Chief Bert Lina holds a press conference explaining how BOC is handling and inspecting balikbayan boxes. 14 hours ago |
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Straightway deterioration into a Ponzi scheme

By Horace Templo | Feb. 15, 2013 at 12:01am
By now, the hullabaloo about Manuel Amalilio’s Aman Futures, the latest Ponzi scheme and pyramid scam, has escalated to the point of even souring our country’s friendly diplomatic ties with Malaysia.

But consider the U.S. Securities and Exchange Commission’s standard definition of a Ponzi scheme: “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.”

Doesn’t this definition place Social Security System into their class? While these scams have voluntary “investors” and promised “returns”, SSS has mandatory “contributors” and defined “pensions.” We have to reassure ourselves that SSS is not of the same kind.

Now a pay-as-you-go system, SSS finances current obligations from current contributions. Many members are not able to contribute enough for their own benefits. These are being paid out of the contributions of young, healthy and non-child bearing members. Who do you think paid for the first pensions of the 1960s?

The continuous inflow of contributions must therefore be promoted. The true solutions—collection efficiency, contribution rate increase, administrative economy, and benefit reduction—are, unfortunately, difficult to achieve.

SSS administrators have occasionally resorted to gimmicky Band-Aid solutions that provide only short-term relief. The favorites are the contribution and loan penalty condonation programs that provide immediate cash flows, but give rise to higher benefits and loan applications later. The enrolment of low-income workers who would selectively pay just enough to qualify for pensions is hailed a success for universal coverage, not realizing that this type of coverage is a load too heavy for other members to carry.

A Ponzi scheme collapses when the required fresh money from new investors stops, and old investors cash out. This could have also happened to SSS during its formative years when contributions could be withdrawn, and sickness,  disability and death claims were filed ahead of the regular cohorts of old-age pensioners. SSS easily weathered this crisis.

Correcting this flaw, SSS discontinued early withdrawal of contributions. Workers and employers now have to continue remitting contributions even at times when the SSS is unpopular.

Victims of Ponzi schemes continue to be duped so long as they believe that they would eventually receive their handsome returns, ignorant of the schemers’ real financial conditions and where the promised returns would come from.

Salary loans are popular, but because of their high administrative costs, they have been giving SSS negative returns. To stay viable, SSS augments contributions with incomes from investments in stocks and fixed income securities. At times when yields were high, SSS earned more investment income than it received contributions. This was accomplished by Administrators Gilberto Teodoro in 1983-1986, Jose Cuisia Jr. in 1986-1990, and Renato Valencia in 1990-1993.

We observe, in fairness to most of now-bankrupt pre-need plan companies, that they were established as legitimate financial ventures, not as Ponzi schemes. However, when they started failing to meet financial targets, and deluded investors of their true conditions, they unwittingly transformed themselves into Ponzi schemes.

Victims of Ponzi schemes are not protected by law in our financial system of “caveat emptor.” Fortunate are the SSS members whose full benefits are guaranteed by government. In any serious sign of impending trouble, reforms would be immediately imposed to correct faults. Financial resuscitation is provided if necessary. Then confidence would return.

But the Department of Finance, the manager of government guaranties, sometimes over-reacts. For instance, it took hook, line and sinker the premature World Bank’s prescription that SSS must privatize to avert an impending worldwide old-age crisis. The WB later corrected itself and recalled this prescription.

Let us be clear. Surpluses and deficits are the bottom line of the interplay of factors that constantly change. These factors are wages and unemployment rates; sickness, maternity, and disability benefit claims; longevity and mortality rates; investment returns in stocks, fixed-income securities and member loans; and operating expenses. They make the required contribution rate fluctuate up and down.

But at present, a low-income member is allowed to pay P104 monthly for 10 years for a total of P12,480. He then qualifies at 60 years old for a lifetime monthly pension of P1,200, totaling P312,000  in 20 years. This is a return of 2,400 percent!

If the SSS drive to enroll hundreds of thousands of tricycle drivers were anchored in this kind of mathematics, then no intricate analysis is required. It will surely drive itself into insolvency. It first must raise the minimum contribution.

Meantime, beneficiaries cannot be denied a decent pension level and efficient and accessible decentralized services. Failing to do so, SSS would be no different from any Ponzi scheme reneging on its promised returns, and would soon collapse.

SSS must now raise its meager pensions while building up a modest reserve fund, courageously ask contributors to increase their contribution rate and minimum and maximum salary bases.

We must recognize the essentiality of SSS in our lives. As every Filipino must be its beneficiary, every capable one must also agree to carry the pension load of those who could not pay for it.

Else, this public pension scheme would straightway deteriorate into another bankrupt Ponzi scheme.
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