Antisocial Insecurities

I'm done with SSS. I already have 144 months of contributions - that's 12 years exactly!. A wee bit more than the required 10 years of contributions to "benefit" from a retirement pension - whatever a monthly of ₱6,233.33 can buy in the future.

Yes, I calculated. Mainly because of sheer curiosity how those years of auto deductions translate to money in my future. Yes, it's a measly sum. If I factor in inflation, that's basically around 1-2 thousand in today's money by the time I retire. But as they say, it is intended as a security, not an investment. And everybody knows that it's not a reliable source of income in our last days on earth. And also, a huge chunk of my contribution comes from my employers so in essence a part of it is free money anyway.

The new hike in contributions increases the monthly salary credit which in theory should also increase everyone's pension. As someone who left the Philippine workforce 2 years ago and has to shoulder the full amount if I decided to continue my contributions, this isn't something I'm particularly excited about. But for those of you who are still are, rejoice! Because even if your SSS deductions increase a bit, the free money portion increases substantially as well. Under the new law, the hike will gradually increase over the course of 5 years.

For some of us this is a little bit overwhelming and understandably so. But let's break it down a bit.
The monthly salary credit (MSC) is a value that SSS assigns based on your monthly gross salary. At the current value, those with monthly salary of less than 1,250 will be assigned an MSC of 1,000. Those with salaries of 1,250 but less than 1,750 has an MSC of 1,500. And so on.

To make it simple, let's say your monthly salary is more than the maximum MSC (currently at 16000 but will increase to 35000 by 2025), you should expect an increase in your monthly contribution as follows:

That doubles in 2 years and more than triple by 2025. As much as you abhor seeing the amount of money that will be gone from your monthly pay, ignore those for a bit and notice your employer's projected contributions. Yes, those are effectively free money that you can reap in your retirement! I'd say take advantage of that. When you're young, it's easy to hate something that has an immediate disadvantage and has no immediate return. But trust me, when you're nearing retirement, every bit of money you set aside is a welcome addition to your portfolio.

Now, for me who's effectively an OFW and if I decided to continue my contribution to increase my pension, I have no Philippine employer to share my contribution with. That means starting 2025, I will have to shell out 5,250 monthly or 63,000 a year. Ouch right? That is compounded by the fact that the cost of additional contribution might not justify the increase in my projected pension. So I sat down one day and took a deep look into the figures and I realized there's a way to maximize my pension at the least possible additional contributions exploiting the way how pensions are calculated.

According to this, our pension will be the highest of the following computations

• Computation 1 = 300 + (20% * Average MSC) + (2% * Years in excess of 10 * Average MSC)
• Computation 2 = 40% * Average MSC
• Computation 3 = 1,200 After 10 years or 2,400 after 20 years

My Average MSC for the last 5 years worth of contributions is 15,583.33. I have 12 years in total. So, if I apply that to the computations above,

• Computation 1 = 300 + (0.2 * 15,583.33) + (0.02 * 2 * 15,583.33) = 4,040.00
• Computation 2 = 0.4 * 15,583.33 = 6,233.33
• Computation 3 = 1,200

At this point, I'm expecting to receive 6,233.33 when I turn 60. But if I start adding contribution again, my average MSC and, in effect, my pension, will increase. But the "loophole" is that we only need prior 5 years (60 months) to compute the average.

Average MSC = (Total MSC of the last 60 contributions) / 60

I projected this into my spreadsheet and find out how much I needed to increase my pension to 14,000. I specifically capped at 14,000 because of the Law of Diminishing Returns. For me, after that the increase in projected pension is not justified by additional contributions. Skipping through all the details, here's the summary:

• If I start adding again this year (2019) until 2027 when my projected monthly pension will reach 14,160.
  • Total additional contributions = 425,400.
  • Five year additional return = 475,000
• If I start in 2025 when the MSC has normalized to 35,000 and continue until 2029, my pension will reach 14,000.
  • Total additional contributions = 315,000.
  • Five year additional return = 466,000. 🤔

Notice the 100,000+ difference at almost the same return? Yeah it's because of that Average MSC up there. Isn't it more sensible to wait it out, invest somewhere else first and reassess several years after? Now, what if the government decided to increase the MSC again in the future? No problem, I just need to suspend my contributions again to a more favorable average MSC. Thus, it is most optimal to add contributions on the last 5 years before I turn 60 when it is most likely the highest MSC I can ever get before I retire. Even the VP for media affairs agreed. 

It's still a loong way to go. But since I stopped working in the Philippines, I've been thinking if I should continue my contributions as a voluntary member. It turns out if I do, there may be lull years that my contributions doesn't even affect my final pension. This is the bit where all of us hated the system. After all, it's still an institutionalized Ponzi scheme. The only way around is to learn how the system works to our advantage.


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Sources:
RA 11199 (PDF 14MB) Mirror