Legal basis and amendments made
- Commonwealth Act No. 186, as amended, is the GSIS Charter whose Section 11 pensions are directly converted under Section 1.
- Section 17 amends Commonwealth Act No. 186 accordingly.
- Section 17 repeals, amends, or modifies all prior laws and issuances inconsistent with the decree.
- Section 3 operates by adjusting pensions under Section 11 of Commonwealth Act No. 186, as amended, while Sections 11 and 12 of the same Act preserve certain retirement options and benefit conditions.
Policy and purpose
- The decree exists to address the inadequacy of fixed monthly pensions against increasing costs of living.
- It implements periodic pension adjustments linked to cost-of-living indices to protect retirees from inflation erosion.
- It provides for conversion to indexed pensions that should not impair existing retiree benefits and should augment them.
- It requires that pension adjustments be done on a sound basis consistent with the financial and investment capability of the Government Service Insurance System (System) without needing periodic increases in national government appropriations and contributions.
- It endows the System with powers and exemptions to maximize administration of the funds established by law.
Defined terms for indexing
- Section 2 defines “Fixed Monthly Pensions” as the level of flat monthly annuities provided under Section 11 of Commonwealth Act No. 186, as amended.
- Section 2 defines “Indexed Monthly Pensions” as adjusted and adjustable monthly annuities provided under the decree based on a cost of living index or other government indices.
- Section 2 defines “Cost of Living Index” (or “Index”) as the Consumer Price Index for the Philippines, as compiled by the Central Bank of the Philippines.
- Section 2 defines “Adjustment Date” as the first day of July in each calendar year.
- Section 2 defines key numeric bases:
- “Average Monthly Index” for any year equals the sum of the monthly Indices in the twelve-month period ending on the last day of December in such year divided by twelve.
- “Index Ratio” for any Adjustment Date equals the sum of the monthly Indices in the sixty-month period ending on the last day of December preceding such Adjustment Date divided by sixty.
- “Conversion Factor” is the variable converting Fixed Monthly Pensions into Indexed Monthly Pensions.
- “Adjustment Factor” is the variable adjusting Indexed Monthly Pensions on each Adjustment Date.
- Section 2 defines institutional and beneficiary categories:
- “Board” means the Board of Trustees of the Government Service Insurance System.
- “System” means the Government Service Insurance System.
- “Future Retirees” are present and future members of the Retirement Insurance Fund whose actual retirement dates are on or after July 1, 1975.
- “Present Retirees” are members of the Retirement Insurance Fund who have retired or will be retired prior to July 1, 1975.
- “Deferred Period” is the guaranteed period where a retiree receives a lump sum payment in lieu of Fixed Monthly Pensions, after which future monthly pensions are payable for life.
Conversion into indexed monthly pensions
- Section 1 converts the present fixed monthly pensions under Section 11 of Commonwealth Act No. 186, as amended into Indexed Monthly Pensions.
- The converted pensions are known as “Indexed Monthly Pensions” under Section 1.
- Section 3 provides that pensions received or to be received under Section 11 of Commonwealth Act No. 186, as amended shall be adjusted by the System through a process involving Presidential approval.
Adjustment mechanism and annual indexing
- Section 3 directs that any pension now being received and hereafter to be received under Section 11 of Commonwealth Act No. 186, as amended shall be adjusted by the System upon recommendation of the General Manager and approved by the President of the Philippines in accordance with guidelines the President may set from time to time.
- Section 3 sets the governing default guidelines “until amended or modified” as follows.
Future retirees—no lump sum election
- For Future Retirees who do not elect the lump sum payment, Fixed Monthly Pensions are converted into Indexed Monthly Pensions on the retiree’s actual retirement date.
- The conversion uses the Conversion Factor applicable to the year of conversion and the retiree’s year of retirement.
- The converted Indexed Monthly Pensions remain constant until the next Adjustment Date following the date of conversion.
- On each succeeding Adjustment Date, the adjusted Indexed Monthly Pensions are computed by multiplying the Indexed Monthly Pensions for the period next preceding the Adjustment Date by the Adjustment Factor for that Adjustment Date.
- The resulting adjusted amount remains constant until the next Adjustment Date.
Future retirees—lump sum election and deferred period
- For Future Retirees who avail of the lump sum payment:
- The lump sum payment is computed based on the Fixed Monthly Pensions.
- If such retiree survives the Deferred Period:
- The retiree is entitled to an additional lump sum payment equal to the difference between:
- the total of the Indexed Monthly Pensions payable during the Deferred Period, and
- the lump sum amount actually received.
- The retiree is entitled to an additional lump sum payment equal to the difference between:
- At the end of the Deferred Period, Fixed Monthly Pensions are converted to Indexed Monthly Pensions using the conversion method applicable to the “no lump sum election” conversion provision.
- Subsequent adjustments are made once yearly on each succeeding Adjustment Date, using the same annual adjustment method for Future Retirees.
- No additional payment is made if the retiree dies within the Deferred Period.
Present retirees—receiving fixed monthly pensions
- All monthly pensions payable to Present Retirees are adjusted as follows.
Conversion effective July 1, 1975
- For Present Retirees receiving Fixed Monthly Pensions, the conversion to Indexed Monthly Pensions is effected as of July 1, 1975 using Conversion Factors by year of retirement.
- Conversion Factors for Present Retirees are:
- 1959 and Prior: 1.75
- 1960: 1.72
- 1961: 1.66
- 1962: 1.63
- 1963: 1.55
- 1964: 1.46
- 1965: 1.43
- 1966: 1.39
- 1967: 1.34
- 1968: 1.32
- 1969: 1.31
- 1970: 1.21
- 1971: 1.08
- 1972: 1.04
- 1973: 1.00
- 1974: 1.00
- The converted Indexed Monthly Pension equals Fixed Monthly Pension multiplied by the Conversion Factor corresponding to the retiree’s year of retirement.
- The resulting Indexed Monthly Pension remains constant until the next Adjustment Date.
Subsequent adjustments
- Subsequent adjustments for Present Retirees (if any) are made once yearly on each succeeding Adjustment Date.
- Those adjustments follow the same annual adjustment method used for Future Retirees without the lump sum election.
Present retirees—within the deferred period
- For Present Retirees within the Deferred Period who received lump sum values:
- No adjustment is made on the lump sum value of Fixed Monthly Pensions paid to Present Retirees in advance prior to July 1, 1975.
- If the Present Retiree is alive at the end of the Deferred Period:
- Fixed Monthly Pensions are converted to Indexed Monthly Pensions using the same conversion method applicable to Future Retirees not electing the lump sum election.
- Subsequent adjustments (if any) follow the same annual adjustment method for Indexed Monthly Pensions.
Minimum pension protection and preservation of benefits
- Section 4 provides that Indexed Monthly Pensions determined under Section 3 shall in no case be less than the present Fixed Monthly Pensions under Section 11 of Commonwealth Act No. 186, as amended.
- Section 4 provides that Indexed Monthly Pensions under the decree do not abolish or impair:
- other retirement options (such as lump sum payments),
- other benefits (such as survivors and disability benefits),
- and conditions provided under Sections 11 and 12 of Commonwealth Act No. 186.
Funding and System support
- Section 5 appropriates, from any fund in the National Treasury not otherwise appropriated (including special and corporate funds), sums necessary to meet:
- unfunded prior and current liabilities of the Retirement Insurance Fund as of July 1, 1975, and
- any additional sums required for the initial conversion of Present Retirees’ Fixed Monthly Pensions to Indexed Monthly Pensions.
- Section 5 authorizes an alternative to appropriation: transfer or conveyance in fee simple of present patrimonial property (real or otherwise) of the national government and its political subdivisions, including government-owned and/or controlled corporations, not otherwise disposed of, and such property thereafter acquired, to the System.
- Section 5 requires that any transfer or conveyance of patrimonial property be first approved by the President of the Philippines.
- Section 5 provides that future liabilities of the System after July 1, 1975 are funded under existing provisions of Commonwealth Act No. 186, as amended, or by transfer or conveyance of patrimonial property as provided for prior and current liabilities.
Implementation powers and administrative structure
- Section 6 empowers the System to promulgate necessary rules and regulations and perform acts to establish and implement Indexed Monthly Pensions.
- Section 3 requires adjustment of pensions upon recommendation of the General Manager and approval by the President of the Philippines under guidelines.
- Section 8 grants the Board full power, upon recommendation of the General Manager, to reorganize the System by:
- creating, merging, consolidating, or abolishing operating units and positions,
- hiring, appointing, promoting, and separating personnel,
- and performing acts promoting efficient and economical management and administration.
- Section 8 authorizes organizational changes in top management:
- conversion of the position and title of General Manager into President of the System,
- creation of positions including Executive Vice President, one or more senior vice presidents, one or more vice presidents, and one or more assistant vice presidents,
- and fixing qualifications and appointing the appropriate persons.
Payment facility and good-faith protection
- Section 7 empowers the System to adopt rules and regulations to expedite payment of benefits, proceeds, and claims.
- Section 7 provides that payment made in good faith and before filing an adverse claim to a beneficiary or claimant later found ineligible:
- frees the System from liability, and
- saves it harmless from any and all persons legally entitled to the payment,
- without prejudice to the proper action in court by the lawful beneficiary or claimant against the ineligible beneficiary or claimant.
Exemptions: legal process and taxation
- Section 9 provides that Indexed Monthly Pensions payable to a retiree under the decree and all other benefit payments by the System are not subject to attachment, garnishment, levy, or seizure under any legal or equitable process.
- Section 9 provides an exception allowing seizure only to pay a debt of the government retiree concerned to the System, or to satisfy liability resulting from a criminal action.
- Section 10 exempts the System from payment of any and all forms of taxes, tariffs and duties, fees, imposts and assessments, and other charges, notwithstanding any existing law, decree, executive or administrative order, rule, or regulation to the contrary.
- Section 11 exempts benefits paid under the decree and other laws administered by the System from income tax and all other forms of taxes.
Asset valuation and investment flexibility
- Section 12 requires assets of the System to be originally recognized at their acquisition costs.
- Section 12 requires valuation whenever necessary and adjustments to reflect assets at appraised or fair market values.
- Section 12 requires valuations to be made by an independent firm of appraisers selected by the System.
- Section 13 provides that all funds managed and/or administered by the System are not subject to Section 22 of Commonwealth Act No. 186, as amended, and/or the Insurance Code.
- Section 13 authorizes the System’s funds to be invested in loans, advances, investments, securities, properties, real or otherwise, as the Board determines upon recommendation of the General Manager.
Assistance, consulting, and technical notes
- Section 14 authorizes the System to call upon government branches, departments, bureaus, offices, including military services, for material and personnel assistance necessary to undertake, operate, and carry out purposes of the decree.
- Section 15 authorizes the System to engage and retain consulting and advisory firms on terms and conditions mutually agreed upon when necessary or desirable to carry out the decree’s purposes.
- Section 16 orders that technical notes underlying the conversion of Fixed Monthly Pensions to Indexed Monthly Pensions are annexed to and made a part of the decree.
- Section 16 requires that any changes in technical notes for future conversion and adjustment must first be approved by the President of the Philippines.
Reorganization, repeals, and effect
- Section 17 amends Commonwealth Act No. 186 accordingly and repeals, amends, or modifies all inconsistent Acts, parts of Acts, decrees, executive orders, ordinances, and other rules and regulations.
- Section 18 fixes effectivity on April 1, 1975, regardless of the date the decree was done and signed.