What Your SSS Contributions Mean for Your Retirement

SSS isn’t an unfamiliar term: you had to submit an SSS number before getting hired, and your payslip clearly indicates that part of your salary is automatically deducted for the sake of SSS contributions every month.

What is SSS?

To get specific about it, SSS (the Philippine Social Security System) is an insurance program that’s probably most well-known for providing  pension upon retirement, but it also comes with other benefits that you can avail of in several situations: sickness, maternity, disability, even death. In a sense, it rewards its members with assistance–or a safety net–when these major life events happen.

Despite its name, it isn’t universal among all Filipinos. It was formed specifically for private employees, with government and military systems having different systems altogether.

If you’re self-employed, you can also apply, although you’ll have to be in charge of your own SSS contributions. Otherwise, if you fit neither of these categories (OFWs, for example), don’t despair–you can still contribute by filing for voluntary coverage.

How It’s Funded

SSS isn’t funded by taxes or by the Philippine government–the money comes directly from you and your employer. Because it’s an insurance and not a welfare program, what you get out of it is based on how much you put in over the years.  

The current rate is at 11%, meaning SSS members are required to contribute 11% of their salary as contribution every month. Take note, though, that from the perspective of SSS, your monthly salary is capped off at P16,000. Whether you’re earning P20,000 or P50,000, you’ll have the same contribution amount.

But you’re not paying this in full–the amount is split between you (3.63%) and your employer (7.37%). For self-employed members, there’s nobody to split the payment with, so the entire 11% has to be shouldered by them.

This 2017, though, President Duterte approved a P1000 increase in the monthly pensions of SSS members, and the additional payment has been rolled out since March. To prevent SSS from going bankrupt, the increased pension needs to be balanced with increased contributions from 11% to 12.5%. This was supposed to be implemented on May, but it has been delayed to 2018, so the standard 11% rate above still applies.  

What This Means for Your Retirement  

When you retire, assuming that you’ve paid 120 months of contribution (that’s equivalent to at least ten years!), you’re entitled to a pension from SSS that you can receive as a recurring monthly payment for the rest of your life.

On the other hand, if you didn’t make it to 10 months of contribution, you’ll still get your retirement benefits, but only as a lump-sum amount that’s equivalent to how much you and your employer have paid over the years, compounded by interest.

To arrive at your monthly pension, you actually need to use three formulas. Whichever results in the highest amount (with an additional P1000 in line with this year’s pension adjustment) will be the one followed:

1.) 40% of average monthly salary credit

2.) P1200, if your number of credited years of service is greater than ten but less than twenty (10 < CYS < 20); P2400 if CYS exceeds 20

3.) P300 + 20% average monthly salary credit + 2% average monthly salary credit for each credited year of service (CYS) beyond 10 years

Example

Assuming that your average salary is P40,000 (remember that P16,000 is the monthly cap, though) and you’ve rendered 40 years of service:

Formula 1

40% x 16,000 = P6400

Formula 2

Because 40 years exceeds 20: P2400

Formula 3

P300 + (20% x P16,000) + (2% x P16,000 x (40 – 10 years)) = P13100.60

Out of these three results, Formula 3 yields the highest amount at P13100.60. With the P1000 increase in pension this 2017, this becomes P14100.60, which is the monthly pension that you’ll receive.

Conclusion

Even if you’re still far from retirement now and your monthly salary is still prone to a lot of changes, it’s a good eye-opener to calculate how much pension you’ll get based on your salary so far. You can then compare it with how much you think will be enough for your needs once you’re a senior citizen, and plan accordingly. In order for you to have a comfortable life come retirement, it’s important to save and invest as early as now.

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source https://sprout.ph/blog/4566/