(UPDATED) For SSS Pension Plan: Should I pay the Maximum or the Minimum SSS Contribution?
My brother is an OFW in Saudi Arabia and he pays his maximum SSS contribution quarterly. I was surprised when he sent me a private message on Facebook and asked me if he should continue paying the maximum SSS contribution. When I asked why, he gave me the link to this video from ANC On the Money and he added that he thinks it’s unfair to pay for the maximum amount when what he’s going to receive for his pension is the same as the other members who pay less.
I got confused with what he said so I watched the video first.
ANC On the Money Video: When to Pay the Maximum SSS Contribution
Salve Duplito, ANC On the Money’s resident financial adviser, shared a question that one of their viewers asked regarding this topic. The viewer, named Noel, is currently paying the maximum amount of his SSS contribution voluntarily and he asked if it’s better to pay the minimum amount instead, since the SSS pension plan is computed based on 60 consecutive months or 5 years before retirement. He explained his point of argument using the examples below based on how he understood the process.
Before we discuss this further, let me share with you these resources from ANC On the Money and SSS Philippines website, to know how to compute for SSS Monthly Pension benefit.
ANC On the Money Video: Computation for SSS Monthly Pension Benefit
Computation for Monthly Pension, courtesy of the SSS of the Philippines. (Click the link for the complete details.)
- Benefit Computation
The monthly pension depends on the member’s paid contributions, his credited years of service (CYS), and the number of his dependent minor children that must not exceed five. The monthly pension will be the highest amount resulting from either one of these three pension formulae:
- the sum of P300 plus 20 percent of the average monthly salary credit plus two percent of the average monthly salary credit for each credited year of service (CYS) in excess of ten years; or
- forty (40) percent of the average monthly salary credit; or
- P1,200, if the CYS is at least 10 but less than 20; or P2,400, if the CYS is 20 or more.
Don’t be confused with the computation for the SSS pension plan because it’s different from the computation of the other SSS benefits such as Calamity, Maternity, and Sickness because the latter is based from the actual or most recent contributions.
Going back, here is Salve’s take on the viewer’s question of whether he should pay the maximum contribution or less?
Salve says, “the Social Security System doesn’t allow massive jumps in the contribution rate. The increase has to happen gradually. Thus, you can only increase your contribution a couple of hundreds per year”.
From the example above, it only means that Kevin is NOT ALLOWED to increase his contribution from the minimum amount of P110 to the maximum amount of P1,760 within a given year. Again, the increase has to happen gradually.
Looking at the contribution table above, if Kevin is self-employed or a voluntary member, he can only increase his MSC (Monthly Salary Credit) only once in a given calendar year and by one salary bracket only from the last posted MSC, with some exemptions, which I will share in the next post. So if he is currently paying P110 per month for his SSS contribution, he can only increase it to P165 the next year.
CONCLUSION: For Kevin to be able to pay the highest contribution by age 55 (60 months or 5 years before he retires at 60), he should have increased his contributions gradually starting from age 26.
It is still better to pay the maximum amount of SSS contribution if you can afford it to be able to get the maximum benefits, not only for your Retirement or Pension plan, but also for the other benefits provided by SSS including sickness, maternity, death, and disability.
But let’s not also forget that SSS is not the only option to secure ourselves and our future. We can also consider other instruments like health insurance, life insurance, and Variable Life Insurace (VUL) that offer both health or death benefit and an investment feature. If you are more of an aggressive type of investor, you can also invest in other investment vehicles like the stock market or mutual funds for your future needs. Like what Salve Duplito said, “It is never a good idea to depend on the Social Security System solely for you retirement. As long as the maximum allowable contributions stay low, the benefits they will provide will continue to be insufficient.”
On my next post, I will share with you a very detailed explanation about this topic that was sent by the Social Security System of the Philippines, exclusively for Pinay Investor and to all the readers of this website. Click HERE to read that post.
Sources: Security System of the Philippines, Salve Duplito, ANC on the Money, www.abs-cbnnews.com, and the viewer who raised the question
Disclaimer: I’m not affiliated with the Social Security System of the Philippines. Some of the information here are only based from my own opinion and on how I understood it. If you need a more accurate information of your SSS membership and contributions, please contact SSS directly.