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PRESIDENTIAL DECREES


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MALACAÑANG
M a n i l a

PRESIDENTIAL DECREE No. 712 April 1, 1975

AMENDING COMMONWEALTH ACT NO. 186, AS AMENDED, AND CONVERTING THE PRESENT FIXED MONTHLY PENSIONS OF THE GOVERNMENT SERVICE INSURANCE SYSTEM TO INDEXED MONTHLY PENSIONS AND FOR OTHER PURPOSES

WHEREAS, the fixed monthly annuities or pensions being received by government pensioners under Commonwealth Act No. 186, as amended, are hardly adequate to meet the increasing costs of living;

WHEREAS, the continuing erosion of the value of such fixed monthly annuities or pensions due to inflation or increase in the cost of living has aggravated the predicament of the retirees;

WHEREAS, the government is cognizant of the plight of government retirees and their families and is desirous of alleviating their predicament;

WHEREAS, a periodic adjustment of the fixed monthly pensions linked with the cost of living indices can protect the real value of the monthly annuities or pensions received by retirees from the erosive effects of inflation;

WHEREAS, the conversion of the fixed monthly annuities or pensions to indexed monthly pensions should in no way impair, diminish or abrogate the benefits presently enjoyed by retirees under Commonwealth Act No. 186, as amended, but should rather augment the present benefits;

WHEREAS, the periodic adjustments of monthly pensions must be done on a sound basis and such adjustments should conform with the financial and investment capability of the Government Service Insurance System without need of periodic increases in national government appropriations and contributions;

WHEREAS, the Government Service Insurance System must be endowed with the necessary powers and exemptions to enable it to maximize the administration of the various funds established by law.

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby decree and order that:

Section 1. Conversion. The present fixed monthly pensions under Section 11 of Commonwealth Act No. 186, as amended, shall be converted into, as hereinafter provided, and shall be known as the "Indexed Monthly Pensions".

Sec. 2. Definitions. When used in this Decree the following terms shall, unless the context otherwise indicates, have the following respective meanings:

(a) "Fixed Monthly Pensions" shall mean the level of flat monthly annuities provided under Section 11 of Commonwealth Act No. 186, as amended.

(b) "Indexed Monthly Pensions" shall mean the adjusted and adjustable monthly annuities to be provided under this Decree based on a cost of living index or other government indices.

(c) "Cost of Living Index" or "Index" shall mean the Consumer Price Index for the Philippines, as compiled by the Central Bank of the Philippines.

(d) "Adjustment Date" shall mean the first day of July in each calendar year.

(e) "Average Monthly Index" for any year shall mean the result obtained by dividing by twelve the sum of the monthly Indices in the twelve-month period ending on the last day of December in such year.

(f) "Index Ratio" for any Adjustment Date shall mean the result obtained by dividing by sixty the sum of the monthly Indices in the sixty-month period ending on the last day of December preceding such Adjustment Date.

(g) "Conversion Factor" shall mean the variable for converting the fixed Monthly Pensions into Indexed Monthly Pensions.

(h) "Adjustment Factor" shall mean the variable for adjusting the Indexed Monthly Pensions on each Adjustment Date.

(i) "Board" shall mean the Board of Trustees of the Government Service Insurance System.

(j) "System" shall mean the Government Service Insurance System.

(k) "Future Retirees" shall mean the present and future members of the Retirement Insurance Fund of the System whose actual retirement dates will be on or after July 1, 1975.

(l) "Present Retirees" shall mean the members of the Retirement Insurance Fund of the system who have retired or will be retired prior to July 1, 1975.

(m) "Deferred Period" shall mean the guaranteed period for which a retiree receives a lump sum payment in lieu of his Fixed Monthly Pensions and after which period future monthly pensions shall be payable to the retiree for life.

(n) Whenever used herein, the masculine pronoun shall include the feminine gender, the singular number shall include the plural, and the plural shall include the singular, unless the context indicates otherwise.

Sec. 3. Adjustment. Any pension now being received and hereafter to be received under the provisions of Section 11 of Commonwealth Act No. 186, as amended, shall be adjusted by the system upon recommendation of the General Manager of the system and approved by the President of the Philippines in accordance with such guidelines as may from time to time and as circumstances may warrant. Until amended or modified as provided above the following guidelines shall apply:

(a) Future Retirees

1) For Future Retirees who do not elect the lump sum payment

The Fixed Monthly Pensions of a Future Retiree who does not elect the lump sum payment shall be converted into Indexed Monthly Pensions on his actual retirement date, based on the Conversion Factor applicable to the year of conversion and his year of retirement. The amount of his converted Indexed Monthly pensions shall be the product obtained by multiplying his Fixed Monthly Pensions by the applicable Conversion Factor, which amount shall remain constant until the Adjustment Date next following the date of conversion. Subsequent adjustments of his Fixed Monthly Pensions shall be effected on each succeeding Adjustment Date. The amount of the adjusted Indexed Monthly Pensions shall be the product obtained by multiplying his Indexed Monthly Pensions for the period next preceding each Adjustment Date by the Adjustment Factor for such Adjustment Date. The amount of such Indexed Monthly Pensions shall remain constant until next Adjustment Date.

2) For Future Retirees availing of the lump sum payment

(aa) The lump sum payment will be computed on the basis of the Fixed Monthly Pensions.

(bb) Should a Future Retiree survive the Deferred Period:

(i) He shall be 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.

(ii) At the end of the Deferred Period, his Fixed Monthly Pensions will be converted to Indexed Monthly Pensions. The manner of conversion to Indexed Monthly Pensions shall be in accordance with the provisions of paragraph (a) (1) hereof.

(iii) Subsequent adjustments shall be affected once yearly on each succeeding Adjustment Date. Such adjustments shall be in accordance with the manner of Adjustment of the Monthly Pensions as provided for in paragraph (a) (1) hereof.

(cc) No additional payment shall be made should the retiree die within the Deferred period.

(b) Present Retirees

1) For present Retirees receiving Fixed Monthly Pensions

All monthly pensions currently payable to Present Retirees shall be adjusted as follows:

(aa) The conversion of Indexed Monthly Pensions shall be effected as of July 1, 1975 based on the following Conversion Factors:


Year of RetirementConversion Factor
1959 and Prior1.75
19601.72
19611.66
19621.63
19631.55
19641.46
19651.43
19661.39
19671.34
19681.32
19691.31
19701.21
19711.08
19721.04
19731.00
19741.00

The amount of the converted Indexed Monthly Pension for each Present Retiree shall be the product obtained by multiplying his Fixed Monthly Pension by the Conversion Factor corresponding to his year of retirement. The amount of such Indexed Monthly Pensions shall remain constant until the next Adjustment Date.

(bb) Subsequent adjustments, if any, shall be affected once yearly on each succeeding Adjustment Date. Such adjustments shall be in accordance with the manner of adjustment of the Indexed Monthly Pensions payable to Future Retirees as provided for in paragraph (a) (1) hereof.

2) Present Retirees within the Deferred Period

(aa) No adjustment will be made on the lump sum value of the fixed Monthly pension which have been paid to Present Retirees in advance prior to July 1, 1975.

(bb) At the end of the Deferred Period, should a present Retiree be then alive, his fixed Monthly pensions will be converted to Indexed Monthly Pensions in accordance with the manner of conversion provided for in paragraph (a) (1) hereof.

(cc) Subsequent adjustments, if any, will be in accordance with the manner of adjustment of the Indexed Monthly Pensions as provided for in paragraph (a) (1) hereof.

3) No adjustment will be made on the value of the fixed monthly Pensions which have been paid to Present Retirees prior to July 1, 1975.

Sec. 4. Provisions. The Indexed Monthly Pensions determined in accordance with Sec. 3 hereof shall in no case be less than the present Fixed Monthly pensions under Section 11 of Commonwealth Act No. 186, as amended. Nor shall the Indexed Monthly Pensions under this Decree operated to abolish or impair the other retirement options (such as lump sum payments), benefits (such as survivors and disability benefits), and conditions provided under Sections 11 and 12 of the same Act.

Sec. 5. Funding. There is hereby appropriated out of any fund in the National Treasury not otherwise appropriated, including special and corporate funds, such sums as may be necessary to meet unfounded prior and current liabilities of the Retirement Insurance Fund as of July 1, 1975, including such additional sums as may be required for the initial conversion of the Fixed Monthly Pensions. Or in lieu of the foregoing appropriation, in whole or in part, any present patrimonial property, real or otherwise, of the national government owned and/or controlled corporations, not otherwise disposed of, and any such property hereinafter acquired, may be transferred or conveyed in fee simple to the System; provided that any such transfer or conveyance shall be first approved by the President of the Philippines. Future liabilities of the System after July 1, 1975 shall be funded as provided for under existing provisions of Commonwealth Act No. 186, as amended, or by transfer or conveyance of patrimonial property as provided herein for prior and current liabilities of the System.

Sec. 6. Implementing Rules and Regulations. The System is hereby empowered to promulgate such rules and regulations and perform all other acts as may be necessary to establish and implement such Indexed Monthly Pensions.

Sec. 7. Facility of Payment. The System is hereby empowered to adopt such rules and regulations to expedite the payment of benefits, proceeds, and claims pursuant to any and all laws administered by the System and any such payment made in good faith and prior to the filing of an adverse claim, to a beneficiary or claimant subsequently found not to be eligible, shall free the System from liability and save it harmless from any and all persons legally entitled to such payment, without prejudice to the proper action in a court of law by the lawful beneficiary or claimant against the ineligible beneficiary or claimant.

Sec. 8. Reorganization. To carry out the objectives of this Decree and all other laws implemented by the System, the Board upon recommendation of the General Manager, shall have full power and authority to reorganize the System by creating, merging, consolidating, or abolishing operating units and positions, by hiring, appointing, promoting, and separating personnel, and by any and all acts tending to promote the efficient and economical management and administration of the System. The board is hereby empowered to convert the position and title of General Manager into that of President of the System, to create the position of Executive Vice President, one or more senior vice presidents, one or more vice presidents, one or more assistant vice presidents, and such other positions as the interest of the service may require, to fix the qualifications for such position, and to appoint the appropriate persons thereto.

Sec. 9. Indexed Monthly Pensions and Other Benefits Exempt from Legal Process. Any provision of law to the contrary notwithstanding, the Indexed Monthly Pensions payable to a retiree under this Decree and all other benefit payments by the System shall not be subject to attachment, garnishment, levy or seizure under any legal or equitable process whatsoever except to pay a debt of the government retirees concerned to the System, or that arising from liability resulting from a criminal action.

Section 10. Exemption of the System. Notwithstanding any provision of existing law, decree, executive or administrative order, rule or regulation to the contrary, the System shall be exempt from the payment of any and all forms of taxes, tariffs and duties, fees, imposts and assessments, and other charges.

Section 11. Exemption of the Retiree. Notwithstanding any provision of existing law, decree, executive or administrative order, rule or regulation to the contrary, all benefits paid under this Decree and other laws administered by the System shall not be subject to income tax and all other forms of taxes.

Section 12. Valuation of Assets. Assets of the System shall be originally recognized at their acquisition costs. A valuation thereof shall be made whenever necessary and the corresponding adjustments shall be made to reflect the assets at their appraised or fair market values. The valuation shall be made by an independent firm of appraisers to be selected by the System.

Section 13. Investments of Funds. All the funds managed and/or administered by the System shall not be subject to the provisions of Sec. 22 of Commonwealth Act No. 186, as amended, and/or the Insurance Code, and all the funds managed and administered by the System may be invested in such loans, advances, investments, securities, properties, real or otherwise, as the Board may determine, upon recommendation of the General manager.

Section 14. Government Assistance to the System. The System may, in the discharge of its duties and functions, call upon all or any government branch, department, bureau, or office, including the military services, for assistance, both material and personnel, as may be necessary to any undertaking, operation, and activity for carrying out the purposes of this Decree.

Section 15. Outside Assistance to the System. Whenever necessary of desirable for likewise carrying out the purposes of this Decree, the System may engage and retain, upon terms and conditions as may be mutually agreed upon, the services of competent consulting advisory firms.

Section 16. Technical Notes. The technical notes underlying the conversion of Fixed Monthly Pensions to Indexed Monthly Pensions hereunder are hereby ordered annexed to and made a part of this Decree. Any and all changes in said technical notes as may be required for future conversion and adjustment of monthly pensions as may be determined by the System upon recommendation of the General Manager shall first be approved by the President of the Philippines.

Section 17. Prior Laws. Commonwealth Act No. 186, as amended, otherwise known as the GSIS Charter, is hereby amended accordingly. All acts, parts of Acts, Decrees, executive orders, ordinances, and all other rules and regulations which are inconsistent with the provisions of this Decree are hereby repealed, amended or modified accordingly.

Section 18. Effective Date. This Decree shall take effect on April 1, 1975.

Done in the City of Manila, this 27th day of May, in the year of Our Lord, nineteen hundred and seventy-five.

ANNEX

TECHNICAL NOTES UNDERLYING THE CONVERSION OF THE PRESENT FIXED MONTHLY PENSIONS OF THE GOVERNMENT SERVICE INSURANCE SYSTEM TO INDEXED MONTHLY PENSIONS.

I. Definitions:

(a) "Fixed Monthly Pensions" shall mean the level of flat monthly annuities provided under Section 11 of Commonwealth Act No. 186, as amended.

(b) "Indexed Monthly Pensions" shall mean the adjusted and adjustable monthly annuities to be provided under this Decree, based on cost of living index or other government indices.

(c) "Cost of Living Index" or "Index" shall mean the Consumer Price Index for the Philippines, as compiled by the Central Bank of the Philippines.

(d) "Adjustment Date" shall mean the first day of July in each calendar year.

(e) "Average Monthly Index" for any year shall mean the result obtained by dividing by twelve the sum of the monthly Indices in the twelve-month period ending on the last day of December in such year.

(f) "Index Ratio" for any Adjustment Date shall mean the result obtained by dividing by sixty the sum of the monthly Indices in the sixty-month period ending on the last day of December preceding such adjustment Date.

(g) "Conversion Factor" shall mean the variable for converting the Fixed Monthly Pensions to Indexed Monthly Pensions on each Adjustment Date.

(h) "Adjustment Factor" shall mean the variable for adjusting the Indexed Monthly Pensions on each Adjustment Date.

II. Average Monthly Consumer Price Indices (CPI) for years 1957 to 1974:


YearAverage Monthly
t*CPIt
195772.6
195874.4
195972.8
196076.4
196180.1
196282.4
196389.1
196496.8
1965100.0
1966104.8
1967110.6
1968113.0
1969114.5
1970131.5
1971160.2
1972173.4
1973194.5
1974171.9
Source: Central bank of the Philippines

* For years prior to 1957, the Average Monthly CPI for 1957 will be used.

III. Index Ratio (IR):

IR 5 Y = average of the monthly CPI's from January, Y-5, to December, Y-1 inclusive.


Therefore, IR 5 1975 = average of the monthly CPI's from January, 1970, to December, 1974, inclusive

IV. Conversion Factors (CF) to convert Fixed Monthly Pensions to Indexed Monthly Pensions:



CF Y t = 1 + g xIR 5 Y 1
CPI t
whereIR 5 Y 10
CPI t
CF Y tConversion Factor for year of conversion Y and year of retirement t, rounded to the nearest per cent. Balancing Factor, which is the percentage adjustment incorporated in the formula to arrive at the value of the Conversion Factor.
Y The values CF t for Y = 1975, with g = 50% and CFt 1975 not greater than 1.75, are given below:

Year
t*
1975
CPI t
19591.75
19601.72
19611.66
19621.63
19631.55
19641.46
19651.43
19661.39
19671.34
19681.32
19691.31
19701.21
19711.08
19721.00
19731.00
1974-

* For years prior 1959, CFt 1975 will be equal to 1.75.

V. Converted Indexed Monthly Pensions:

IMP Y = FMP t x CF Y
where IMP Y = Indexed Monthly Pensions converted during Year Y
FMP t = Fixed Monthly Pensions of members retiring during Year t.

VI. Adjustment Factor (AF) to adjust Indexed Monthly Pensions:


AF Y =k x
IR 5 Y


IR 5 Y 1
where AF Y = Adjustment Factor for year Y.
and K = Degree of Adjustment.
Therefore, AF 1976 =k x
IR 5 1976


IR 5 1975
For full adjustment, k =100%,
and AF 1976 =
IR 5 1976


IR 5 1975

VII. Adjusted Indexed Monthly Pensions:


IMP Y =IMP Y - 1 x AF Y
where IMP Y =Indexed Monthly Pensions adjusted in year Y.
Therefore, IMP 1976 =IMP 1975 x AF 1976

ILLUSTRATIVE EXAMPLES OF INDEXED MONTHLY PENSIONS OF PRESENT RETIREES AS OF CONVERSION DATE JULY 1, 1975


Indexed Monthly Pensions
Year of Retirement Fixed Monthly PensionConversion FactorPensions
1954P1501.75P262.50
1959P1501.75P262.50
1964P2001.46P292.00
1969P2501.31P328.00
1974P3501.00P350.00

Exemplary Note:

The Indexed Monthly Pensions of a Present Retiree will be equal to the product of his Fixed Monthly Pensions and the Conversion Factor applicable to his year of retirement. Thus, a retiree who retired in 1954 and who is receiving Fixed Monthly Pensions of P150 will be entitled to Indexed Monthly Pensions of P262.50, which is obtained as follows:


Indexed Monthly Pensions = Fixed Monthly Pensions x Conversion Factor
= P150 x 1.75
= P262.50

His Indexed Monthly pensions will remain constant at P262.50 until the next adjustment on July 1, 1976.