How to Compute Retirement Pay in the Philippines

Mar 29, 2011 by at Labor Laws, Law & Government, Philippine Laws

How to Compute Retirement Pay in the Philippines

How to compute retirement pay in the Philippines? On January 7, 1993, Republic Act (R.A.) No. 7641, otherwise known as the New Retirement Law, took effect and amended Article 287 of the Labor Code of the Philippines (PD No. 442).  According to the new law, any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract.

We cannot stop the aging process of the nature. No matter who we are, we will reach the time that we need to retire from our job. In the principle of good employment, it is just and reasonable that retiring employees will receive due benefits to support them after serving their employers for years. Moreover, they need sufficient amounts of fund that will support their daily living at the age of 60 and above. Thus, the law intended to protect the welfare of those workers and employees.


Coverage of this provision

Republic Act No. 7641 or the Retirement Pay Law shall apply to all employees in the private sector, regardless of their position, designation or status and irrespective of the method by which their wages are paid. They shall include part-time employees, employees of service and other job contractors and domestic helpers or persons in the Personal service of another.

The law does not cover employees of retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers and employees of the National Government and its political subdivisions, including Government-owned and/or controlled corporations, if they are covered by the Civil Service Law and its regulations.


Qualification of employees subject to retirement pay

Employees who are covered by RA No. 7641 can have an optional or compulsory retirement.

Optional Retirement. — In the absence of a retirement plan or other applicable agreement providing for retirement benefits of employees in an establishment, an employee may retire upon reaching the age of sixty (60) years or more if he has served for at least five (5) years in said establishment.

Compulsory Retirement. — Where there is no such plan or agreement referred to in the immediately preceding sub-section, an employee shall be retired upon reaching the age of sixty-five (65) years.

Upon retirement of an employee, whether optional or compulsory, his services may be continued or extended on a case to case basis upon agreement of the employer and employee.

Service Requirement. — The minimum length of service in an establishment or with an employer of at least five (5) years required for entitlement to retirement pay shall include authorized absences and vacations, regular holidays and mandatory fulfillment of a military or civic duty.


Computation of retirement pay

A covered employee who retires pursuant to RA 7641 shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

The law is explicit that “one-half month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days service incentive leaves” unless the parties provide for broader inclusions. Evidently, the law expanded the concept of “one-half month salary” from the usual one-month salary divided by two.

In reckoning the length of service, the period of employment with the same employer before the effectivity date of the law on January 7, 1993 should be included.


Substitute Retirement Plan

Qualified workers shall be entitled to the retirement benefit under RA 7641 in the absence of any individual or collective agreement, company policy or practice. In case there is such an agreement, policy or practice providing retirement benefit which is equal or superior to that which is provided in the Act, said agreement, policy or practice will prevail.

PAG-IBIG Fund as a substitute retirement benefit
As provided in RA 7742, a private employer shall have the option to treat the coverage of the PAG-IBIG Fund as a substitute retirement benefit for the employee concerned within the purview of the Labor Code as amended; provided, such option does not in any way contravene an existing collective bargaining agreement or other employment agreement. Thus, the PAG-IBIG Fund can be considered as a substitute retirement plan of the company for its employees provided that such scheme offers benefits which are more than or at least equal to the benefits under RA 7641. If said scheme provides less than what the employee is entitled to under RA 7641, the employer is liable to pay the difference.

If both the employee and the employer contribute to a retirement plan, only the employer’s contribution and its increments shall be considered for full or partial compliance with the benefit under RA 7641. On the other hand, where the employee is the lone contributor to the PAG-IBIG Fund, the employer being exempted from its coverage, the employer is under obligation to give his employee retirement benefits under the Act.

Source:
Guidelines for the Effective Implementation of R.A. 7641, The Retirement Pay Law

Disclaimer: This article was published for informational use only. New laws, rules, and DOLE issuances may render this article obsolete in whole or in part. For more information please visit and inquire with the Department of Labor and Employment (DOLE).

Victorino Abrugar is a retired CPA practitioner, a blogger, speaker, and an entrepreneur. He's the CEO of Optixor, Inc., a digital marketing company based in the Philippines. Follow him on Twitter at @viclogic.

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11 Comments

  1. Irish A

    What is Gratuity?how to compute?who are entitled to it?my dad is a retired government employee for 30 yrs and having problem what are his real benefits?he retired in 1987 until now we’re still having problem its already in the Ombudsman?really need help small amount but it will be a big help right now…

    • Vic

      Hi, Sorry to hear what happened to your Dad. But Republic Act (R.A.) No. 7641, does not cover government employees. I think it is the Civil Service laws and rules that covers the government employees.

  2. irene alfa fangon villamil

    hello. i have been a pag ibig member since i work with the commission on elections in pangasinan from dec. 23, 1979 to present. my salary now is php31080./mo. can u give me an idea of how much to receive when i retire if i will retire at age 60 or 65. as of to date,, 32 yrs. na ako sa comelec. im now 56 yrs. old. at age 64, 40 yrs. na rin ako in service. i will be very thankful if you can compute it for me. i will visit your column again. god bless you always. before i forget, i lost my pag ibig id. my id no. is 0005-01325505. can you pls. help me secure a replacement so that when i retire i will not have difficulty in securing my benefits.

  3. irene alfa fangon villamil

    hello again. how soon can a member withdraw his contributions? is it necessary that he reaches the age of 60,, 65 or death? pls. be patient to answer our querries . thank you and god bless you always.

  4. Maria V Gajunera

    Hi, I just turned 60 years old and I want to avail of my PAGIBIG retirement benefits, however,I still have an outstanding housing loan thru PagIbig fund, Can I still avail the benefits or have to pay first the loan balance?

  5. Roland V. Tugano

    Just want to ask if there is a new retirement pension computation for DepEd employees.
    My mom just retired last Sep 2011 and computed pension based on average salary for the last 3 years. By the way, she availed 5 years lump sum.

    I heard from other retiring employees that it should be computed based on latest salary. How true is this? I searched from internet if there is any circular covering this issue but to no avail.

    Thanks

  6. Mylene R. Lorenzo

    Good Pm:

    I resigned with the company after 6years of service. Am i entitled to a retirement benefit?

    Thank you

  7. Roy Avila

    I am 35 years old, I have recently submitted a retirement letter, I’ve been working there for 13 years as a teacher. the school doesn’t have a retirement plan or CBA, will I be entitled for a retirement pay?

  8. I am working for 20 years now in a small private corporation we are only 4 employees, am planning to resign now, am i entitled to get separation or any benefits? By the way we only have sss and Philheatlth no pag-ibig.

  9. Hi!
    Gusto ko lang po sanang humungi ng tulong kung paano po ba magcompute ng retirement benefit. 73 yrs. old na po ksi yung mother ko until now nagwowrk pa rin po sya. Nag start po syang magtrabho since 1991 until now. Gusto nya po kacing malaman kung magkano ang makukuha niya. Ang salary nya po ay 7,700.00 a month only philhealth lang po ang dinededuct s kanya.

  10. Melanie Fuellas

    Good day,

    Inquire ko lang po yung current policy ng company namin. We have a retirement program 5 years of service is equivalent to 50%….10 years is equivalent to full 100%, however as I read the computation above is hindi po nakakasama yung 1/12(13th month pay)and cash equivalent of the 5 days service incentive leave.
    We have a Vacation and Sickleave policy na convertible sa cash, sa pagkaka alam ko po kasi is ang may SIL lang is yung mga walang VL and SL policy.
    Entitled padin po ba kami sa 1/12 13th month pay and SIL upon availment of retirement?

    Thank you and May God bless you more!

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