Retirement programs are set up for all or any of the following purposes:

  • Help ensure compliance with the law (R.A. 7641)
  • Satisfy a moral / social obligation to provide employees economic security after retirement
  • Provide additional benefits to employees at a lower cost (due to the tax incentives and the fact that not all employees would be able to avail)
  • Attract and retain good employees as well as influence employee turnover.

There are two general types of retirement plans: Defined Contribution (DC) and Defined Benefit (DB). Under a DC plan, the employer commits to contribute a certain amount or percentage of salary to the retirement fund on behalf of an employee and the benefit is based on the actual accumulated contributions and earnings. Under a DC plan, the employer commits to provide a benefit based on a defined formula e.g. one month salary per year of service.


DB plans are prevalent in the Philippines because the minimum retirement benefit prescribed by R.A. 7641 is defined benefit one-half month salary per year of service.


The following are the standard benefits included in the retirement program with their purpose and sample benefits and eligibility requirements:


Normal Retirement

  • DB Plan Benefit: One month salary per year of service
  • DC Plan Benefit: Accumulated contributions and earnings
  • Eligibility: 60 years old with 5 years in service (same eligibility as prescribed by law)  

Early Retirement

  • Benefit: Same as normal retirement benefit
  • Eligibility: 50 years old with 10 years of service (same as the eligibility requirement for tax-free retirement benefits)
  • Purpose: Keep a younger work force.

Late Retirement

  • Benefit: Same as normal retirement benefit
  • Eligibility: 65 years old
  • Purpose: Retain valued employees

Death, Disability and Involuntary Separation

  • Benefit: Same as normal retirement benefit
  • Purpose: Accord the employee his retirement benefit given that his separation is beyond his control; such circumstances also mean greater need on the part of the employee or his dependents


  • Benefit: Percentage of normal retirement benefit
  • Eligibility: Years of service

Year of Service


Less than 5 years


5 to less than 10 years


10 to less than 15 years


15 to less than 20 years


20 years and above


  • Purpose: Make the program better appreciated by new / young employees and give the impression that retirement benefits are earned as they grow with the company