Goodbye tension, hello pension: Part 1

Many of us look forward to retirement — the phase of life where we enjoy life and step away from the usual routines and responsibilities. However, in the Philippines, this dream can sometimes feel elusive. The reason is simple: the mandated retirement pay, and the SSS pension may not suffice for a comfortable life.

- MARVIN MADRIGALEJO and JOHN IAN KENG

Under Republic Act (RA) 7641, or the Philippine Retirement Law, private-sector employers without sponsored retirement plans must provide retirement pay to qualified employees. This pay is equivalent to half a month’s salary for every year of service (with a fraction of at least six months being counted as one whole year). To qualify, employees must be between 60 to 65 years old, and must have served for at least five years with the same company. Based on the Department of Labor and Employment’s (DoLE) Handbook on Workers’ Statutory Monetary Benefits, “half a month” is equivalent to 22.5 days, which represents the typical number of working days in a month. Effectively, it is one month’s pay per year of service.

Consider this scenario: an employee with a monthly salary of P45,000 upon retirement, having worked for 20 years, would receive approximately P900,000 as a onetime lump sum upon retirement, plus an SSS pension of P6,548 monthly. At first glance, this might seem substantial. Before retirement, the employee’s net take-home pay after taxes and contributions might be closer to P40,000. Compare this to a P6,548 pension, and the monthly shortfall is about P33,452. Even if we assume modest retirement expenses estimated at P20,000 a month for essentials like food, utilities, and basic healthcare, the gap is considerable. The onetime lump sum on retirement could be depleted in just five to six years — and that’s without factoring in inflation and medical emergencies.

Many retirees also continue to support their families post-retirement, and, thus, the financial strain becomes even heavier.