More About The Philippine Retirement Pay Law (RA 7641)

Some of us have heard of the famous (or perhaps infamous) 401K of the USA, or the Old Age Pension(OAP) of the UK. But what does the Philippines have when it comes to benefits once one retires from service?


The Philippines has Republic Act No. 7641 (RA 7641), also known as the Retirement Pay Law.


Effective since January 7, 1993, this act was an amendment to Article 287 of the Labor Code of the Philippines in order to prescribe the minimum retirement benefit which companies are mandated to pay to their eligible employees. Since RA 7641 simply defines the minimum retirement benefit, companies, therefore, have the option to provide benefits more liberal than the minimum prescribed by this Act.


Companies often do this to gain an edge and be more competitive in the market, allowing them to better attract and keep the best employees.


While RA 7641 is defined to cover qualified private sector employees, there are in fact exemptions from coverage by this law. Agricultural establishments, government institutions, retail establishments employing not more than 10 employees – all of these have no obligation to provide the minimum retirement benefit under RA 7641.


For everyone else though, it may be high time to already take a closer look at the regulatory benefit under the Retirement Pay Law. Key questions that one must ask include, “When does an employee become eligible?” and, perhaps more importantly, “What benefit does it provide?”


Eligibility and Benefits


Employees who retire – not resign – at age 60 with at least 5 years of service with the company will be entitled to the minimum regulatory benefit under RA 7641. What must be noted here is that a retiring employee must satisfy the dual condition of both minimum age (Age 60) and minimum service years (5 years) to be eligible for entitlement under RA 7641.


So what then is the benefit under the Retirement Pay Law?


A brief backgrounder: the actual text of RA 7641 uses the term “one-half month salary for every year of service.”However, one should not make the mistake of thinking that “one-half month” means “50%” — because it does not.


The reason for this is that RA 7641 goes on to further define that “one-half month” includes ALL of the following three components:


  1. 15 days salary
  2. cash equivalent of 5 days of service incentive leave, and
  3. 1/12 of the 13th month pay


Looking at just the first two components, “one-half month” under RA 7641 is clearly already more than just 50% of the monthly salary. Add the third component, and the actual benefit comes out as approximately 22.5 days pay for every year of service. This now is the minimum benefit when retiring under RA 7641.

Other Things to Note


Now that the eligibility and benefit under RA 7641 are defined, what other questions should one ask? One common question is, “Does RA 7641 also require my company to set up a formal retirement plan?”


The answer, very simply, is No.


To clarify, the purpose of RA 7641 is to prescribe the minimum retirement benefit to be paid by the company to its qualified employees. But since RA 7641 does not require a company to also set up a formal retirement plan, it becomes clear that the obligation under RA 7641 is simply for a company to pay the regulatory benefit when it becomes due.


Whether or not this payment will come from the company’s general funds or from a retirement trust fund under a formal retirement plan is a decision to be made entirely by the company.

58 thoughts on “More About The Philippine Retirement Pay Law (RA 7641)”

  1. Hello,
    I am 50 years old now and have completed 12 years of service with my company. Can I already avail of early retirement? If yes, what can I get as retirement pay? We do not have any CBA nor does our company have a retirement plan.
    I will appreciate your views on this.
    Thank you very much and looking forward to your reply.

    1. Hi Jerry,

      If you company does not have a retirement policy in place and is just confirming to the minimum retirement benefit under RA 7641, then you are NOT eligible to a retirement benefit. Under RA 7641, optional retirement is upon reaching the age of 60 with at least 5 years of service. Since you have not achieved eligibility under RA7641, then you are not entitled to a benefit yet.

      In the case that your company has a retirement policy, kindly check when are the eligibility dates. Some companies offer early retirement at age 50 with at least 10 years of service.

      If you find a policy and need help in the interpretation, feel free to email us a copy at

      1. Hi, just want to have a better understanding.
        From what Jerry say’s, he’s more than 50yrs old and work for more than 12 yrs in the company, is it cover by RA 4917 which states that to be able to qualify “a retiring employee must be at least 50 and has served his employer for atleast 10yrs?”
        And also this RA4917 is tax free.
        Your feedback on this will really help us to better understand this.

        1. There is no law that requires a company to pay an employee at age 50. What RA 4917 says is that for a retirement benefit to be tax exempt, the company should have a BIR registered retirement plan and that the retiring employee should be at least 50 years old with 10 years of service.

          Therefore the first item to check is if Jerry’s company has an early retirement provision or not. If yes, what is the eligibility requirement?

    1. Hi Christian,

      Yes, our firm’s stand is that all benefits paid to the employee WITHOUT a tax qualified Retirement Plan is subject to tax even if the benefit is in accordance with RA 7641. To make the benefit exempt, then the company has to set up a retirement plan and register it with the BIR.

      1. Dear Sir,
        I am a private employee of a college institution, our company has no retirement policy, we are more than 13 to 15 employees the rest are part-time, how can I avail my retirement pay, if you stated that only company with a policy, so what for is that RA 7641. I served for almost 15 years and I am now 55.
        Please he me I want a clarification
        Thank you


        1. In an absence of a formal retirement plan, the RA 7641 applies therefore, in your case, once you reach 60 years old, you will be eligible to receive a benefit based on 22.5 days pay per year of service. If by that time your school has not set up a registered retirement plan with the BIR, then the benefit you will receive will be taxable. It’s best that you speak to HR and encourage your school to set up the retirement plan so that by the time you retire, the benefit you will receive will be tax exempt. Note that in case the benefit will be taxable, the rate table based on TRAIN applies.

    1. If the deceased person reached 60 years old, then the beneficiaries can claim for the retirement benefits. In case the person did not reach 60 and the company does not have a retirement plan in place, then no benefit has to be paid out.

      1. Hello. If an employee dies before reaching age 60, this means even his/her surviving family members do not become beneficiaries as you pointed out? This appears to be unfair for one who had reached the minimum number of years only to be “dis-benefitted” by such provision only in the account of death. What happens to the benefits that have “accrued” those years which was meant for the employee? Is there any rule or policy that amends that condition?

        1. If under the retirement plan of the company there is a provision for death benefit, then the beneficiaries of the deceased will receive the benefit under the plan.

          If there is no death benefit in the retirement plan, then no benefit will be paid out to the deceased.

      2. Or in another condition – if the employee has reached age beyond 60 (mid 60s) but dies before reaching the mandatory retirement, can such employee (or his/her beneficiaries) still benefit from this retirement pay? If not, then what happens to the entitlement if the deceased employee or his/her surviving beneficiaries?

    1. Are you considered a regular employee? If so, do you have a fixed monthly base salary? Assuming yes, then you are eligible to a retirement pay.

  2. Im erik sir, im employed for over 10 years in service in the cooperative and we are only 4 employees, my question is, can i avail of the said republic act?

        1. Per RA7641, “Retail, service and agricultural establishments or operations
          employing not more than (10) employees or workers are exempted
          from the coverage of this provision (RA7641).” Hence, a company with less than 10 employees but the business classification is not considered retail, service, or agricultural is still liable to pay retirement benefit per RA7641.

    1. Let’s assume that the retiring employee is 60 years old with at 10 years of service with a final salary of 50k. The company doesn’t have a retirement plan and follows a 26 a month work day, therefore the statutory benefit under RA 7641 applies.

      Step 1: Get the final daily pay (50k / 26 days) = 1,923
      Step 2: Daily Pay x 22.5 = 43,267.50
      Step 3: 43,367.50 x years of service = 432,675 = retirement benefit

      Since the company doesn’t have a formal retirement plan registered with the BIR, then the benefit is subject to withhold tax, around 30% – 35% rate. Had the company set up a formal plan, then the full benefit would have been tax exempt.

  3. I don’t know if my question is on the right topic but i just want to know if there are any due date for the retirement pay to completely given to a retired employee.

    1. Based on the law, the benefit is to paid out in lump sum. The usual practice is for the company/trustee to pay out the full benefit to the employee within 60 days.

  4. For compulsory retirement at age 65, does it require 5 years of service tenure to qualfy for the mandated retirement benefit?

    1. Yes, our firm’s interpretation is at compulsory age of 65 years old, the employee should also have been with the company for at least 5 years to be eligible for the retirement benefit under RA 7641.

  5. Possible po ba pag naka reach ka na ng 20 years service sa company pwede kana mag retire at makuha yung retirement fee?

    1. Yes, but it really depends if your company has a retirement plan and what its eligibility dates are. But if a company doesn’t have a retirement plan in place and is just following the statutory benefit under RA 7641, then you’ll have to be 60 years old to avail for a benefit.

  6. Hi! I was told that a retirement fund cannot be invested in stocks. Is this true? Also, can you enlighten me more about the Fringe Benefits, what are taxable, what are not taxable, and how to exempt from taxes? Please, I need an urgent answer…

  7. Does the law also covers Call Center Employees?

    I’ve been working in 1 Call Center Company for more than 10 years now and I was wondering if we are also covered with this Retirement Pay law especially when I will reach 60 years old.

    1. Yes, RA 7641 covers all BPO companies as well. It would be ideal that by the time you reach 60, the company would already have a formal retirement plan in place so you avail of the tax free benefit. Otherwise, if your company has not set up a plan, then the retirement benefit due to you will be taxable.

      I would advice you to speak to HR about this to give them ample time to plan and set up your company’s retirement program.

    1. Hi Grace,

      Here are the steps to take after hiring an actuarial firm / retirement benefits consultant:
      1. Retirement Plan Design
      2. Do an Actuarial Valuation (Funding)
      3. Appoint a Trustee
      4. Make an initial contribution to the retirement fund
      5. Register the Plan with the BIR

      The cost of the plan design and actuarial valuation is dependent on the number of employees.

  8. Hello I have been working 4 years and 3 months from my previous job at the food service/establishment and take note they are a big company or should I say famous restaurant with service charge. Do they have the rights for not giving us a back pay even we are working for them for how many years.?please do answer me I am seeking for a credebility of this rights.Thank You and God Bless.

  9. Per 2018 TRAIN LAW, RR 8-2018, page 16 – Retirement benefits are excluded from taxable gross income. Is this means payment in accordance with RA 7641 is set aside? or Plainly as of now, retirement benefits are purely non taxable with or without BIR registered retirement plan?

  10. Hi,
    Our company is offering an early retirement (take it or leave it option). The computation is 13 days × daily rate × years of service. Tama lang po ba yang offer nila para sa maggrab ng early retirement? Thanks!

    1. It’s really up to the employees’ to assess the options on the table and if this amount is sufficient. One important consideration though is if this early retirement benefit is tax exempt or not.

      This case is purely discretionary as it’s a one-time program of the company. If the company will want to pay this out tax exempt, then that means the company is shouldering for the taxes in behalf of the employee.

  11. I started working for a company when I was already 60 years old. After over 5 years of employment with the company I am now 65 years old. The company does not have a retirement plan. Am I entitled to the retirement benefits under RA 7649? thanks

    1. Yes. You may cite the Retirement Pay Law (RA 7641) where compulsory retirement date is upon reaching 65 years old with at least 5 years of service. The benefit shall be equivalent to 22.5 days pay per year of service.

  12. Does a part-time employee (hired only for maintenance and repair) is entitled to a retirement fee? How to compute for his length of service when he is only called on a case to case basis.

    1. The Retirement Pay Law (RA 741) covers all regular employees. Kindly check the status of this particular person who is considered part-time.

  13. hello po just want to ask if the employee reach 60-61 yrs old and been in service more than 30 yrs but he/she didn’t file or don’t have any plan yet to retire but the employer want’s to pay the employee 30 yrs of service in the company and let him/her retire na.. Is it legal or does the employer has the right to let her/his employee retire in the company?

    1. Yes it’s legal to let the employee retire under RA 7641. Under this law, optional retirement is upon reaching the age of 60 with at least 5 years of service. Therefore, it’s at the option of the employee or the employer to execute the optional retirement.

      As a note, compulsory retirement date is at 65 years old in case the optional retirement was not executed.

      In this case, because the company doesn’t have a tax exempt retirement plan, the retirement benefit that the employee will receive is subject to tax.

  14. Good morning!
    I would to ask about the benefits and possibility of pension at the age of 55 this year. My ex-husband i would say because he didn’t come home to us anymore but i have the desire to help him out of this problem since he has no enough knowledge about this matter since he just take it for granted but we still have kids in school. I need a financial support also. Actually my husband was a seaman for 25 years in a Norwegian flagship and is manned under an /company/agency here in Makati City Phil. He worked under this company for 25-27 years, he was sick last 2015 of neck and shoulder arthritis…he was then advice to retire and he’s company had given him insurance benefits for just a minimal amount. I would like to ask if he can avail his disability pension this year since he is already at his 55th. Thank you and more power.

  15. Is there any legal way on how retirement benefit of a 50yrs of age and working for more tan 10yrs can be tax exempt?
    What do we need to do?

    Hope to see your response.

    Thank you!

    1. Yes. Under Republic Act 4917, a retirement benefit received of an employee who is at least 50 years old with at least 10 years of service will be tax exempt provided that the company has a registered retirement plan.

      Does your company’s retirement plan provide for early retirement? What’s the eligibility?

  16. I am an employee in a company that has a retirement plan. I am 52 years old with 18 yrs in service. I would like to know the computation of the early retirement benefits as mandated by law. Thank you.

    1. Do you have a copy of the retirement policy? If so, can you spell out the definition and benefit under early retirement.

      Note that the eligibility and benefit for early retirement differs from one company to another. Early retirement is not mandatory but instead is an initiative of the company.

  17. Our company is getting a contractor to provide janitorial services. Should retirement benefits be part of the labor cost, in addition to SSS, Philheath, Pag-ibig, SIL, and other mandated benefits? If it should be, should the Principal require the contractor to set up a retirement trust fund or have a formal retirement plan.

  18. YOu discussed retirement benefits up to 60 years old. If I retire at 65 years old, will retirement pay change?

    1. RA 7641 explicitly allows for retirement upon Age 60 or more, but not beyond Age 65. Thus, under RA 7641, if you retire at Age 65 with at least 5 years of service, the benefit formula remains the same (22.5 days pay per year of service), while the salary and service will be as of Age 65.

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