Retirement Benefits as a Complementary Benefit to Involuntary Separations

Companies, from time to time, reduce their workforce for valid business reasons. However, this requires that they also take responsibility for their affected workers. According to the Labor Code of the Philippines, employees who are involuntarily separated from the company due to authorized causes such as the installation of labor-saving devices, redundancy, retrenchment program, cessation or closure of business units, and contagious disease are entitled to one-half up to one month of the latest monthly salary per year of service, depending on the reason of separation.

As a result of the COVID-19 pandemic and due to government-imposed lockdowns to stop the spread of the virus, thousands of businesses were forced to close their daily operations, and millions of Filipinos lost their jobs. But if businesses have created a separate fund, such as by establishing a tax-qualified retirement plan, the impact of this event may be lessened, particularly in the financial aspect. 

When an employer implements an involuntary separation of employees, it’s better equipped to carry out its decision if it has a formal retirement plan in place. Employees can be rest assured that their settlement payment will follow the retirement plan’s severance benefit guidelines and, if possible, will be based on the benefits for normal, late, or early retirement in causes of involuntary separation. 

Businesses with a formal retirement plan in place may also benefit from the retirement fund’s tax advantages. The initial and ongoing contributions to the fund are tax deductible expenses, offering a great chance for long-term financial security. Furthermore, affected employees also benefit from tax-free payments in cases of death, disability, retrenchment, or redundancy. 

Should you need assistance with setting up or upgrading your current company retirement plan, feel free to email us at and learn more about the basics and benefits of having a BIR-filed retirement plan as part of your business continuity plan.


John Paul Hagnol

John Paul A. Hagnol received a Bachelor of Science in Mathematics from the Polytechnic University of the Philippines. He taught Mathematics and Statistics for two years before beginning his actuarial career.

Currently working for E.M. Zalamea Actuarial Services, Inc. where he focuses on Retirement Valuations.  Paul, despite his youth, is taking a big leap of faith to establish a great career in this field.