Retirement planning is an important aspect for both employees and employers in the Philippines. The Republic Act 7641, also known as the Retirement Pay Law, require companies to provide retirement benefits to their employees. However, it is important to note that the law does not require companies to set up a retirement plan or contribute to a fund. Instead, it simply mandates companies to pay out a benefit to employees who have reached the age of 60 and have at least five years of service. Hence, a company may choose to pay retirement benefits on a “pay-as-you-go” basis.
Another retirement savings option available in the Philippines is the Personal Equity and Retirement Account (PERA) Act, which was enacted in 2008. The law aims to encourage Filipinos to save for their retirement by allowing them to open a special kind of investment account known as a Personal Equity and Retirement Account (PERA). Contributions to a PERA account subject to a maximum amount are tax-free, and the funds can be invested in a variety of investment options such as stocks, bonds, and mutual funds.
While the PERA law is a step in the right direction in encouraging retirement savings in the Philippines, it is still a relatively new law and its success is yet to be determined. The law has been criticized for its low contribution limits, and the fact that it is only open to a small segment of the population.
As an employer, offering retirement plans to your employees not only helps them secure their future but also can be used as a retention program and to attract talent. A retirement consultant company such as Zalamea can help you navigate through the legal and regulatory requirements, and assist you in setting up and implementing a retirement plan that suits your company’s needs.
In summary, while the Retirement Pay Law requires companies to pay out retirement benefits to eligible employees, it does not mandate that companies set up a retirement plan or contribute to a fund. The Personal Equity and Retirement Account (PERA) Act is another option for retirement savings in the Philippines, but its success is yet to be determined. Employers may consider working with a retirement consultant to set up and implement a retirement plan that fits their company’s needs.