Philippines
Philippines: Pension system in 2016
Employees up to age 60 earning more than PHP 1 000 a month are covered by the basic, earnings-related and minimum pensions. There are special systems for government employees and military personnel.
Qualifying conditions
Normal pension age is 65 with 120 months of contribution.
Benefit calculation
Basic
The monthly basic pension is PHP 300.
All pension payment is made 13 times per year in the Philippines. Indexation rule for all pension payment is decided periodically based on price inflation and wage growth and on the financial state of the fund. In a long run, it is assumed that this ad hoc adjustment will be in line with price inflation.
Earnings-related
Earnings-related pension benefit depends on the greater of the following two average earnings: the average earnings over five years at six months prior to pension claim or the average earnings for the period in which contribution was paid. The benefit is the highest of the basic pension plus 20% of workers’ average monthly earnings plus 2% of workers’ average monthly earnings for each year of service exceeding 10 years or 40% of the workers’ average monthly earnings, whichever is greater.
Minimum
The minimum pension for both basic and earnings-related components is PHP 1 200 a month with a contribution period of between 10 years and 20 years and PHP 2 400 for more than 20 years of contribution.
Variant careers
Early retirement
People could start receiving pension as early as age 60 with 120 months of contributions at six months before retirement. The pension is suspended if an old-age pensioner resumes employment or self-employment before age 65.
Late retirement
People can start claiming pension later than normal pension age, but there is no increment for the delayed pension benefits.
Personal income tax and social security contributions
Taxation of worker’s income
For resident individuals, income tax rates and bands are as follows for 2016:
Social security contributions payable by workers
Workers pay 4.13% of monthly gross insured earnings as social security contribution for pension, sickness and maternity and funeral benefits and the gross insured earnings are set based on 31 income classes. The maximum insured monthly earnings for contribution are PHP 16 000.
Taxation of pensioners
Under the Expanded Senior Citizens Act of 2003, senior citizens (resident citizens of the Philippines at least 60 years old) are exempted from paying individual income taxes provided their annual taxable income does not exceed the poverty level as determined by the National Economic and Development Authority (NEDA) for that year. They are also entitled to a 20% discount on the price of some services and products, including medical services and medicines. The 20% discount then becomes a tax credit for the establishment concerned.
Taxation of pension income
All pension incomes are exempt from taxation.
Social security contributions payable by pensioners
Pensioners do not pay any social security contributions.
Assumptions: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 20 in 2016. Tax system latest available: 2016.