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Lowering the Retirement Age of Government Employees

  1. What is the retirement age of government employees?

    At present, the optional retirement age is 60 and the compulsory retirement age is 65.

  2. Why is there a concern on the retirement age of government employees?

    The concern is triggered by Congress and Senate bills proposing to lower the optional and compulsory retirement age of government employees.

  3. Was GSIS consulted in these bills?

    Yes, the Committee on Government Corporations and Public Enterprises of the Senate solicited GSIS’s comments on these bills.

  4. What is GSIS’s position on lowering the retirement age?

    GSIS recognizes the intention of proposed bills to afford government employees the chance to retire early and enjoy their hard-earned benefits. However, it should also consider that any change in the benefit package has a corresponding fund liability that would be hard to sustain, given the present poor investment environment and successive increments in government employees’ monthly salary.

    Because pension is based on the monthly salary, GSIS’s liability has also increased. GSIS is worried because the increase in its liability coincides with the decrease in the fund income brought about by low interest in the market. Interest rate in the market is beyond GSIS’s control. Previously earning double-digit rates, GSIS is earning merely single-digit rates now.

  5. Will lowering the retirement age shorten the actuarial life of GSIS’s SIF?

    Yes. Lowering the retirement age automatically shortens the contribution period of GSIS members to SIF. This means that GSIS will collect reduced amount of contributions. It will also pay pension much earlier than originally planned. Altogether, these conditions – plus the increase in government salary, which results in increased pension – will shorten the SIF’s actuarial life.

    GSIS is gravely concerned that the untimely receipt of benefit resulting from early retirement will continuously shorten the actuarial life. To address this, it may resort to two options – increase the contribution of those who are still in service or reduce benefits of the present and next generation of pensioners.

    The actuarial life of SIF is 26 years. This means that it will last until 2045 from 2019. Based on GSIS’s studies, if any of the bills would be implemented, the actuarial life will drop from four to 14 years. Thus, instead of until 2045, the fund life would will be until 2041 only, or much worse, until 2031.

    Scenario Retirement Age Fund Life
    Optional Age Compulsory Age
    Base Case 60 65 2045
    Scenario 1 56 65 2041
    Scenario 2 55 65 2040
    Scenario 3 55 60 2031
  6. Will GSIS be able to pay its SIF liabilities if the retirement age is lowered?

    We are unsure of the future. GSIS might be too conservative with its projections. Only time will tell. As administrator of the fund for government employees that faces an uncertain future, strict conditions are taken into account in GSIS’s studies, especially because once given, benefits may no longer be taken back.

    GSIS is worried that if the retirement age is lowered, GSIS will have a weakened capacity to pay its SIF liabilities. This is because the pension will be paid earlier while contributions that GSIS receives will decrease and it’s uncertain that it will always earn a big amount.

    At present, below 70% of the SIF liabilities to members can be paid using GSIS assets. For every additional benefit that GSIS provides, its liabilities also increase and incur a corresponding decrease in the capacity to pay its liabilities using its assets.

  7. Will the monthly pension also decrease if the retirement age is lowered?

    Yes, because their years of service would be fewer and their monthly salary lower. Both could have been be higher had members stayed on for four more years. If members retire at an earlier age, the corresponding pension computed from their present salary will also decrease.

    Example:
    A 40-year-old employee of the Department of Education with 11 years of government service has a monthly salary of Php22,810.61.

    If such employee completes 15 years of service or more, and opts to retire at age 56, his or her monthly pension is estimated to reach only Php22,018.48. This is lower by about Php5,301.21 or 19.40% lower than a monthly pension of Php27,319.69 that he or she could have received at a retirement age of 60.

    Retirement Age Monthly Pension
    60 27,319.69
    56 22,018.48
    Difference 5,301.21
    % 19.40%
  8. If a lower retirement age will be implemented, what does GSIS recommend to mitigate its effects on SIF?

    If a lower retirement age would be implemented, GSIS recommends the following:

    1. Increase significantly the premium contribution rate;
    2. Provide needed funds to prevent substantive impact on SIF’s actuarial life; and
    3. Adjust the benefit paid to those who will retire early to protect the welfare of those who will be left behind to subsidize their pension.
  9. What bills have been proposed to lower the retirement age of government employees?

    The bills proposing to lower the retirement age of government employees are as follows:

    1. House Bill No. (HBN) 8683 – An Act Lowering the Optional Retirement Age of All Government Workers from Sixty (60) Years Old to Fifty-Six (56) Years Old;
    2. Senate Bill No. (SBN) 1872 – An Act Lowering the Optional Retirement Age of Public School Teachers from Sixty (60) Years Old to Fifty-Five (55) Years Old;
    3. SBN 1222 – An Act Lowering the Optional Retirement Age of Public School Teachers from Sixty (60) Years Old to Fifty-Five (55) Years Old;
    4. SBN 1287 – An Act Lowering the Compulsory and Optional Retirement Age of Public School Teachers;
    5. SBN 1289 – An Act Lowering the Compulsory and Optional Retirement Age of Government Employees
  10. What are the policy trends on retirement age?

    GSIS studies show that the proposed bills do not consider the aging population resulting from longer life expectancy and lower fertility rates.

    Life expectancy is expected to rise to 72.7 years in years 2045-2050 (from 67.5 years in 2005-2010), while the number of people aged 60 and above will increase in year 2030. In the Philippines, based on 2015 data, population of those in this age range will balloon by 3% in 2030.

    In Australia, the retirement age was slightly raised to 67 in 2017 and may be implemented until 2023. The same increase is observed in a number of Asian countries due to their aging population, which contradicts the proposed bills in the Philippines.

    The policymakers of the Association of Southeast Asian Nations (ASEAN) have also been taking the necessary steps already to address the possible decrease in workforce in the coming years.

    In Malaysia, the retirement age was raised to 60 in 2012 from 55, with plans to further increase it to 65.

    Thailand also did the same — to age 60 from 55.

    Vietnam is also considering to increase the retirement age of males to 62 from 60, and that of females to 60 from 55.