How to Set Up a Company Retirement Fund in the Philippines

Most Philippine companies have no formal retirement fund for their employees — not because they don’t care about their people, but because nobody has sat them down and explained how it actually works, what it costs, and what they get out of it. A company retirement fund in the Philippines is more accessible than most business owners think. It is tax-deductible for the company, meaningful for employees, and — with the right structure — straightforward to set up and maintain. I’ve helped companies of all sizes do this, and the ones who wait the longest almost always say the same thing after: “I should have done this years ago.”

Two Laws Every Philippine Employer Needs to Understand

Before talking about how to set up a retirement fund, let’s be clear about the legal landscape. There are two separate laws that govern employee retirement in the private sector — and they serve different purposes.

RA 7641 — The Retirement Pay Law (Your Legal Minimum)

Republic Act 7641, the Philippine Retirement Law, mandates that private-sector employers without a sponsored retirement plan provide retirement pay to qualified employees. To qualify, an employee must be between 60 and 65 years old and have served at least five years with the same company.

The minimum benefit under RA 7641 is equivalent to half a month’s salary for every year of service — where “half a month” is calculated as 22.5 days of pay, representing 15 days’ basic pay, the cash equivalent of five days’ service incentive leave, and one-twelfth of the 13th month pay. In practice, this effectively amounts to approximately one month’s pay for every year of service.

Here is the critical thing to understand about RA 7641: it is a floor, not a ceiling, and it is unfunded. The law tells you what you must pay when an employee retires. It does not require you to set aside money today to cover that future obligation. Most companies simply pay when the time comes — which means the obligation shows up on your balance sheet only when it becomes due, and the cash must come from wherever you can find it at the time.

For a company with five long-serving employees retiring in the same year, each having served 25 years at a salary of ₱30,000 per month, the total RA 7641 payout could easily exceed ₱3 million — due at the same time, from operating cash.

This is why RA 4917 exists.

RA 4917 — The Private Retirement Plan Law (Your Strategic Option)

Republic Act 4917 allows companies to establish private, tax-qualified retirement plans for their employees. These plans enable companies to make tax-deductible contributions while offering tax-exempt benefits to qualified employees, provided certain criteria are met. To qualify, the retirement plan must be reasonable, permanent, and registered with the Bureau of Internal Revenue.

Under Revenue Regulations No. 15-2025 — the Revised Private Retirement Benefit Plan Regulations issued on April 29, 2025 — retirement plans duly approved by the BIR are entitled to several incentives, including exemption from income tax and withholding tax on retirement benefits received by employees, exemption from income tax on investment earnings of the retirement fund, and tax deductibility of employer contributions.

In plain terms: if you set up a properly structured, BIR-registered retirement plan, the money you contribute to it is deductible from your company’s taxable income, the money grows in the fund without being taxed, and the benefits employees receive when they retire are also tax-free.

The difference between RA 7641 and RA 4917 is the difference between being legally required to pay something you haven’t prepared for, and proactively building a funded benefit that saves you tax money while it accumulates.

Why Most Philippine SMEs Still Don’t Have a Formal Retirement Plan

Most SMEs and traditional family-owned corporations still use the “pay as you go” scheme to provide retirement pay as their employees retire. Currently, the creation of a retirement fund is not mandatory — only the statutory minimum under RA 7641 is required.

The reasons SME owners give me for not having a formal plan are usually one of four things:

“I didn’t know I could.” Many business owners assume retirement funds are only for large corporations. They’re not. Companies with as few as ten employees can establish a qualified plan.

“I thought it was too complicated.” The BIR registration and plan documentation do require proper setup — but this is manageable. A CPA who understands retirement plan structuring handles this regularly.

“I thought it was too expensive.” It depends on the structure and benefit levels. Many group life insurance-funded retirement programs are less expensive per employee per month than owners expect. And unlike discretionary spending, the contributions are tax-deductible — so the government is effectively sharing the cost.

“I was going to do it eventually.” The longer you wait, the larger the unfunded liability becomes. An employee who has been with you for twenty years represents a significant future obligation whether you’ve been saving for it or not. A funded plan makes that obligation visible, manageable, and tax-efficient.

Using Group Life Insurance to Fund a Company Retirement Plan

One of the most practical vehicles for Philippine SMEs to fund a retirement program is group life insurance — specifically, a group endowment or group whole life policy structured as a retirement benefit and registered with the BIR under RA 4917.

Here is how it works in practice:

The company takes out a group life insurance policy covering employees. The company pays the premiums. A solid retirement plan set up this way can help you comply with RA 7641 and RA 4917 simultaneously — funding the retirement benefit while providing life insurance coverage for employees. If an employee dies before reaching retirement age, the life insurance benefit goes directly and immediately to their family. If they reach retirement, the policy’s accumulated cash value or sum assured is paid out as their retirement benefit — tax-free under a BIR-qualified plan.

The advantages of this structure for Philippine SMEs specifically:

Tax deductibility. Employer contributions to a qualified retirement plan are tax-deductible from gross income. This means a portion of what you contribute effectively comes back to the company through reduced income tax.

Predictable annual cost. Unlike a “pay as you go” approach where you face a large lump-sum payment at unpredictable intervals, a group insurance premium is a fixed, plannable annual expense.

Built-in life insurance. Your employees have coverage from day one — not just when they reach retirement age. This matters both for employee welfare and for your company’s reputation as an employer.

Low administrative burden. Compared to establishing a full trust-based pension fund, a group insurance-funded plan has significantly less ongoing administration. The insurance company manages the policy; your accountant handles the BIR filings.

Scalable. As your company grows and adds employees, the plan can be extended. When salary levels increase, benefit amounts can be adjusted.

The Two Main Plan Structures

There are two primary ways to structure a company retirement plan in the Philippines, and they serve different company profiles.

The Trusteed Retirement Fund

Under this structure, the company sets up a trust with a trustee — typically a bank trust department or an independent trustee. The employer contributes to the trust fund, which is then invested according to the trust agreement. Benefits are paid directly from the trust.

This structure offers flexibility in how the fund is invested and can accommodate larger benefit designs. The trust fund may normally be invested anywhere the trust agreement allows. However, the tax-exemption of the trust income may be denied if the fund is not properly managed and documented.

The trusteed structure is generally more suitable for larger companies — those with more than 100 employees or with complex benefit design requirements — because the administrative overhead and setup costs are more meaningful for smaller operations.

The Insured (Group Life) Retirement Fund

For SMEs, the insured structure is almost always the more practical choice. The company enters into a group insurance contract with an accredited life insurance company. This approach can be set up to be BIR-compliant and tax-qualified, and allows the company to earn interest at a guaranteed rate to build up employees’ retirement fund.

The insurance company administers the policy, tracks the cash value accumulation, and handles the benefit payments. The company’s administrative role is primarily limited to paying premiums and maintaining the required BIR filings.

For most Philippine SMEs with 10 to 200 employees, the insured structure is the starting point.

BIR Registration Requirements Under RR 15-2025

A retirement plan only receives its tax benefits if it is registered with and approved by the BIR as a “tax-qualified plan.” Under Revenue Regulations No. 15-2025, plans duly approved by the BIR as evidenced by a Certificate of Tax Qualification are entitled to the full set of tax incentives.

To qualify, the retirement plan must involve a written program that is permanent and continuing, contain details on coverage, and involve a contribution from the employer. Additionally:

• The plan must be non-discriminatory — it must be available to at least 70% of qualifying employees, not just selected management
• The plan must have a formal plan document and, for trusteed plans, a trust agreement
• BIR Form 17.60 must be filed, along with the plan document and trust agreement
• Annual information returns must be filed with the BIR showing the fund’s contributions, earnings, and benefit payments

Getting the registration right from the beginning matters. A plan that fails to meet BIR qualifications loses its tax-deductible status — which defeats most of the financial rationale for setting it up.

This is where having a CPA who has done this before makes a significant difference.

How Much Does It Cost?

The honest answer is: it depends on the number of employees, their salary levels, the benefit formula you choose, and the insurance products available at the time. There is no standard price I can quote without knowing the specifics of your company.

What I can tell you is what goes into the calculation:

The benefit formula. Most plans use one of the following: a flat benefit (a fixed peso amount per year of service), a salary-based formula (a multiple of the final salary), or a defined contribution approach (a fixed percentage of salary contributed each year). The formula determines the total benefit at retirement, which drives the premium or contribution requirement.

The number of employees and their ages. The cost of the insurance component depends on the demographics of your workforce. Older workforces or those with higher salary levels will have higher premiums.

Vesting schedule. A vesting schedule determines when employees become entitled to the full benefit — for example, 100% vesting after 10 years of service, with partial vesting on a sliding scale before that. A generous vesting schedule increases the cost; a more conservative one reduces it.

The funding vehicle. Group insurance premiums vary by provider. As an InspiraLife financial advisor, I work with a product range that has been specifically designed for SME group retirement programs in the Philippine market.

What most business owners find when they run the numbers: the after-tax cost of a company retirement program is meaningfully lower than the gross premium amount, because the contributions are deductible. For a company in the 25% income tax bracket, every ₱100 of contribution effectively costs ₱75 net of tax benefit.

My Process for Setting Up Your Company Retirement Fund

I handle this from design to BIR registration. Here’s what the process looks like:

Step 1 — Company assessment I gather information about your headcount, salary levels, employee tenure, age distribution, and what benefit level you want to provide. I also review your current RA 7641 exposure — the unfunded liability you’ve already accumulated — so you understand the baseline.

Step 2 — Plan design Based on the assessment, I recommend a plan structure: trusteed or insured, the benefit formula, the vesting schedule, and the funding vehicle. I model out the annual cost at different benefit levels so you can make an informed decision about what works for your company’s budget.

Step 3 — Insurance structuring I design the group life insurance structure and work with the insurance provider to finalize the policy. This includes confirming that the structure meets BIR qualification requirements.

Step 4 — Plan documentation I prepare the plan document — the written program that the BIR requires — along with any supporting documentation needed for the registration application.

Step 5 — BIR registration I handle or coordinate the filing of BIR Form 17.60 and all required documents to secure the Certificate of Tax Qualification. This step can take several weeks depending on BIR processing times.

Step 6 — Employee communication I help you explain the benefit to your employees in a way that’s clear and meaningful. A retirement benefit that employees don’t understand is a benefit that doesn’t improve retention. I provide a plain-language employee brief that your HR team can use.

Step 7 — Annual compliance After the plan is established, the annual BIR information return must be filed. I can handle this or coordinate with your accountant to ensure it gets done correctly.

What About the Owner’s Own Retirement?

This is a question I get from almost every business owner I work with on company retirement fund setup — and it’s the right question to ask.

The company retirement plan is designed for employees. But the owner’s retirement is a separate and often more complex question. Most Philippine business owners have the majority of their retirement wealth tied up in the company itself — the value of the shares, the real property owned by or associated with the business, and the income stream the company generates.

This creates concentration risk. If the business has a bad few years, if there’s a succession problem, if the owner’s health changes unexpectedly — the “retirement fund” disappears with the business.

Separate from the company plan, I work with business owners on personal retirement planning that includes:

• Personal life insurance policies with cash value accumulation
• Investment-linked products for long-term wealth building
• The estate planning component — ensuring that the accumulated wealth transfers efficiently when the time comes
• The succession planning component — ensuring the company can be handed over or sold in a way that converts to usable retirement income

If this is where you are, the company retirement fund setup is a good starting point for the conversation. We’ll cover the company program, and then we’ll look at what you personally need.

Ready to set up your company’s retirement program?

The setup process is more straightforward than most business owners expect. The first step is a short conversation about your company’s headcount, salary levels, and what you want the benefit to look like. From there, I can model out the cost and walk you through the options before you commit to anything.

There’s no charge for the initial conversation.

Book a Free Consultation WhatsApp

This article provides general information for Philippine business owners and families as of July 2026. It is not a substitute for legal, tax, accounting, insurance, investment, or financial advice based on your specific circumstances. Tax rules, regulatory requirements, valuations, and administrative procedures may change. Consult qualified professional advisers before implementing an estate, succession, transfer, insurance, or restructuring plan.