In the Philippine labor landscape, reaching the age of 60 marks a significant transition. While it is the "optional" retirement age under the law, many employees find themselves at a crossroads: should they formally retire, or simply resign?

Understanding the legal distinction between Separation Pay and Retirement Benefits is crucial, as they serve different purposes and are governed by different sets of rules under the Labor Code and the Social Security Law.

1. Retirement Benefits vs. Separation Pay: The Core Difference

The most common point of confusion is whether a resigning 60-year-old is entitled to "separation pay." Legally, these are two distinct animals:

Separation Pay: This is generally granted when an employer terminates an employee for authorized causes (e.g., redundancy, retrenchment, or closure of business). If you resign voluntarily, you are generally not entitled to separation pay unless it is stipulated in your employment contract or a Collective Bargaining Agreement (CBA).
Retirement Benefits: This is what an employee receives upon reaching the retirement age (60 optional, 65 compulsory) after having served the required number of years.

Key Takeaway: If you "resign" at 60 specifically to end your career, the law treats this as Retirement, not a standard resignation. Therefore, you are seeking retirement pay, not separation pay.

2. The Retirement Pay Law (R.A. 7641)

Under Republic Act No. 7641, in the absence of a retirement plan in the establishment, an employee upon reaching the age of 60 years or more, but not beyond 65 years, who has served at least five (5) years in the said establishment, may retire.

Minimum Retirement Pay Calculation

The law dictates a specific formula for calculating the minimum retirement pay. You are entitled to at least one-half (1/2) month salary for every year of service.

However, the "one-half month" is defined by the law as including:

15 days salary based on the latest salary rate;
5 days of Service Incentive Leave (SIL);
1/12 of the 13th-month pay.

In essence, this totals roughly 22.5 days worth of salary for every year of service.

Eligibility Requirements:

Age: At least 60 years old (optional) or 65 years old (compulsory).
Length of Service: At least 5 years of service with the same employer.

3. SSS Retirement Benefits

In addition to the pay received from the employer, a 60-year-old who resigns/retires is entitled to benefits from the Social Security System (SSS), provided they meet the criteria:

Monthly Pension: To qualify for a lifetime monthly pension, the member must have paid at least 120 monthly contributions prior to the semester of retirement.
Lump Sum Amount: If the member has not reached the 120-contribution mark, they will receive a lump sum amount equal to the total contributions paid, plus interest.

4. Frequently Asked Questions

"Can my employer deny me retirement pay if I just 'resign'?"

If you are 60 years old and have served for at least 5 years, your "resignation" is effectively an exercise of your optional retirement. The Supreme Court has consistently ruled that the label of the termination (resignation vs. retirement) does not deprive the employee of the benefits they have earned by law.

"What if my company has its own retirement plan?"

If your company has its own plan, you will receive whichever is higher between the company plan and the minimum requirement under R.A. 7641. You cannot be given less than what the law mandates.

"Is retirement pay taxable?"

Under the National Internal Revenue Code (NIRC), retirement benefits received by officials and employees of private firms in accordance with a reasonable private benefit plan maintained by the employer are exempt from income tax, provided:

The retiree has been in the service of the same employer for at least 10 years;
The retiree is at least 50 years of age;
The exemption is availed of only once.

Note: Benefits under R.A. 7641 (the legal minimum) are also generally considered tax-exempt if they meet the specific BIR criteria.

5. Final Checklist for a 60-Year-Old Resigning

Review your Contract: Check if there are specific clauses regarding "early retirement" or "resignation bonuses."
Verify Service Years: Ensure you have hit the 5-year mark to qualify for R.A. 7641.
Check SSS Status: Log in to your My.SSS account to verify if you have the 120 contributions needed for a pension.
Formal Communication: When submitting a letter, it is often safer to state you are "retiring under the optional retirement age of 60" rather than simply "resigning," to avoid any administrative confusion regarding your benefits.

Would you like me to help you draft a formal Retirement Letter that specifically references these Philippine legal provisions?