Looking at the Fiscal Risks of Lowering the Optional Retirement Age of Government Employees (LORAGE) from 60 to 56 in the Philippines

Merceditas F. Urbano
Atty. Leslie Ann S. Leong-Anudin
Atty. Noemi S. Sabornido
Mariecon B. Aranda-Esguerra
Carlo Antonio Juarez

Senate of the Philippines
Appropriations and Finance – Managers Track
Course on Risk Management in Public Finance
2024

Abstract

In the midst of an emerging global move towards raising the retirement age to cope with the demographic shifts of an aging population, the discourse in the Philippines regarding the reduction of the retirement age is intensifying. This is prompted by Senate Bill No. 1832, which seeks to amend the optional retirement age for government employees from 60 to 56. Advocates believe it could open opportunities for younger job seekers, thereby boosting economic activity. There are also foreseeable personal benefits for employees alongside potential financial savings for employers.

However, although early retirement appears attractive, its impact on the financial health of defined-benefit pension systems like the GSIS could amount to additional costs ranging from PhP567 billion to PhP918 billion annually. It could also lead to reducing yearly tax revenues by about PhP220 million, widening the fiscal deficit, and accelerating the loss of experienced employees, thereby exacerbating a skills gap.

The high likelihood and mid-to-major potential consequences of these risks lead to a recommendation of delaying enactment until a clearer understanding of the consequences is gained to ensure more financially and operationally sound policymaking. Comprehensive planning and risk management will be key to safeguarding both the financial health of the pension fund and the broader economic impact on the workforce and public sector.