Rethinking early retirement in the private sector

The Philippines has long benefited from its relatively young labor force, a key driver of economic growth in the region. The January 2025 Labor Force Survey (LFS) underscores this advantage, with the labor force participation rate (LFPR) rising to 63.9% from 61.1% the previous year, adding 2.6 million Filipinos to the workforce. Youth labor force participation (ages 15-24) also increased to 31.8%, while the proportion of youth not in education, employment, or training (NEET) dropped to 11.7%. These trends reflect growing engagement of young Filipinos in the labor market. Simultaneously, unemployment and underemployment have declined, and the quality of jobs has improved, with more Filipinos securing formal wage-and-salary employment.

Given this progress, the question of early retirement for private sector workers is worth revisiting. Advocates argue that early retirement could create opportunities for younger workers to advance into managerial or higher-quality positions, accelerating their career progression. However, labor economists warn that while the Philippines’ young workforce may temporarily sustain such a policy, early retirement could have lasting adverse effects on labor supply, productivity, and fiscal sustainability. A closer look at labor economics suggests that early retirement runs counter to global trends of raising retirement ages and risks undermining the Philippines’ recent economic gains.

The argument for early retirement centers on allowing older workers to exit the labor force earlier, creating opportunities for younger employees to advance into managerial and technical roles. This could inject fresh energy into workplaces and improve the quality of life for retirees, enabling them to enjoy their pensions while healthy. The private sector, employing 78.5% of wage and salary workers, might benefit, particularly in industries like services and retail.

However, early retirement poses significant challenges. It could drain experienced workers from critical roles, such as the 312,000 new managerial positions reported in January 2025, and disrupt productivity as younger replacements may lack expertise. Globally, countries like France and South Korea are raising retirement ages to address aging populations, labor shortages, and pension sustainability. While the Philippines has a younger workforce, rising life expectancy, projected at 72.7 years by 2045, will lengthen pension payouts. Early retirement would worsen this strain, threatening the long-term viability of private pension systems.

The fiscal impact of early retirement is significant. Private sector pensions in the Philippines rely on employer and employee contributions, with payouts based on years of service. Early retirement would shorten contributions while extending payouts, creating funding gaps. Employers might raise contribution rates or cut benefits, lowering wages and job quality. Alternatively, pension funds may reduce payouts, forcing retirees to rely on informal work or family support, undermining retirement security.

Early retirement could also shrink workforce participation. While the Philippines currently benefits from a growing labor force, this advantage is temporary as the population ages. Early exits could hasten labor force decline, limiting active workers needed for economic growth. Key industries like agriculture and retail, which added over 1.7 million jobs in January 2025, depend on experienced workers, and early retirements could disrupt productivity.

Careful implementation could mitigate these risks. Early retirement could remain an option for workers in demanding jobs or with health concerns, while stronger pension systems with higher contributions during prime earning years could sustain longer payouts. Phased retirement programs could also allow older workers to shift to part-time or advisory roles, preserving their expertise while offering flexibility.

Early retirement in the private sector must be assessed through the lens of labor economics and sustainability. While the Philippines enjoys a young, growing labor force, this advantage is temporary and should not be taken for granted. Policies promoting early retirement risk shrinking workforce participation, straining pension systems, and reducing productivity. At the same time, the needs of workers in demanding roles must be addressed through targeted, flexible reforms.

Rather than lowering the retirement age, the Philippines should focus on maximizing the potential of its labor force while preparing for an aging population. Investments in education and training are essential to prepare younger workers for higher-level roles. Strengthening pension systems and encouraging older workers to stay economically active will also be key. A balanced approach can drive sustained economic growth while ensuring a stable, equitable labor market for future generations.