Lawmakers approve private pension schemes

MANILA, Philippines - Lawmakers have finally approved a bill allowing tax-free private pension schemes similar to the United States’ 401(k) plans, allowing workers and entrepreneurs to save money for retirement under a major capital market reform that was a decade in the making. A bicameral conference committee on Tuesday reconciled the Senate and House versions of the Personal Equity and Retirement Account (PERA) bill which one of the principal authors, Senator Edgardo J. Angara, estimated would benefit eight to 10 million Filipinos, including overseas workers and the self-employed. The only major point of disagreement was the ceiling on annual contributions, which was finally set at P100,000 for individuals and P200,000 for married couples. The Senate wanted a maximum of P50,000. Overseas workers are entitled to double the maximum contribution. "We’re quite happy that the differences in both versions were not that huge. It’s just a matter of the amount," said Mr. Angara, chairman of the Senate committee on banks, financial institutions and currencies. "This bill will set up a bigger pool of savings [and] it’s a good supplement to retirement," he said in an interview. All contributions, and interest and dividends earned will be tax-exempt provided the account owner or "contributor" does not withdraw the funds before age 55. A contributor can also claim an income tax credit equivalent to 5% of the total PERA contribution. Contributors can open up to five accounts but with only one administrator, which can be a bank or a financial company. There will be separate custodians of funds and a designated investment manager. Administrators can be investment managers. The contributions can be invested in mutual or unit investment trust funds, stocks, and other financial products. To make sure only taxpayers benefit from the PERA scheme, all contributors must have a tax identification number. All administrators must be accredited by the Bureau of Internal Revenue. Employers can make contributions to their employees’ retirement accounts, as long as they also pay Social Security System premiums. The bill was originally filed in Congress in 1998, crafted by the US Agency for International Development. It now becomes the "fourth tier" of social protection, after direct assistance from state agencies to the poor, mandatory social security contributions, and mandatory contributions to the Pag-IBIG housing fund. Congress ratified the bicam report Tuesday. - Bernard U. Allauigan, BusinessWorld