PERA bill to hike savings rate, says lawmaker

MANILA, Philippines - The country’s savings rate is expected to increase once the bill allowing tax-free personal retirement accounts from taxes becomes law, a lawmaker said. Senator Edgardo J. Angara said the country’s savings rate would go up to about 30% of gross domestic product (GDP) from 19-23%. He noted that the country’s savings rate is among the lowest in the region, with Malaysia, Singapore and Vietnam at 34-40% of GDP. "[The Personal Equity and Retirement Account or PERA] is one of the best ways to accumulate savings. It will greatly augment Filipinos’ retirement plan," Mr. Angara told a briefing Friday. The PERA bill was approved by a bicameral conference last June 10. Mr. Angara, who heads the Senate Committee on Banks, Financial Institutions and Currencies, said the law will likely take effect within the year after the Bangko Sentral ng Pilipinas and the Department of Finance come up with implementing rules. The bill intends to promote the "culture of savings" among Filipinos, particularly overseas Filipino workers (OFW) who are not required by law to be members of the Social Security System (SSS) and the Government Service Insurance System (GSIS), officials said. Mr. Angara said the scheme is expected to attract eight million individuals, three million of of them OFWs, with the rest being self-employed individuals or entrepreneurs who are also not required to contribute to the SSS and GSIS. Under the bill, an individual may make a total maximum annual contribution of P100,000 to his or her PERA account, or P200,000 for married individuals. The contribution can be as high as P400,000 for an OFW and his or her spouse. Contributions are required to be invested in a qualified "PERA Investment Product," which may be a unit investment trust fund (UITF), mutual fund, annuity contract, insurance or pension products, deposit product, pre-need pension plan, shares of stocks, exchange-traded bonds or any other investment product or outlet. Contributors are entitled to an income tax credit equivalent to 5% of the total PERA contribution. Income from contributions as well as the eventual distribution of the PERA to the contributor are tax-exempt. Mr. Angara said the bill has won the support of the business community as mobilization of savings will deepen the local capital market. - Gerard S. de la Peña, BusinessWorld