BusinessWorld: PERA bill becomes law

MANILA, Philippines - A law allowing for tax-free private pension schemes aimed at encouraging workers to save for their retirement will be signed Friday by President Gloria Macapagal-Arroyo. Palace ceremonies this morning will be attended by leaders of the House of Representatives and the Senate, as well as officials of the Philippine Chamber of Commerce and Industry, Employers Confederation of the Philippines, and the Philippine Stock Exchange. "It is a very welcome development because this is a long-overdue bill," House Majority Leader Arthur D. Defensor said in a telephone interview. Aurora Rep. Juan Edgardo M. Angara, one of the principal authors, said the measure would not just boost the savings rate but would eventually spur the economy because of more capital available for investments. "The beauty of the bill is all Filipinos can benefit from it, especially the overseas Filipino workers (OFWs). The goal is to increase the savings rate through tax incentives. More savings means more funds for capital formation. This will spur the creation of more businesses and more jobs," he told BusinessWorld. The Personal Equity Retirement Account or PERA law, a decade in the making and a major capital market reform pushed by the financial sector, was ratified by Congress last June and sent to Malacañang in late July. All contributions and interest and dividends earned by these accounts — similar to 401(k) pension schemes in the US — 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. A contributor can make a total maximum yearly investment of P100,000 or its equivalent in foreign currency. If the contributor is married, each of the spouses will be entitled to make a contribution of P100,000. OFWs are entitled to double the limit, which means the investment can be as high as P400,000. A contributor may opt to contribute more than the maximum account but the excess will no longer be entitled to the tax credit. Employers can contribute to their employees’ accounts, as long as they pay the required Social Security System premiums. Payments may be made when the contributor reaches the age of 55. This can be either in lump sum, a pension for a definite period, or for a lifetime. The account owner may choose to continue his PERA even beyond the age of 55, but complete distribution will be made upon the death of the contributor regardless of age. Early withdrawals will be subject to a penalty, except in cases when the contributor is totally disabled for more than a month due to an accident or hospitalization. The Department of Finance, Bureau of Internal Revenue, Bangko Sentral ng Pilipinas, Securities and Exchange Commission, and the Insurance Commission were tasked to craft the measure’s implementing rules. Finance Undersecretary Gil S. Beltran said the implementing rules were already being crafted "but nobody knows when it will be finished." He said the rules have to be more specific as to which OFWs benefit and how financial companies should reach them. Sen. Edgardo J. Angara, a principal author of the bill and the father of Rep. Angara, has said the country’s savings rate would go up to about 30% of gross domestic product, from 19-23%, with PERAs in place. He said the scheme is expected to attract eight million individuals, specifically OFWs, and self-employed individuals or entrepreneurs who are not required to contribute to the Social Security System and the Government Service Insurance System. - BusinessWorld