President Gloria signed Republic Act 9505 or PERA

President Gloria Macapagal-Arroyo signed Republic Act 9505 or Personal Equity and Retirement Account (PERA) on Friday morning, August 22, 2008. RA 9505 or PERA is an Act Establishing A Provident Personal Savings Plan, aimed at encouraging workers, especially those not covered by the Social Security System (SSS), Government Service Insurance System (GSIS), and overseas Filipino workers (OFWs), to save for their retirement.

RA 9505 or PERA is a long-overdue bill as it took a decade in the making and was a major capital market reform measure pushed by the financial sector as it allows for tax-free private-pension schemes.

“It is the declared policy of the state to promote capital market development and savings mobilization by establishing a legal and regulatory framework of retirement plans for persons, comprised of voluntary personal savings and investments. The state recognizes the potential contribution of PERA to long-term fiscal sustainability through the provision of long-term financing and reduction of social pension benefits,” RA 9505 states.

The law will not only boost the savings rate but would eventually spur economic growth with the mobilization of more capital available for investments.

The law aims to increase the savings rate by providing tax incentives as more savings translates to more funds for capital formation that will eventually create more businesses and more jobs.

The PERA law was approved by Congress last June 10.

Under the law, a contributor or any person with the capacity to contract and possess a tax identification number, may make an aggregate maximum contribution of P100,000, or its equivalent in any convertible foreign currency to his PERA annually. If the contributor is married, each of the spouses shall be entitled to make a maximum contribution of P100,000 or its equivalent in any currency at the prevailing exchange rates.

Overseas Filipino workers are allowed to a maximum contribution of P200,000 a year.

The law also gives the contributor an income tax credit equivalent to five percent of his total PERA contribution, provided he does not withdraw the funds before age 55. However, if the PERA contribution exceeds the amount prescribed by law, it shall no longer be entitled to a tax credit of five percent.

Moreover, all income earned from the investments and reinvestments of PERA contributions are tax exempt and all distribution of PERA benefits upon maturity shall also be tax exempt.

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.

Employers can contribute to their employees’ accounts, as long as they pay the required SSS 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 (DOF), Bureau of Internal Revenue (BIR), Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and the Insurance Commission were tasked to craft the measure’s implementing rules.

Sen. Edgardo J. Angara, a principal author of the bill said the country’s savings rate would go up to about 30 percent of gross domestic product, from 19-23 percent, with the signing of the law by the President.

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 SSS and the GSIS.

The signing ceremonies was attended by officials of the Capital Market Development Council, BSP, Philippine Stock Exchange (PSE) and Philippine Chamber of Commerce (PCC).