Philippines lures young consumers at home to save for retirement
MANILA, Philippines (UPDATE 7:22 a.m. Sept. 10) — Digitalization aims to breathe a new life into a government-led retirement program hampered for years by tax issues and which kicked off to a dismal start in 2016.
Assisted by technology, the Bangko Sentral ng Pilipinas (BSP) targets to attract 5 million people within 5 years to invest in Personal Equity Retirement Accounts (PERA) while stuck in their homes during the pandemic. There are currently only around 1,500.
“I am optimistic that this goal is attainable,” BSP Governor Benjamin Diokno said in a speech streamed online on Tuesday.
Essentially, what was launched on Tuesday, with the signing of memorandum of agreement between BSP and Bureau of Internal Revenue and another with Trust Officers Association of the Philippines, was meant to allow individuals to enroll and invest in PERA right in their fingertips.
Under PERA, local workers and entrepreneurs may invest up to P100,000 and migrant workers up to P200,000 on a personal account opened with a PERA administrator, essentially fund manager, of their choice. Funds invested and interest earned are tax-exempt, but money may not be withdrawn until the investor reaches 55 years old or have invested for at least 5 years.
A maximum of five PERA accounts may be opened by each investor. An investor gains a tax credit equivalent to 5% of total contributions, which he or she can use to offset other tax liabilities.
“Definitely, on the opening of accounts, it can really be done online as well as in transferring of funds to build your contribution,” BSP Deputy Governor Chuchi Fonacier said in a text message. One way to do that is through InstaPay and PESONet, the BSP’s facilities that allow depositors to transfer funds from one bank to another.
PERA is mandated by Republic Act 9505, enacted in 2008 but was only enforced in 2016 after the scheme encountered several problems, foremost of which was the delay on issuing tax rules for invested funds. The rules were only issued in July 2016, shortly after the Duterte administration took office.
While there are some exceptions on fund withdrawal restrictions, such as when PERA earnings will pay for the owner’s hospital bills, the idea is essentially to provide life savings for Filipinos quickly departing from a demographic sweet spot toward their ageing years, and whose state pensions are unlikely to cover all the bills.
But nearly 4 years since the law was finally implemented, PERA has not gained ground. As of July 29, only 1,586 people have opened PERA accounts containing around P137 million in investments.
Among PERA accountholders, on average, migrant workers with a higher investment ceiling have placed P110,497 into PERA, while workers and self-employed individuals contributed P82,317 and P75,503, respectively. “These figures remain regrettably low,” Diokno said.
Fonacier recognized the limited number of PERA administrators is “partly a constraint” to PERA’s advancement. Currently, there are only three namely BDO Unibank Inc., Bank of the Philippine Islands and ATRAM Trust Corp. “But the three (have) wide reach,” Fonacier said.
“That’s why BSP is also encouraging other market players to be part of the PERA ecosystem,” she added.
Sought for comment, Suzanne Felix, executive director of Chamber of Thrift Banks, an industry group, said lenders have "some questions" to BSP way back in 2010 regarding becoming a PERA administrator. She did not go into specifics, but said she was "not sure if these were addressed."
One of the issues, Arlene Joan Agustin, senior vice-president at UnionBank of the Philippines, said separately were PERA's trust systems "because of their system limitations." "We are not planning to become a PERA administrator for now but we are open to it," Agustin said in a statement.
Editor's note: Added UnionBank's comments
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