PERA bill passes second reading, moves forward

The Personal Equity and Retirement Account (PERA) bill has passed second reading at the Senate late December.

The proposed legislation is perceived to act as an additional enticement for ordinary Filipino workers and employees to save, invest, earn and prepare for their future.

Philippine Stock Exchange (PSE) president and chief executive officer Francis Ed. Lim said the savings coming from the enforcement of the proposed law would mean capital to bankroll more projects.

“We need more buildup in savings, which can bankroll more projects and investments, which in turn will provide employment for workers and business opportunities for small entrepreneurs,” Lim added.

Investments can go to various instruments including the stock market, trust funds, mutual funds, and time deposit.

More savings can accelerate economic growth, while giving the average Filipino an alternative income source.

 The Philippines has one of the lowest savings rates among Asean member countries. It is also worth noting that less than one percent of our total population are stock market investors.

Under the proposed PERA Law, an individual PERA contributor will enjoy several tax benefits. These are: a tax credit, equivalent to five percent of the member ’s PERA contribution, provided the amount does not exceed P50,000 per year; a tax exemption for the income of his or her PERA contribution; and a tax exemption for the distribution of his or her PERA contribution.

The tax credit can be enjoyed, if the PERA account is invested in a PERA investment products including shares of stock and other securities listed and traded in an exchange, exchange-traded bonds, a unit investment trust fund (UITF), a mutual fund, an annuity contract, a pre-need plan insurance  pension product or any other investment product or outlet which the concerned regulatory authority may allow for PERA purposes.

As proposed by the PERA Law, a duly registered taxpayer, to be known as a contributor, can establish PERA as a retirement account. The proposed law does not require a compulsory establishment of PERA, which is considered a voluntary and supplementary retirement scheme.

It also provides penalties for entities found violating the provisions of the PERA Law.

A contributor may start getting the tax-free PERA distributions, either in a lump sum or in the form of a lifetime pension, once he or she reaches the age of 55, provided the contributor has made at least five years of contributions to the PERA. The contributor has the option to continue the PERA even after he or she has reached the age of 55, but complete distribution will be made upon the death of the contributor, irrespective of the age at the time of his or her death.

Any early withdrawal will however be subject to a penalty, the amount of which would be determined by the Secretary of Finance and payable to the National Government. The penalty will not fall below the amount of the tax incentives enjoyed by the contributor.