Retirement bill signed into law

MANILA, Philippines – President Arroyo has signed into law the Personal Equity and Retirement Account (PERA) for individuals not covered by the existing pension funds as well as those who want to invest their money for benefits during their retirement.

Republic Act 9505 paves the way for the establishment of a provident personal savings plan known as the PERA, which apart from promoting long-term savings would also develop the capital market.

The PERA is not intended to replace the Social Security System and the Government Service Insurance System but would supplement these through the establishment of a privately sponsored retirement fund.

Average Filipinos usually do not have enough to live a comfortable life during their twilight years with just their benefits from the pension funds.

Sen. Edgardo Angara, the principal author of the bill in the Senate, said that Filipino workers generally “look at retirement with apprehension as it translates to a loss of income and the lack of retirement benefits.”

“The absence of a dependable retirement plan and thus, the financial uncertainty that goes with it, could make retirement a source of insecurity rather than comfort,” Angara said.

Under the law, an individual contributor may make a total maximum annual contribution of P100,000 to his PERA account.

The law allows overseas Filipino workers to contribute double the amount or P200,000 annually.

OFWs are the principal target of the law considering that they are not covered by the two state pension funds.

The contributions would be invested in qualified PERA investment products such as investment trust funds, mutual funds, annuity contracts, insurance or pension products, pre-need pension plans, shares of stocks, exchange-traded bonds or any other investment product or outlet, which the Bangko Sentral ng Pilipinas, as the regulatory body, may allow for PERA purposes.

Employers are also encouraged to contribute to their employees’ PERA under the law, which could be as much as the maximum allowable contribution of the individual.

As an incentive to the employer, the law allows these contributions to be deducted from the employer’s gross income.

Such contributions from the employer would be made on top of the mandatory SSS contribution and retirement pay under the Labor Code.

The contributor would make all of the investment decisions pertaining to his PERA but would also be allowed to appoint an investment manager to make decisions on his behalf.

An administrator would be responsible for overseeing the PERA on behalf of the contributor.

The Bureau of Internal Revenue would accredit the administrators after a pre-qualification by the BSP.

A custodian, which is a separate and distinct entity unrelated to the administrator, would be responsible for receiving all funds from the contributors and is required to report to the BSP at regular intervals all the financial transactions and all documents in its custody under a PERA.

As an incentive, the contributors would be granted an income tax credit equivalent to five percent of the total PERA contribution.

All income derived from the investments and reinvestments of the contribution as well as the eventual distribution of the PERA to the contributor would be tax exempt.

Distributions may be made by the contributor upon reaching the age of 55, provided that contributions to the PERA have been made for at least five years.

The contributor has a choice of getting the distribution in lump sum or as a pension.

If the contributor wants to continue the PERA even after reaching the age of 55, he is allowed to do so.

Complete distribution shall be made upon the death of the contributor, regardless of the age at the time of death.

Early withdrawals are also allowed but would be subject to a penalty, the amount of which has yet to be determined by the Secretary of Finance, but would not be less than the tax incentives enjoyed by the contributor.

However, early withdrawals made under the following circumstances are exempted from the penalty: for payment of accident or illness-related hospitalization in excess of 30 days and for payment to a contributor who has been subsequently rendered permanently totally disabled as defined under the Employees Compensation Law, Social Security Law and the GSIS Law.

Deputy presidential spokesperson Lorelei Fajardo said that the signing of the PERA is “in consonance with the commitment of the President to provide benefits for our working class particularly our OFWs.”

“PERA will provide the facility for OFWs to save for their future. It is a vehicle that recognizes the need of our OFWs in having a system to allow them to save for their future,” Fajardo said.

Presidential adviser on political affairs Gabriel Claudio, for his part, said that the signing of the law “puts in place a social safety net in the face of a worldwide economic slump.”

“The new law, RA 9505, establishes a provident savings and investment account that will not only create additional fund infusion for the capital market thereby spurring economic growth, but will generate employment and ensure a comfortable life for retirees be they in public or private sector, salaried, self employed, entrepreneurs or professionals,” Claudio said. – With Christina Mendez