The PERA Bill

Yesterday, I was late to my post, that is why it's coming out today. Yesterday was also the day PGMA signed the PERA bill into law. I've been hearing about the law since last year I think, but upon reading up on news, I realized that it took a decade to become law! Legislation takes that long, I suppose. I mean there are developments and progress in the country, it just does so snail pace.

Notwithstanding your inclinations and opinions about Philippine politics, this is certainly something to celebrate. I'm similar to you, just as excited but just as clueless. Information about the bill will slowly trickle in to popular media.

The implementing rules and guidelines have yet to be released, but let's not wait for that shall we? Let's pick out the data that is already out there and draw our conclusions from it.

PERA stands for Personal Equity and Retirement Account. One of its aims is to boost the country's savings rate, which is "pegged at 19 - 23% of the country's economic output, one of the lowest in the region". Let's compare that with our Asian neighbors, and you'll know why we're still far behind the curve.

Here are pertinent broad details about PERA which I got all over the net -

Under the PERA law, which was approved by Congress on June 10, a contributor with the capacity to contract and possess a tax identification number, may make a maximum contribution of P100,000, or its equivalent in any convertible foreign currency to his PERA annually.

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.

There are already a number of viable instruments out there like mutual funds, uitfs, the stock market, etc. My question is - pending the release of the implementing guidelines - how soon will banks/financial institutions and company HR departments make an arrangement for employees to enjoy the benefit? My other question is, what is meant by a contributor can open 5 accounts? So the bank or the financial institution will have a new product called a PERA account?

Will the law be retroactive? Say, if someone already has an investment in mutual funds, stocks, et al, can he submit the receipts during the ITR filing in April?

I hope these questions will be answered within a few weeks' time. I am sure there are tons of other questions out there, but at least, that is a better question than asking, "When will the bill be signed as law?"