PERA Bill

I was in the business office a brokerage firm last Monday, and I overheard 2 people taking about what strategy they should be employing during this time.  In their conversation, one of them mentioned about the PERA Bill and how optimistic traders are with the proposed law.  I am still wondering what really the coverage of this bill though I’ve read two or three articles about it.

A writer from The Lobbyist named Jayson Edward San Juan has something to say regarding the bill.  Since a login account is needed to view the article, let me just post the whole thing here.

Save with PERA

By Jayson Edward San Juan 04 July 2008 - 13:58

 

On 10 June 2008, Congress approved the Bicameral Committee Report on the consolidated version of House Bill No. 3754 and Senate Bill No. 1882 creating a Personal Retirement Account (PERA) Fund.

The PERA Fund functions like a trust fund where the consolidated amount contributed by Fund members will be invested in a portfolio of secured investments. Each contributor is entitled to a maximum of Php100,000 in contributions annually.

Among the important highlights of the bill are the following:

1. Under the bill, a five-percent tax incentive shall be given to contribution of Php100,000. Further, all income earned from the Fund, and withdrawal by the contributor upon age of 55 years or upon contributor’s death, shall be tax exempted.

Employers who choose to contribute to their employees’ PERA are also granted deductions from gross income. Employers’ contribution to PERA is on top of their Social Security System (SSS) contributions and payment of retirement benefits for their employees.

Early withdrawals, however, will be meted out with penalties upon the discretion of the Secretary of Finance, the amount of which shall not be lower than the five percent tax incentive.

2. The Fund targets those who are not members of either the SSS or the Government Services Insurance System (GSIS), specifically Overseas Filipino Workers (OFWs).

Respite for the modern Filipino heroes

The last highlight is important to point out. OFWs, hailed as the country’s modern day heroes, often goes back home to retire. But the lack of mandatory membership to the SSS or GSIS forces them to eat through their savings until they have nothing to feed on when they retire. Thus, unless they are able to save up their earnings from abroad, OFWs have no pension fund to support them when they retire in the country.

It is important to note that OFWs remain to be the biggest driver of the Philippine economy. According to the latest statistics in the Bangko Sentral, OFWs pumped in US$14.45 billion to the economy in 2007. Most economists agree that their remittances ensure that the Philippine economy remains afloat.

Thus, PERA is an opportunity for OFWs to invest in a pension fund, and also strengthen the country’s financial system.

Aside from PERA, another possible source of financial security to OFWs is the restoration of the Migrant Workers Loan Guarantee Fund, provided for by Republic Act No. 8042 (Migrant Workers Act). Senate President Manuel Villar is aggressively pushing for this option.

Under Section 21 of RA 8042, the Fund is established with a revolving amount of Php100 million where departing OFWs can secure loans ranging from Php5,000 to Php40,000 for the migrant workers’ plane fare, placement fees, clothing, and pocket money. The loan is payable in one year at 7.5 percent interest.

But because OWWA failed to collect loan payments from OFWs, the government suspended the Fund since 2006.

Villar emphasized that an efficient system can be implemented to properly manage the fund, and this should be immediately worked out.

Too high for low-income families

There is, however, one contention about the PERA bill. As written, the bill imposes a Php100,000-limit in contributions. This amount is prohibitive for small investors and low-income families.

Based on legislative discussions of the bills, the limit was placed to prevent depositors from shifting their entire savings deposits to the tax-exempted PERA. But to ensure that the intent of the bill – which is to promote savings mobilization and the development of capital markets – is realized, a graduated or ladderized limit should be setup to allow low-income individuals to invest in the Fund.

NextGen bill

PERA must be viewed as part of a total financial package that will include a bill similar to the US’s America Saving for Personal Investment, Retirement, and Education (ASPIRE) bill that ensures financial security for children by investing for their college education, or buying their first house.

The country has a similar bill in the House of Representatives, House Bill No. 2097 or the NextGen Act. This bill ensures that expenditures by contributors to this Fund will only be made for productive investments like a college education or real estate.

Thus, Congress must work on a financial package that will give Filipinos a wider option for financial security for their future.

Attention: Mr. Senate President!

But while the PERA bill has already mustered the approval of the Bicameral Conference Committee, it has yet to be enacted into law. According to Senate sources, the bill is still awaiting the signature of the Senate President, who is now abroad, before it is referred back to the House of Representatives for the Speaker’s signature. After the legislative process, the bill will be then transmitted to Malacañang for the President’s approval.

I hope that as of this writing, Sen. Villar is already done signing this bill.  On a similar note, Jj, a close friend of mine and a worthy contributor in FilipinoVoices, wrote about the similar topic after we had a discussion over a cup of coffee.  His article entitled OFWs as local investors can be read in the same site.  Join the discussion and take part towards financial literacy.