New ‘PERA’ law expected to help OFWs save for the future

MANILA, Philippines - President Gloria Macapagal Arroyo recently signed into law a long overdue measure that will help overseas Filipino workers (OFW) save for their future. Republic Act 9505 or an Act Establishing a Provident Personal Savings Plan known as the Personal Equity and Retirement Account (PERA) encourages OFWs and other workers not covered by the Social Security System (SSS) and the Government Service Insurance System (GSIS) to save and benefit from pensions. According to Malacañang, the law, which "took a decade in the making," is a “major capital market reform measure" that “allows for tax-free private-pension schemes." Under the law, a contributor or any person with the capacity to contract and possess a tax identification number, may make an aggregate maximum contribution of P100, 000, or its equivalent in any convertible foreign currency to his PERA annually. If the contributor is married, each spouse shall be entitled to make a maximum contribution of P100, 000 or its equivalent in any currency at the prevailing exchange rates. OFWs are allowed a maximum contribution of P200,000 a year. The law also gives the contributor an income tax credit equivalent to five percent of his total PERA contribution, provided he does not withdraw the fund before age 55. However, if the PERA contribution exceeds the amount prescribed by law, it shall no longer be entitled to a tax credit of five percent. Moreover, all income earned from the investments and reinvestments of PERA contributions, including PERA benefits upon maturity shall be tax exempt. 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. Employers can contribute to their employees’ accounts, as long as they pay the required SSS 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. The law's implementing rules and regulations will be drafted by the Department of Finance, Bureau of Internal Revenue, Bangko Sentral ng Pilipinas, Securities and Exchange Commission, and the Insurance Commission. Senator Edgardo Angara, the measure’s principal author, said that with the enactment of the bill, the country’s savings rate would go up to about 30 percent of the country's gross domestic product. He said the scheme could attract eight million OFWs, self-employed individuals, and entrepreneurs who are not required to contribute to the SSS and the GSIS. "If Filipinos are not given alternatives, they will just spend their money. If there are ways through which they can save then they will have money during the rainy days. The money can also be used for investments that can create jobs," Angara said. - with reports from Kimberly Jane T. Tan, GMANews.TV