US-style worker retirement accounts to start in 4Q

FILIPINOS may start tapping a tax-exempt financial vehicle for building their retirement nest egg in the fourth quarter, after regulators issued the rules implementing the Personal Equity and Retirement Account (PERA) Act. BSP Governor Amando Tetangco Jr. said the PERA Law would provide the investing public with opportunities to make money from securities such as stocks and bonds, insurance contracts, trust products and banking instruments.

After languishing in Congress for 10 years, President Gloria Arroyo signed the PERA bill into law last year, but regulators had a tough time threshing out the mechanics for implementing the measure, which would promote supplementary retirement benefits for workers.

Under the laws implementing rules and regulations (IRR), the maximum annual amount of contribution for a PERA would be P100,000 for individuals and P200,000 for overseas Filipino workers. That amount can be claimed when the contributor reaches 55 years old while early withdrawals will be subject to a penalty. A private employer may also contribute to its employees' PERA.

"This [IRR] improves not only the section of the PERA framework but deepens the understanding of the general public," Tetangco said, referring to investments in financial instruments.

"PERA gives us the opportunity to have a vehicle to address long standing issues while at the same time providing our retail savers the same window that more sophisticated investors have long enjoyed," he said.

The Bureau of Internal Revenue (BIR) is expected to issue within the year separate rules on the grant of tax incentives to contributors. A contributor is entitled to a tax credit of 5 percent, as well as exemption from withholding and estate taxes.

The PERA will institute a first step toward pension reform by establishing a multipillar retirement income structure. It would also develop the domestic capital market by giving incentives to long-term investment and adding to the list of institutional investors.

The IRR also defines the duties of the different PERA market participants such as administrators, investment managers and custodians.

By empowering an individual to manage his retirement benefits, concerns regarding the actuarial fund life and viability of Social Security System and Government Service Insurance System will be mitigated.

Besides BSP and the BIR, the other signatories to the memorandum of agreement covering PERA's IRR are the Securities and Exchange Commission, Insurance Commission and Department of Finance.