Yesterday, the bicameral conference of the Senate and the House of Representatives has approved the passage of the Personal Equity and Retirement Account (PERA) Act. It is similar to the Individual Retirement Account/Annuity (IRA) in the United States.
The bill is just waiting the signature of the President Arroyo to come into effect. Once enacted, it will allow individuals and married couples to contribute P100,000 and P200,000 per year, respectively. Contributors will be given up to five percent tax credit based on the amount of annual contributions.
Like the IRA, the PERA can be used to invest in a number of investment products like unit investment trust funds (UITFs), stocks, bonds, mutual funds and savings accounts. I speculate that exchange traded funds (ETFs) and real estate investment trusts (REITs) will also be allowed once the appropriate laws and regulations would be passed to enable them.
Individuals can open up to five accounts but with only one administrator. Funds invested in a PERA will be free of taxes on dividends and interest provided that they will not be withdrawn until retirement age. Capital gains is not covered since in the Philippines capital gains for investment products (except for UITFs) are tax free.
The investment scheme will be regulated the the Bangko Sentral ng Pilipinas (Philippine Central Bank). There are provisions in the law for heavy penalties and jail terms for erring fiduciaries.
Lawmakers approve private pension schemes
By Bernard U. Allauigan – BusinessWorld/GMANews.tv | 11 June 2008
Bill on retirees’ pension fund passed at bicam
By Maila Ager – Inquirer.net | 10 June 2008