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Commentary: New law boosts personal savings rate and investments

by ES Subong

Iloilo City (25 August) -- What is considered as long-overdue law is now in full effect after president Gloria Arroyo signed Republic act 9505 or an Act Establishing A provident Personal Savings Plan, known as the Personal equity and Retirement Account (PERA).

The PERA law was approved by Congress last June 10.

Republic Act 9505 or PERA is a long-overdue bill as it took a decade in the making and was intended as a major capital market measure pushed by the financial sector as it allows for tax-free private-pension schemes.

The law aims at encouraging workers, especially those not covered by the Social Security System (SSS), Government Service Insurance System (GSIS), and Overseas Filipino Workers (OFWs), to save for their retirement.

RA 9505 states that it is the declared policy of the state to promote capital market development and savings mobilization by establishing a legal and regulatory framework of retirement plans for persons, comprised of voluntary personal savings and investments.

Sen. Edgardo Angara, a principal author of the bill, said the country's savings rate would go up to about 30 percent of gross domestic product, from 19 to 23 percent, with the signing of the law by the President.

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 of the spouses shall be entitled to make a maximum contribution of P100.000, or its equivalents in any currency at the prevailing exchange rate.

The law gives the contributor an income tax credit equivalent to five percent of his total PERA contribution, provided he does not withdraw the funds before age 55. If the PERA contribution exceeds the amount prescribed by law, it shall no longer be entitled to a tax credit of five percent.

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.

The Department of Finance (DOF), Bureau of Internal Revenue (BIR), Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and the Insurance Commission were tasked to craft the measure's implementing rules. (PIA 6) [top]

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