The Labor Day bug has bit me. I have been reminiscing since this morning about my 15 years in the workforce (I was a working student in the fires of doom inside Mt. Peyups) and I just realized that what employee retirement benefits I must have enjoyed the entire time were not significant enough because I can hardly remember one.
Really! The only one I can remember is the free coffin (you read it right, c-o-f-f-i-n, not coffee) that BusinessWorld promised to provide if I died while covering a media event. That has stuck in my memory because its funny and not because it’s significant in any way. Nuh-uh.
Perhaps I picked the wrong employers. Perhaps employees of Ayala Corp., San Miguel Corp., other big companies and multinationals will at least be comfortable when they retire. I chose to go freelance around 2002 and that means I have to be responsible for my own retirement so I really can’t complain.
But my sense is that most employed Filipinos will be working almost all their lives to retire with — you guessed it — nothing. The Social Security System’s retirement pension is almost nil, Government Service Insurance System retirees are all the time complaining about poor service and their botched e-cards — what dignity is there for workers who come to work each day of their lives only to depend on their children when they grow old?
Clearly, Filipinos will have to be more aggressive to do most of the legwork on their own. About 6.2 million Filipinos or 20% of the country’s total labor force are not covered by any type of retirement plan. As of December 2000, only about 23.22 private or self- employed employees are members of the SSS and another 1.7 million government workers are covered by the Government Service Insurance Funds administered by the GSIS.
Some financial experts are counting on the PERA (Personal Equity Retirement Account) bill to lighten up some of the load. The bill has been signed into law. We are now just waiting for the implementing rules and regulations to be written, that’s just about…oh, a year or so to go.
I have heard a lot of discussions about the PERA bill. From what I hear, its most interesting feature is this: it will allow employees to funnel pre-tax income in chosen investment instruments (most likely including mutual funds) for their retirement. Another nice thing is that Filipinos can bring this fund with them even if they transfer to another company. The PERA bill’s closest cousin is the Americans’ 401k.
Imagine the growth in the financial industry this bill could spark. Francisco Liboro, president of the Association of Stock Analysts in the Philippines, expects 300 to 400 percent rise in liquidity in the stock market when the bill’s implementation goes into full swing.
I’m waiting with bated breath what will happen next.
May 10th, 2007 at 10:00 pm
SALVE— Although the Dept. of Finance & the concerned Regulatory Authorities (BSP, SEC, IC) shall still coordinate to establish uniform rules and regulations, and the BIR to issue the implementing guidelines regarding tax administration, many of the salient features seem to be quite clear.
From your post, I can say you expect your PERA Ret.Ben. to be tax-free even if you leave your company after only 5-10 years and will be taxed only if withdrawn early. Well, guess what… I understand that “early” in PERA means before reaching age 55. But it’s a portable type of plan so OK lang if you move from one employer to another.
Allowed investment products are UITF, MF, shares of listed stocks, pre-need pension plans, insurance endowment plans, etc. There are 3 tax benefits— (1) the distributions of your investment upon retirement/death are tax-exempt; (2) the income of your investment is tax-exempt; and (3) the employee earns an income tax credit equal to 5% of his PERA contribution for that tax year.
In my own opinion, the tax benefits are not really that exciting (nothing much new).—
(1) I was expecting that the contributions would enjoy 100% pre-tax benefit, similar to the deductibility on premium payments of health or hospitalization plans (although that was a conditional deduction and sobrang liit, P2,400 lang for the entire family). So if I invested 50,000 (the max. allowed per year) in my PERA account, I was hoping that same amount would be deducted from my taxable income. In effect, I would have tax savings of as much as P16,000… not just 5% or P2,500.
(2) Many of the investment products already enjoy tax benefits at present. For example, already tax-exempt by law are gains from Mutual Funds, interest from certain long-term (min.5 yrs.) bank deposit or investment, and a return of investment or capital.
(3) We are able to enjoy the full value of pre-need and insurance plans’ maturities and cash benefits since these are released without withholding tax. (Although all sorts of income received by a taxpayer are generally considered taxable income, unless otherwise specified by a law, tax payments in the Philippines are still done on voluntary basis with our present self-assessment tax system.)
But the real benefit I believe of the PERA Act, as far as our taxpayers are concerned, is the how savings and investment will be promoted and inculcated in the minds of Filipino income earners, thereby encouraging them to avail of this personal Retirement program and become more prepared for old age.
May 10th, 2007 at 9:55 pm
OMSKI— I assume ur company’s Ret. Plan is BIR-approved & it does provide for Ret.Ben. to those w/ 20 yrs of service. Now, ask ur company if ur Ret.Ben. will be tax-exempt should u retire after 20 yrs of service. If they say No, and ur employer is interested to know how to make those Ret.Ben. tax-exempt, I may be able to show them a qualified solution. Just let me know. Salve knows to contact me. Or if Salve permits, I can post my contact numbers next time.
TINA— there are also companies here in Pinas that do include vested benefits in their Ret.Plan. Totally different naman ang 401(k) kasi pera ng employee yun, which at times mina-match ng employer. One of the objectives kasi is to make your Ret.fund portable. As for your company’s policy of retiring an employee at age 50 or after 10 years of service, whichever comes later, I guess it is just following the tax-exempt provisions of Ret.Ben. as per tax regulations and labor code. But depending on the Ben.formula they use, I may be able to show your employer how to have those Ret.Ben. tax-exempt, if they are interested. Let me know.
May 10th, 2007 at 9:54 pm
SALVE— d pala pumasok yung continuatn ng post kong naputol. As I was saying– even if you email BIR thru their website…yes, they will reply, but most probably only to tell u to go to their QC office (as I have experienced). A BIR resource person told me that we could inquire (by mail or phone) w/ the Office of the Deputy Commissioner - Legal and Inspection Group, or Office of the Assistant Commissioner - Legal Service, or at the Office of The Chief, Law Division, BIR National Office, Agham Road, QC.
May 9th, 2007 at 6:25 pm
can anyone here share any information about healthcare cost inflation? ( If ever there is such a term; what I mean here is the rate at which the cost of healthcare i.e. doctor’s consultation fees, prices of medicine, hospitalization, medical procedures, etc. goes up every year.) I believe this is not factored into the usual inflation figure reported every month. I just notice that healthcare eats up the bulk of pension income and savings in old age. I believe this should also be factored into any long-term investment/saving plan.
May 8th, 2007 at 8:19 pm
another important benefit is medical insurance for retirees as philhealth is not enough. other companies offer extended health benefits to retirees on limited period. after that you ‘re own your own. perhaps there should be law that retirees or unemployed can avail of the lower corporate/ group rate instead of higher individual rate from HMO.