Salve, sa PERA ba pwedeng wala na yung mandatory 10% tax na pinapataw sa mga cash dividends?? If yes, nice!

hi acn, yes, that’s my reading of the law. Section 9 or RA 9505 states: “All income earned from the investments and reinvestments of the maximum amount allowed herein is tax exempt.” Very clear

di ko siya magets ><
if meron akong stocks, mutual funds, savings account, i still need to get an administrator? is that right? tapos siya un mag hahandle ng lahat money? tama po ba?

@steph, all your savings, stocks, bond holdings etc. will not be tax exempt unless you specify that those are for a PERA that you open. Savers will still have the option to save in the traditional manner and wing it on their own without any tax incentive, but these funds should not be co-mingled with things specified under a PERA. Remember that a PERA can only be tax exempt if it is kept in that account until you are 55, or until you die, whichever comes first

Your administrator merely oversees your PERA, where it goes, how much it is earning, how much tax credit it is qualified for, and it is the one in charge of reporting all these figures to the right regulator. So you have to get an administrator and have him oversee your PERA so that the government will have an idea about what you are doing under your PERA and for the purposes of reporting etc. At least that’s what I imagine after reading the bill. thanks for the chance to clarify.

100 thousand pesos is the maximum requirement, may I know the minimum amount required? Can i transfer my mutual fund investment to a PERA Account/ If so, please tell how. Thank you very much

Hi guys,
PERA is the same as IRAs in the US.
Just remember to use only spare money to invest in them, otherwise, you’ll get slapped with tax penalty for any withdrawals if you are below 55.It is 591/2 in the US.
I hope we can all start investing by Jan. 2009.

Does the limit P100k/P200k applies only in one year period or for the whole term of PERA account?
Is the tax credits can be used to pay on realty taxes?
Good deal for us OFW’s.

maria theresa, the law does not say anything about a minimum, which means it probably doesn’t have one. makes sense if it ends up that way because the PERA Bill is really for small to middle income groups and especially OFWs and should not discriminate against small savers. However, the law will most likely not apply to investments already made before it becomes effective. Hope this helps.

Dann, the maximum limit is for one year. We will have to wait for the implementing rules and regulations to find out if the tax credits can be applied to realty taxes. hope this helps

can we get an administrator to any philippine banks? can we not merge the custodian and administrator? complicated

saturnv, i would expect that banks would be the most obvious choice as administrator, but the implementing rules and regulations will be more specific on that matter, i think. regarding getting the administrator to also be the custodian, the law is very clear that they should be separate and distinct. i believe this is a check and balance thing to protect you from fraudulent transactions on the part of each one.

looking forward to the IRR…

The P100k/P200k limit is annual.

The tax credit will be used to pay income tax due, not a deduction from taxable income. Take note, income tax. So, realty and other taxes excluded.

If there’s no income tax payable in the first place, there’s no benefit from the tax credit. It cannot be converted to cash or carried over to succeeding year/s. Foreign-source income of OFWs are excempt from income tax, therefore, the tax credit cannot be used except they have taxable income derived in the Philippines. Since a minimum wage earner is exempt from income tax, there’s no benefit from the tax credit.

Correct me if I’m wrong, please.

so there’s no major difference from existing pension plans mutual funds except:
1. it’s tax exempt
2. you get tax credit for every 5,000 investment

tama ba ko

coorection:

No. 2 should be 5,000 tax credit for a 100,000 investmnt

Eugene, I looked again and found out that the 5% tax credit is indeed an income tax credit, but cannot be used for refund. So, you’re right. This seems to be useless to minimum wage earners, so their benefit from the PERA Bill would be the faster compounding on their savings because earnings will not be taxed as long as the money stays there until age 55.

However, RA 9505 also says that if the contributor is an overseas Filipino, he can claim tax credit “from any tax payable to the national government under the National Internal Revenue Code of 1997, as amended.” I guess that could include realty taxes. I will try to clarify that with a tax lawyer just to be sure. thanks for the insights.

Pepe, you’re right. These are the major differences–the tax perks. And that at death, the distribution of PERA is as simple as going directly to heirs. No estate taxes payable. The people I interviewed, however, believe that the tax exemption on earnings would greatly fasttrack the compounding of your funds if done year after year, the way financial instruments in this country are taxed. Remember, we have to deal with withholding taxes, doc stamps and capital gains tax, which can be quite burdensome to savers. Watch out for my full article on Monday in the PDI.

that’s something to look forward to in the coming days…just a year more and i can have excess money to save/invest like in a PERA

I helped with part of the original draft of the PERA Bill. Although I am happy with its passage, it has major changes which renders it much less beneficial. In the early stages, we were patterning it after the Singapore Supplementary Savings Plan, the US401/IRA, the Australian Supplementary Savings and the Chile Pensionades. The common theme is these are all TAX Exempt all the way and deductible directly from your income tax. Few Filipinos will understand the tax credit, and in itself, at 5%, it is not very compelling. Furthermore, we originally tried to get it to be up to 25% of your income that would be allowed to be contributed making it self adjusting to inflation and truly compelling. At today’s fixed amount, inflation will make it less meaningful every year. I hope these amendments to the law are filed by some very visionary lawmakers in the Senate and Congress to allow the PERA bill its full potential to create savings and be a core component of the growth engine of the Philippines.

Sincerely,

Ramon Garcia Jr.
Former Governor PSE
Chairman DFNN Group

@Mr. Ramon Garcia, greatly honored to have you here with your insights on the PERA Bill. How have you been, sir? I have heard as much from my sources about the watering down of the bill. Where you part of the team in the Oca Moreno days pa? I heard that version would have outstanding benefits to the average Filipino. The current version, however, I also heard from the grapevine, is already causing the Finance guys a lot of headache. Financial instruments are heavily taxed in this country and the revenue losses will not look good for an administration gunning for a balanced budget by 2010.

Salve, do you think that investing in the PERA is better in terms of interest income earned than investing in the more flexible mutual funds that give as much as 12% interest per annum?

Hello Salve,

Yes, I was part of the PSE team during the Oca Moreno days. If the first draft was passed, we calculated the effect would be 2 to 4 Billion Pesos in added liquidity per day in the stock market domestically. This has far reaching effects for many businesses as the PSE has a multiplier effect. Imagine all the companies that could raise money aside from getting bank loans, which are very risk averse. The PERA investors would participate in their growth. There would be more taxes paid, from transaction fees, IPO taxes, and income taxes from workers who would now have jobs. This is the best way to distribute wealth and build a large middle class. Since there is more liquidity domestically, it is much easier for foreigners to also invest in the Philippines, as liquidity of markets is one of their prime components needed in evaluating markets to invest. Intel, Microsoft, Apple, Berkshire Hathaway, and other companies would not be the same today without the passage of the US 401/IRA etc and the liquidity of their stock markets.

I hope this helps better inform fellow readers on the importance of the PERA Law and why it should quickly be amended to be more like the other plans in the world. One more wish, A Flat Tax like Russia, Estonia and Ireland……. but I guess we have to wait a while longer.

Best Regards,
Ramon Garcia Jr.

I’ve been waiting for this bill to be implemented. Here are my thoughts:

1. Why do we have wait until january 2009. Can’t the government and private agencies fast track the implementation?

2. Why only 100K? This means if I have more money for PERA then Gov’t will tax it. Are we really encouraging people to save by putting a limit?

Thanks.

how about bond trading? some long term bonds go around 20%. but pdex, the exchange for fixed income securities is not yet accessible to public. it would be similar to pse trading except bonds and fixed income securities are traded. you make money if you buy at discount and sell it at premium depending on market condition.

can i set up PERA for my kidz? who is still below 18 years old? does the government has a list now of approved ADMINISTRATOR and custodian?

onemore, from what i learned talking to financial planners, interest income will still be the same. there is not much difference in terms of performance. the big difference lies in the tax breaks and the long-term nature of the investment. if it were me, and im not saying you should also do the same because as you know, this is a very personal choice, i would put my long-term funds in PERA to take advantage of the tax incentives, meaning if i absolutely can live without that money until age 55. I would definitely make it a priority to set aside something every month, kahit 1,000 lang for example :-). for my other needs, like if im saving for a car, my kids education etc., i would put the money in a mutual fund that’s not included in my PERA. Hope this helps.

@Mr. Garcia, that version certainly sounds much more superior to what we have now. I agree that a P5,000 tax credit per year, or even P10,000 for an OFW, is too small to say the least. It really is not compelling. One question though, doesn’t tax credit ultimately have the same effect as a deduction from taxable income? And it has the added benefit of allowing OFWs, who are not required to pay income tax, to use the tax credit against any other taxes they will pay to the National Government? Kindly correct me if I am wrong.

Hopefully, if more people lobby for a better version of the PERA, what we have now will just be the beginning. We need more people in the private sector and individual Filipinos to let the lawmakers know that they want more and that they know what they want. Of course, we understand that whatever benefits from a more attractive PERA Bill will have to be measured against whether the fiscal situation now can handle such a revenue loss. But at the end of the day, short-term losses for long-term gains can only be good for the country

Thanks again for your insights. They certainly help!

Red, impatient eh? Join the line! Hehe. We are all hoping the IRR will be finished soon so that the implementation can begin!! Regarding the limit, yes P100,000 per year is very small. Even P200,000 for OFWs. Double that for couples. In my last interview with Sen. Edgardo Angara, he was aiming for a higher limit, but I suppose the Finance guys had to consider the impact of that on the budget deficit. The higher the budget deficit, the higher the government would have to borrow from financial markets and the higher local interest rates would be as well as debt payments, and that would also have an impact on the economy. Rightly or wrongly, I believe those where the considerations and the answers to your whys. Hope this helps!

Don2x, I kinda got lost in your comment about bond trading. Would you please explain?

Yheeliz, I scanned the bill again and there is no requirement as to minimum age. It says anyone who can has a TIN, so I suppose that means anyone who can work. We can have that clarified by the DoF. Regarding the list of approved administrators and custodians, we also have to wait for the implementing rules and regulations for that. Regards.

silly me, the answer to my question on tax credit versus deduction from taxable income is quite simple. was quite confused last week as i was interviewing people left and right who had different views about the pera bill. assuming everything else is equal, tax credit appears more beneficial but harder to understand. for example:

100,000 (taxable income) - P5,000 (tax credit) = 95,000 new taxable income

95,000 x 10% (tax) = 9,500 (payable tax)

(the figures are only for ease of computation)

whereas:

100,000 (taxable income) x 10% (tax) = 10,000 (payable tax)

10,000 - 5,000 (tax credit) = 5,000 total payable tax

BUT, if the government allowed the TOTAL CONTRIBUTION to be deducted from taxable income, boy that’s a totally different matter and would really make PERA truly compelling. As it is, the PERA Bill only allows a tax credit of 5% of total contribution.

Hope this clears things up.

You really gave me a good insight on the PERA bill, Salve. Thanks…..

I’ll pick up this entry pretty soon. Thank you.

Hi Salve,

Great article! I’ve been travelling and couldn’t get that email to you. Anyway, here’s my future wishlist for PERA when it goes through it revisions:

1. PERA funds can be used towards the purchase or mortgage of the contributor’s primary residence without penalty or tax, more especially if they are using the funds as a down payment for a Pag-ibig loan.

2. PERA funds, or up to 50%, can be used to pay for the contributor’s college education of his/her child(ren) without penalty or tax.

Salve, pls help me demystify: is there any ceiling as to the maximum age to avail of this pera, ie; 55 yrs old? if u’re above 55, u’re not qualified? thanks

hi guys,

does PERA includes protection of insurance? if yes this is very good just like a variable life insurance w/c is a combination of investment plus the protection.

regards,
dong

I am really interested about this PERA. how could I get access with this? I am just having a small business? could anyone guide me what to do on acquiring this PERA? what are the processess?

Hi friends,

PERA bill is a very usefull tool to all Filipinos who wish to accumulate funds for their Retirement and other related purposes, we know that by just putting part of our income to SSS or GSIS we cannot reach the desired retirement amount we really need.

A sound financial planning thru diversification of investment will maximized our return.

Interested party who wish to learn the basic of diversification and conservation thru a prudent approach may reach us thru my e-mail : saplalaphilam@yahoo.com

Happy savings to all!
ERWIN SAPLALA

People drafting the IRR should get a move on. I have been waiting for this for too long, when even an officemate studying law haven’t heard of PERA.

It’s about time they provide a vehicle for the working class to move up and reap fruits from their work.

Any updates about this PERA?

Do the administrators and custodians need to be accredited by the government, or can I choose whoever I think is capable?

Are banks allowed to take in this PERA?

Ooops! Read again the article above.

I guess, my question should be, “Which companies are approved by the government to act as administrators and custodians?”

[...] If this is the first time you have heard of the PERA and you want a simple FAQ about it, read my previous blog post, “The PERA Bill at its core.” [...]

@ Al Sembrano
Using retirement funds for mortgage and education of children are very popular in the US. Unfortunately, it seems our PERA is not yet going this route. Compared to the US, we are still at the equivalent of what they call simple IRA.

@Lance
There is no actual age limit for opening a PERA account. Even if you are over 55 yrs old, you can still open a PERA account as long as you meet the “at least 5 annual contributions” before withdrawing your money.

@Chit
Let’s all wait for the next article of Salve on what the law says about opening a PERA account.

@Ces
Once the IRR is finally released, you can see the mad rush of banks, insurance companies, etc. getting approval for Administrator or Custodian. Best bet is your preferred bank, or one that is most accessible to you.

[...] The PERA Bill at its core [...]

[...] The PERA Bill at its core [...]

Okay granting that this would be tax free, the question is, has the law set the management fee that the so-called administrators and custodians will charge the PERA owner?

kasi kung di kasama sa batas, parang ang mangyayari, yong na gain mo sa tax exemption pupunta lang sa adminsitrators, custodians or kung ano ano pa.

@myepinoy

What the law states is that the fees of admins and custodians must be approved by the regulatory authorities. Meaning BSP, IC and SEC. So let’s all hope that these agencies will make sure that PERA investors will not see their “tax free” status erased by the fees.

For me, the fees is high up on the list of questions to ask. Together with how stable the admin and custodian are.

[...] The PERA Bill at its core [...]