Thursday, 22 October 2009

New investment option for ordinary Filipinos

PERA implementation nears
Bangko Sentral finalizes its part of law’s rules; BIR contribution awaited
P. L. G. Montecillo

A NEW INVESTMENT OPTION for ordinary Filipinos may finally become available next year as authorities yesterday approved part of the Personal Equity and Retirement Act’s (PERA) implementing rules.

The law, signed by President Gloria Macapagal Arroyo in August 2008, is expected to further develop the country’s capital markets by encouraging Filipinos to invest for their retirement.

Regulators yesterday signed a memorandum of agreement for the uniform implementation of the law and the Bangko Sentral ng Pilipinas (BSP), which was appointed the lead agency, said PERA accounts may be available by the start of next year.

This hinges, however, on the Bureau of Internal Revenue (BIR) finalizing its contribution to the implementing rules and regulations (IRR) which will cover in detail the tax perks to be given to investors. Officials said this could be accomplished before the end of the year.

"Now that the mother IRR is here, we will try to finish the rules within the year," BIR Deputy Commissioner Nelson M. Aspe said.

Once completed, the BIR revenue regulation will have to be approved by Finance Secretary Margarito B. Teves.

Aside from the central bank and the tax bureau, other agencies which approved the implementing rules were the Securities and Exchange Commission (SEC), Insurance Commission (IC), Department of Finance and the Bureau of Internal Revenue.

Under the law, individuals can set aside as much as P100,000 a year in a PERA account, with the cap doubling for overseas Filipino workers (OFWs). Up to five accounts can be created and the funds will invested in a wide range of instruments. Income earned will be tax-exempt.

The money in these accounts may not be withdrawn until the contributor reaches the age of 55 or dies, and the account itself must be at least five years old. Early withdrawals will be taxed, although exemptions will be made for accident payments or hospital stays of over a month, and permanent total disability.

"[With PERA], the opportunity to invest is made available throughout the archipelago that puts a premium on investment gains," BSP Governor Amando M. Tetangco, Jr. yesterday said.

"I’m confident we can get this off the ground in by the start of next year," he told reporters.

As much as P5 trillion in deposits are sitting idle in local banks today, officials said. They said that if even a small portion of these funds is transferred into PERA accounts, it would go a long way into developing the country’s financial markets, currently driven mainly by foreign capital.

Under the approved rules, PERA accounts will be offered by so-called administrators — local banks, mutual funds and insurance firms — which need to have capitalization of at least P100 million.

Investments allowed for PERA accounts are local instruments covered by the BSP, SEC and IC. Given the complexities of investing, the rules allows for investment managers which will make decisions on the contributor’s behalf. Qualified investment managers include trust entities and investment houses, among others.

With the emphasis on consumer protection, the rules state that "an investment manager shall not be allowed to recommend or sell its own investment products or that of its subsidiaries and affiliates."

"The same prohibition shall apply to an administrator who acts as an investment manager by reason of being a holder of a trust license."

In starting their PERA accounts, investors will need to appoint "custodians" which will be responsible for receiving and disposing of funds in connection with the PERA. Only banks and trust entities, usually subsidiaries of banks, are allowed to become custodians.

Once an investor finally decides to withdraw his funds, the money can be given two ways: through a lump sum or a monthly pension. If a PERA contributor dies before he is able to withdraw his money, the proceeds will be exempt from inheritance taxes.

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