The Philippines' PERA Act

The Philippines' Personal Equity Retirement Account

In the United States they already have an existing retirement plan for their citizens under their 401a or 401k plan. This 401a or k plans are plans wherein people are allowed to save money for their retirement and at the same time lowering their state and federal taxes.

The difference between 401a and 401k is that in a 401a plan, employees are not allowed to contribute into the account. The employer has the sole control in opening this account for its employees and how much contribution goes into each employee. This plan acts more of an incentive program since not all employees are opened a 401a account. This plan is more of an enticement for employees to be outstanding in their jobs and stay with the employer on a long-term basis.

A 401k plan on the other hand is one wherein a certain percentage of an employee’s income goes to this retirement plan and an employer will match this contribution either in full or partial contribution. This type of plan is more beneficial to an employee because of the additional retirement money that they can get on their employer’s account.

Although there is a great difference between these two retirement plans in the United States, the fact of the matter is that at least these systems exist as one way for their citizens to be proactive in saving for their future retirement.

Here in the Philippines, a retirement plan such as the United State’s 401(a)(k) does not exist. At least not just yet. The good news is that the PERA act of the Philippines has already been enacted into law on August 22, 2008. And in the following year the act’s implementing rules and regulations (IRR) was released in October of 2009. Filipinos however would still have to wait a little longer for this PERA act to be offered to the general public.

The beginnings of the PERA act traces its roots in the latter part of 1999; through reforms and further discussions of concerned government and private institutions the house version of the PERA bill was introduced on February 27, 2002. This 2002 PERA proposal calls for the establishment of individual retirement accounts that will receive favorable tax benefits i.e. PERA contributions will be completely deductible under the income tax the main purpose of which is to encourage more private savings for retirement.

PERA stands for Personal Equity Retirement Account, a witty play on words as pera in local parlance means money. By definition of the act, PERA refers to the voluntary retirement account established by and for the exclusive use and benefit of the contributor for the purpose of being invested solely in PERA investment products in the Philippines.

The idea of this act is to promote personal savings of private individuals and encourage them to set aside something for their retirement through the voluntary contribution to a PERA. Another objective of the act is for capital market development. The more people save, the more money to be used for the country’s growth and development. With a personal retirement account, it will also greatly decrease the dependency of an individual to the government’s pension program.

It took a while for the PERA bill to be enacted into law and still another full year for its IRR to be released. The final phase will be its actual implementation which should have been this first quarter of 2010 but so far the public is still waiting for it. Hope however is still rife for this system to be put into operation soon as it holds promise of future wealth through voluntary savings during an individual’s income generating years.


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