Republic of the Philippines
House of Representatives
Quezon City
Thirteenth Congress

First Regular Session

HOUSE BILLNO,__118 _

Introduced by Representative JOEY SARTE SALCEDA

EXPLANATORY NOTE

Unlike their counterparts in developed countries such as the US and Europe, Filipino workers generally
Jook at retirement with trepidation. Instead of “rest from daily toil” as the term suggests, it means lower or even
loss of income for a big portion of Filipinos who do not have retirement benefits to look forward to.

‘The NSO reported that the country has a labor force of about 34.85 M' (as of July 2003), for a labor
force participation rate of 67.1%’. Unfortunately, of the total labor force, only 75% are members of
government-initiated pension funds, broken down as follows: 25 million for SSS ° (as of end 2003) and 1.3
million for GSIS* (as of April 2004). This translates to about 8.55 million Filipinos and their dependents who
will have nothing to look forward to in their retirement years.

This bill secks to remedy the situation by institutionalizing the Personal Equity and Retirement Account
(PERA) for all public and private employees. Under the proposed measure, people will be encouraged to save
for their retirement years. Among its attractive features arc the following:

1. The contributions shall be deductible from the taxable income and earings of said savings are
sheltered from taxation as they grow and are taxed only upon their withdrawal from PERA.

2. Flexibility. In case of emergency, a member may withdraw his money or a portion of it, unlike the
current pension schemes where the money is locked in.

3. More dynamic carnings potential. It offers facilities to move funds to investment options that offer
higher returns.

From the foregoing reasons, immediate approval of this bill is earnestly sought,

+ Source: Current Labor Statistics, 3" Quarter 2003, published by BLES.

2 Aap Me Joct Palacios, Media Affairs Bureau, SSS.
“Public Affairs Department, GSIS



Republic of the Philippines
House of Representatives
Quezon City
‘Thirteenth Congress

First Regular Session

House BilNo. 118 _

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN KNOWN AS THE
PERSONAL EQUITY AND RETIREMENT ACCOUNT (PERA)

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION I. Title. - This Act shall be known as “Personal Equity and Retirement Account
(PERA) Act of 2004.”

SEC.2. Declaration of Policy. - It is declared the policy of the state to promote capital market
development and savings mobilization by establishing the legal and regulatory framework of
retirement plans for persons, comprise of voluntary personal savings and investment, that is supported
by government incentives. For this purpose, the Ste shall rationalize the functions of the Regulatory
Authorities with the main objective of generating investments and accelerating savings mobilization
by providing tax incentives to eligible PERA Investment Vehicles.

SEC.3. Definition of Terms. ~ As used in this Act, the following terms shall have the following
significance, untess the context requires otherwise:

(@) "Administrator" is an entry accredited by the Bureau of Internal Revenue (BIR), after pre-
qualification by the Bangko Sentral ng Pilipinas (BSP), in the case of financial services
institutions with trust licenses; or by the Securities and Exchange Commission (SEC), in the
case of investment companies; or by the Office of the Insurance Commissioner (OIC), in the
case of life insurance companies. The Administrator shall assume fiduciary responsibility over



PERA funds. Its function shall include but not limited to: reporting on contributions made to
the account; computing the values of investment; educating the contributor, enforcing PERA
contribution and withdrawal limits; acting as withholding agent in the collection of appropriate
taxes and penalties; issuing certificates of contributions for BIR purposes; and consolidating
reports on all investments, income, expenses, withdrawals on the account and ensuring that
PERA contributions are invested only in permitted investments as required by the concerned
Regulatory Authority,

(b) "Contributor" is a citizen of the Philippines, of legal age , who possesses a Tax Identification
Number (TIN), and who establishes and makes contributions to PERA.

(©) "Custodian" is a financial services institution with trust licenses or an insurance company,

inct from the Administrator, accredited by the BIR after pre-qualification by

the concerned Regulatory Authority, providing services in connection with the custodianship

of funds and securities of the PERA. The custodian shall assume fiduciary responsi

PERA funds and assets. It shall receive and disburse all fund in connection with the PERA,

separate and di

ty over

maintaining custody of all original securities, evidences of deposits or other evidences of
investments. The custodian shall operate independently from the Administrator. The custodian
is required to report to the contributor and the concerned Regulatory Authority at regular
intervals, all financial transactions and all documents in its custody under a PERA.

(@) "Investment Manager" is an Administrator additionally authorized by a Contributor to make
investment decision for his PERA. As such . It shall assume fiduciary duty and responsibility
for PERA investment. It shall act with utmost fidelity by observing policies directed towards
confidentiality, scrupulous care, safety and prudent management of PERA funds.

{e) "Personal Equity Retirement Account (PERA)" refers tom the voluntary retirement account
established by and for the exclusive use and benefit of the Contributor who shall retain the
ownership of funds placed therein, including all earnings of such funds,

(f) "PERA Investment Vehicle" refers to a common trust funds., mutual funds, annuity contract or
pre-need pension plan, dedicated solely for PERA purposes and which has been pre-approved
by the concemed Regulatory Authority before being granted tax-exempt privileges by the BIR:
Provided, that the concerned Regulatory Authority may be rule allow other PERA pooled
investment vehicles, subject to the approval of the Secretary of Finance.

(g) "Investment Vehicle Provider” refers to an entity authorized by any of the Regulatory
Authorities to offer and manage a PERA Investment Vehicle.



(h) "Self-Directed PERA Account" refers to a PERA in which the investment decisions are made
by the Contributor.

(@ "Regulatory Authority” refers to the BSP as regards financial services institutions or trust
companies, the SEC for investment companies, investment houses, stockbrokerages and pre-
need plan companies, the OIC for life insurance companies, and the BIR as appropriate.

SEC. 4. Establishment of a PERA. ~ A contributor who establishes a PERA shall designate an
Administrator. The Contributor may also designate an Investment Manager and a Custodian but has
the option to ask the Administrator to choose the latter on his behalf.

‘The Contributor may transfer from one Administrator to another at any time: Provided, that the
Contributor must only have one Administrator at any given time.

SEC 5. Investment Decisions. - Generally, the Contributor shall make all investment decisions.
However, he may authorize an Investment Manager, either in writing of electronic form, to make all
investment decision on his behalf without prior consultation.

SEC 6. Fit and Proper Rule for Officers and Directors of Administrators, Investment
Managers, Custodians and Investment Vehicle Providers. - The concerned Regulatory Authorities
shall coordinate to establish uniform fit and proper standards for Administrators, Custodians,
Investment Managers and Investment Vehicle Providers. This common regulatory framework shall
maintain the quality of management in these institutions and afford better protection to the
Contributors. Regulatory Authorities shall prescribe the qualification and disqualification standards of
individuals elected or appointed as directors or officers of Administrators, Custodians, Investment
Managers and Investment Vehicle Providers

In determining whether an individual is fit and proper to hold the position of a director of an
‘Administrator, Custodian, Investment Manager or Investment Vehicle Provider, regard shall be given
to his integrity, experience, education, diligence, training and competence.

SEC 7. Maximum Fees. - An accredited Administrator, Custodian or Investment Manager for a
PERA account shall charged fees not to exceed the amount or percentage to be determined or set by
the concerned PERA Regulatory Authority.



SEC 8. PERA Investment Vehicles. — A contributor through hid Administrator, shall invest only
in any of the following tax-favored PERA Investment Vehicles:
(a) Approved common trust funds and mutual funds registered in the Philippines;
(©) Approved annuity contracts and pre-need pension plans; and
(©) Other investment vehicles with the concern Regulatory Authority may by rule allow subject to
the approval of the Secretary of Finance.

SEC 9. Permitted Investments of PERA Investment Vehicles. Investment made by
Contributors in any of the products listed in Section 8 and earnings thereon shall be invested only in
the following investments, subject to full disclosure standards and investment limits set by the concer
Regulatory Authority:

(a) National government securities or issues guaranteed by the Philippine government;

{b) Corporate or government bonds, including issues of local governments or government
agencies, or debt instrument including asset backed securities, which are rated by a recognized
by a rating agency in the Philippines;

(c) Bank deposits in local and foreign currencies in Philippine financial institutions;

(@) Foreign currency denominated investment authorize by the BSP, including the currencies
themselves, traded or any recognized exchange but not to exceed seven and a half percent
(7.5%) or whatever is the current Social Security System (SSS) limit on foreign denominated
investments, for aggregate PERA assets held by the Administrator,

(©) Non-Speculative equities listed in the Philippine Stock Exchange (PSE), and

(Q) Other investment outlets which the concer Regulatory Authority may by rule allow subject to
the approval of the Secretary of Finance.

SEC 10. Basic Investment Vehicles. - Regulatory Authorities may designate basic PERA
Investment Vehicles that will be commonly offered by all Administrators to provide simple-to-
understand options for Contributors.

SEC 11. Maximum Annual PERA Contributions, — A Contributor may make a contribution of
no more than fifty thousand pesos (P50,000.00) per year. The maximum contribution may be adjusted
from time to time to such amount that the Secretary of Finance may determine.

SEC 12. Tax Treatment of Contributions. — The annual PERA contribution to the extent of fifty
thousand pesos (P50,000.00) shall be excluded from the gross income of the Contributor and shall be
4



exempt from income taxation: Provided, however, that this tax treatment shall be applicable only to
contributions taken from the Contributor's taxable income other than those subject to a final tax, as
defined under the National Internal Revenue Code, as amended.

SEC 13. Tax Treatment of Investment Income. — All investment income derived by BIR-
approved PERA Investment Vehicles is exempt from income tax.

SEC 14. Tax Treatment of Distributions. - All distributions from the PERA under Section 18
are tax-exempt.

SEC 15. Penalty on Early Withdrawal, - No early withdrawals may be made until
contributions have been made for at least five (5) years. Early withdrawal penalties which shall be
payable to the Government as may be determined by the Secretary of Finance shall be imposed on any
withdrawal of any funds for the following purposes:
(a) For payment of hospitalization in excess of thirty (30) days;
(©) For payment to 2 Contributor who has been subsequently rendered permanently disabled as
defined under the Labor Code of the Philippines Republic Act No. 7641, the Social Security
Law and Government Service Insurance System Law; and
(©) For the purchase of the first family socialized housing unit of the Contributor.
However, no penalties shall be imposed on distribution made in the event that the Contributor
reaches the age of fifty (50) years upon his or her death.

SEC 16. Employer's Contribution. — An employer may make contributions to its employee's
PERA, and such shall be allowed as a deduction from the employer's gross income: Provided, that the
employer complies with the mandatory SSS contribution and retirement pay under the Labor Code of
the Philippines: Provided, further, that the amount thereof plus the employee's contribution shall not
exceed the maximum amount allowable under Section 11 hereof.

SEC 17. Records, Reporting and Audit. — The Administrators, Custodians, Investment
managers and Investment vehicle Providers shall as applicable keep records for all contributions,
earings and total account balances and shall be require to report to the Contributor these amount on a
quarterly basis for each calendar year. Such record shall be made available for inspection by the
Regulatory Authority during office hours. The Regulatory Authority concerned may conduct routine

5



and cause audits of Administrators, Custodians, Investment Managers and Investment Vehicle
Providers.

SEC 18. Distributions upon Retirement. — Distribution shall be made upon reaching the age of
fifty (50) years provided that contributions have been made to the PERA for at least five (5) years. The
distribution shall be made in any mode that may be elected by the Contributor. The Contributor then
has the option to continue on with the account. In the event that a Contributor opens an account at the
age of fifty-six (56) and above, distribution shall be made at any time without the corresponding five
(5) year holding period nor penalties.

SEC 19. Non-Assignability. - No portion of the assets of a PERA may be assigned, alienated,
pledged, encumbered, attached, garnished, seized or levied upon. PERA assets shall not be considered
assets of the Contributors for purposes of insolvency and estate taxes.

SEC 20. Penalty. ~ A fine of not less than fifty thousand pesos (P50,000.00) nor more than two
hundred thousand pesos (P200,000.00) or imprisonment not less than six (6) years nor more than
twenty-one (21) years or both such fine and imprisonment, at the discretion of the court shall be
imposed upon any person, association, partnership or corporation. Its officer, employee or agent, who
shall:

(a) Act as Administrator, Custodian, Investment Manager or Investment Vehicle Provider without
being properly qualified or without being granted prior accreditation by the concerned
Regulatory Authority;

(b) Invest the contribution without written or electronically authenticated authority from the
‘Contributor except in the case Self-Directed Accounts;

(©) Knowingly and willfully make any statement in any application, report or document required
to be filed under this Act, which statements false or misleading with respect to any material
fact; and

(d) Violate any provision of this Act or rules and regulations issued pursuant to this Act.
Notwithstanding the foregoing, any willful violation by the accredited Administrator,

Custodian, Investment Manager or Investment Vehicle Provider of any of the provision of this Act, or
its implementing rules and regulations, or other terms and conditions of the authority to act as
Administrator may be subject to the administrative sanctions provided for in applicable laws.



SEC 21. Abuse of Tax Exemptions and Privileges. - Any person natural or juridical, who
unduly avails of the tax exemption privileges herein granted, or who willfully aids or abets of the
commission of the same, possibly by co-mingling PERA accounts in an investment with other
investments, when such person is not entitled hereto, shall be subject to the penalties provided in
Section 20 hereof. In Addition, the offender shall refund to the government double the amount of the
tax exemptions and privileges enjoyed in this Act, plus interest of twelve percent (12%) per year from
the date of the tax exemptions and privileges to the date of actual payment.

SEC 22. Implementing Rules and Regulations. - The Regulatory Authorities, together with the
BIR, shall promulgate and amend such rules and regulations as may be necessary or appropriate to
implement the provisions of this Act. Within Thirty (30) Days after the promulgation of the
implementing rules and regulations or their amendments, the same shall be submitted to the
Congressional Oversight Committee, hereinafter created, for approval

SEC 23. Congressional Oversight Committee. — There is hereby created a Congressional
Oversight Committee composed of seven (7) members from the Senate and seven (7) members from
the House of Representatives. The members from the Senate shall be appointed by the Senate
President with at least two (2) Senators representing the Minority. The members from the House of
Representatives shall also be appointed by the Speaker with at least two (2) members representing the
Minority.

The Congressional Oversight Committee shall have the power to oversee the implementation
of this Act and approve such rules and regulations promulgated pursuant to Section 22 hereof. It shall
also have the power to promulgate its own rules.

SEC 24. Repealing Clause. — All laws, decrees, orders, rules and regulations or parts thereof,
inconsistent with this Act are hereby amended or modified accordingly.

SEC 25. Separability Clause. - If any provision or part hereof, is held invalid or
unconstitutional, the remainder of the law or the provision not otherwise affected shall remain valid
and subsisting,

SEC 26. Effectivity. ~ This Act shall take effect fifteen (15) days following its publication in a
newspaper of general circulation

Approved,