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FOURTEENTH CONGRESS OF THE 
First Regular Session 
REPUBLIC OF THE PHILIPPINES 
) 
COMMITTEE REPORT NO.- 
Financial Institutions and 
vw 1 Of 2iWksr 
Submitted jointly by the Commi 
Currencies; and Ways and Means on 
RE 
Recommending its approval in substitution of Senate Bill Nos. 70, 1194 and 1545 
Sponsor: Sen. Angara 
: Senate No. 1882, prepared by the Committee 
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MR. PRESIDENT: 
The Committee on Banks, Financial Institutions and Currencies and Ways and 
Means to which were referred SBN 70, introduced by Sen. Angara, entitled: 
AN ACT ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN, KNOWN AS 
THE PERSONAL EQUITY AND RETIREMENT ACCOUNT ('PERA') 
SBN 1194, introduced by Sen. MAR Roxas, entitled 
AN ACT ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN 
KNOWN AS THE PERSONAL EQUITY AND RETIREMENT ACCOUNT 
SBN 1545, introduced by Sen. Juan Miguel Zubiri, entitled 
AN ACT ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN KNOWN AS 
THE PERSONAL EQUITY AND RETIREMENT ACCOUNT 
have considered the same and have the honor to report t e 
b ck to the Senate 
with the recommendation that the attached Senate Bill No. $88$ 
___ prepared by the 
Committee entitled, 
AN ACT ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN, KNOWN AS 
THE PERSONAL EQUITY AND RETIREMENT ACCOUNT ('PEW') 
be approved in substitution of Senate Bill Nos. 70, 1194 and 1545 with the 
members of the Committees on Banks, Financial Institutions and Currencies; and 
Ways and Means as authors thereof. 
This bill was passed on third reading last Congress in the Senate and adopted 
in toto by the House of Representatives but failed to be enacted due to technical 
reasons. For all intent and purpose, attached for reference is the proposed 
"Personal Equity and Retirement Account ("PERA")" as well as a narrative of the 
discussions and positions considered by the Committee in drafting this Committee 
report. 


Respectfully submitted: 
n 
EDGA % 
D 0 J . A  v2- 
G RA 
-==+E?& 
“/,-6y\pt;lsJG;- 
FRANCIS ‘ CHIZ’ ESCUDERO 
Chairman, Committee on Banks, 
Chairman, Committee on 
Ways and Means 
Committee on Banks, Fi 
MEMBERS : - 
ALAN-PETER YOMPA~~ERO 
CAYETANO 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
RICHARD “DICK“ GORDON 
Member, Committee on Banks, Financial 
Instimions and Currencies 
P f l L ; a y s  
and Means 
emb 
ommittee on Banks, Financial 
R 
/ Institutions and Currencies ’ 
and Me- 
/ 
Member 
and Means 
ANTONIO TRILLANES I V  
on Banks, Financial 
Member. Committee on Wavs and Means 
Member, Committee on Ways 
and Means 
Member, Committee on Banks, Financial 
+.+, Institutions and Currencies 
Member, Committee on Ways and Means 


Respectfully submitted: 
EDGA 
i-j.d 
D 0 J . A  'Ichy- 
GARA 
FRANCIS "CHIZ" ESCUDERO 
~ 
Chairman, Committee on Banks, 
Chairman, Committee on 
Ways and Means 
Committee on Banks, Fi 
Institutions and Currencies 
MEMBERS: 
ALAN PETER YOMPA~~ERO 
CAYETANO 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
RICHARD "DICK" GORDON 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
RAMON "BONG" REVILLA 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
M I R I A M  DEFENSOR SANTIAGO 
Institutions and Currencies 
Member, Committee on Banks, Financial 
PANFILO LACSON 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
LOREN LEGARDA 
Member, committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
MAR ROXAS 
Member, Committee on Banks, Financial 
Member, Committee on Ways and Means 
Institutions and Currencies 
JOKER P. ARROYO 
and Means 
Member, Committee on Ways 
GREGORIO HONASAN I1 
Member, Committee on Ways 
and Means 
MANUEL "LITO" LAPID 
Member, Committee on Ways 
and Means 
JUAN MIGUEL ZUBIRI 
Member, Committee on Ways 
S
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V
 
Member, Committee on Ways 
and Means 
EX OFFICIO MEMBERS 
SEN. JINGGOY EJERCITO ESTRADA, 
SEN. FRANCIS N. PANGILINAN 
President Pro Tempore 
Majority Leader 
SEN. AQUILINO Q. PIMENTEL, 
Minority Leader 


14TH CONGRESS OF THE 
) 
first Regular Session 
1 
REPUBLIC OF THE PHILIPPINES ) 
1 
Prepared by the Committees on Banks, Financial Institutions and Currencies; and 
the Committee on Ways and Means in substitution of Senate Bill Nos. 70, 1194 
and 1545 
AN ACT 
ESTABLISHING A PROVIDENT PERSONAL SAVINGS PLAN, KNOWN AS 
THE PERSONAL EQUITY AND RETIREMENT ACCOUNT ("PERA") 
Be it enacted by the Senate and the House of Representatives of the 
Philippines in Congress assembled: 
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Section 1. Title.- This Act shall be known as the "Personal Equity and 
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Retirement Account (PERA) Act of 2007." 
Section 2. Declaration of Policy. - It is declared the policy of the 
State to promote capital market development and savings mobilization by 
establishing a legal and regulatory framework of retirement plans for persons, 
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comprised of voluntary personal savings and investments. The State recognizes 
the potential contribution of PERA to long-term fiscal sustainability through the 
provision of long-term financing and reduction of social pension benefits. 
Section 3. Definition of Terms. - Unless the context requires 
otherwise, the following terms shall have the following significance as used in 
this Act: 
a. 
"Administrator" is an entity accredited by the Bureau of Internal 
Revenue (BIR), after pre-qualification by the concerned Regulatory Authority. 
The Administrator shall be responsible for overseeing the PEW, whose core 
functions shall include, but not limited to: reporting on contributions made to 
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the account, computing the values of investments, educating the Contributor, 


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enforcing PERA contributions and withdrawal limits, collecting appropriate taxes 
and penalties for the government, issuing BIR Income Tax Credit Certificates to 
the Contributor, consolidating reports on all investments, income, expenses and 
withdrawals on the account and ensuring that PEW contributions are invested in 
accordance with the prudential guidelines set by the Regulatory Authorities. 
b. 
"Contributor" is any person of legal age who is a duly registered 
taxpayer. The Contributor establishes and makes contributions to a PERA. 
C. 
"Custodian" is a separate and distinct entity unrelated to the 
Administrator, accredited by the Bangko Sentral ng Pilipinas, providing services 
in connection with the custodianship of funds and securities comprising the PEW 
investments. 
The Custodian shall be responsible for receiving all funds in 
connection with the PERA, maintaining custody of all original securities, evidence 
of deposits or other evidence of investment. 
The Custodian sha'll 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. 
d. 
"Early withdrawal" shall pertain to any withdrawal prior to the 
period of distribution as set forth under Section 12 hereof. 
e. 
"Investment Manager" is a regulated person or entity authorized by 
a contributor to make investment decisions for his PERA. 
As such, it shall 
assume fiduciary duty and responsibility for PERA investments. An Investment 
Manager shall act with utmost fidelity by observing policies directed towards 
confidentiality, scrupulous care, safety and prudent management of PERA funds. 
An Administrator may also act as an Investment Manager. 
f. 
"Personal Equity Retirement Account (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 
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investment products in the Philippines. The Contributor shall retain the 
ownership, whether legal or beneficial, of funds placed therein, including all 
earnings of such funds. 
9. 
"PEW Investment Product" refers to a unit investment trust fund, 
mutual fund, annuity contract, insurance pension products, pre-need pension 
plan, shares of stock listed in exchange, exchange-traded bonds or any other 
investment product or outlet which the concerned Regulatory Authority may 
allow for PERA purposes. 
The concerned Regulatory Authority must first approve the product before 
being granted tax-exempt privileges by the BIR. 
h. 
"Regulatory Authority" refers to the Bangko Sentral ng Pilipinas 
('BSP") 
as regards banks, other supervised financial institutions and 
trust 
entities, the Securities and Exchange Commission ("SEC") 
for investment 
companies, investment houses, stockbrokerages and pre-need plan companies, 
and the Office of the Insurance Commissioner ("OIC") for insurance companies. 
Section 4. Establishment of a PERA - A Contributor may create and 
maintain a maximum of five (5) PERA, at any one time, provided that the 
Contributor shall designate and maintain only one Administrator for all his 
PERA. 
The Contributor shall make all investment decisions pertaining to his 
PERA. However, he has the option of appointing an Investment Manager, either 
in writing or in electronic form, to make investment decisions on his behalf 
without prior consultation. 
Section 5. Maximum Annual PERA Contributions - A Contributor 
may make an aggregate maximum contribution of Fifty Thousand Pesos 
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(P50,OOO.OO) or its equivalent in any convertible foreign currency at the 
prevailing rate during the actual contribution, 
to his/her PERA per year; 
provided that if the Contributor is married, each of the spouses shall be entitled 
to make a maximum contribution of Fifty Thousand Pesos (P50,OOO.OO) or its 
equivalent in any convertible foreign currency per year to his/her respective 
PERA. The Secretary of Finance may adjust the maximum contribution from time 
to time, taking into consideration the present value of the said maximum 
contribution using the Consumer Price Index as published by the National 
Statistics Office, fiscal position of the government and other pertinent factors. 
Section 6. Employer's Contribution - A private employer may 
contribute to its employee's PERA to the extent of the amount allowable to the 
Contributor; Provided, however, that the employer complies with the mandatory 
Social Security System (SSS) contribution and retirement pay under the Labor 
Code of the Philippines. Such contribution shall be allowed as a deduction from 
the employer's gross income, but shall be treated as part of the employee's 
compensation for tax purposes. 
The Contributor, however, retains the 
prerogative to make investment decisions pertaining to his PERA. 
*> 
Section 7. Separate Asset - The PERA shall be kept separate from 
the other assets of an Administrator/Custodian and shall not be part of the 
general assets of the Administrator/Custodian for purposes of insolvency. 
Section 8. Tax Treatment of Contributions - The Contributor shall 
be given an income tax credit equivalent to five percent (5%) of the total PERA 
contribution; Provided, however, that in no instance can there be any refund of 
the said tax credit arising from the PERA contributions. 
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Section9. Tax Treatment of Investment Income - All income 
earned by a PERA is tax exempt. 
Section 10. Tax Treatment of Distributions - All 
distributions in 
accordance with Section 12 hereof are tax exempt. 
Section 11. Termination - Any premature termination shall be treated 
as an Early Withdrawal under Section 13 hereof, provided that the penalties 
thereunder shall not apply if the entire proceeds therefrom are immediately 
transferred to another PERA investment and/or another Administrator. 
Section 12. Distributions Upon Retirement/Death- Distributions 
may be made upon reaching the age of fifty-five (55) years, provided that the 
Contributor has made contributions to the PERA for at least five (5) years. The 
distribution shall be made in either lump sum or pension for a definite period or 
lifetime pension, the choice of which shall be at the option of the Contributor. 
The Contributor, however, has the option to continue the PERA. 
Complete 
distribution shall be made upon the death of the Contributor, irrespective of the 
age of the Contributor at the time of his death. 
Section 13. Penalty on Early Withdrawal - Any Early Withdrawal 
shall be subject to a penalty, the amount of which would be determined by the 
Secretary of Finance and payable to the Government; provided that the amount 
of the penalty shall in no case be less than the tax incentives enjoyed by the 
Contributor. 
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No early withdrawal penalty shall be imposed on any withdrawal of any 
funds for the following purposes: 
a. For payment of accident or illness-related hospitalization in excess of 30 
days; and 
b. For payment to a Contributor who has been subsequently rendered 
permanently totally disabled 
as 
defined under the 
Employees 
Compensation Law, Social Security Law and Government Service 
Insurance System Law. 
Section 14. 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 Contributor for 
purposes of insolvency and estate taxes. 
Section 15. Rules and Regulations - Consistent with the policy of 
promoting transparency in PERA investment and thereby affording protection to 
the Contributor, the Department of Finance and the concerned Regulatory 
Authorities, with the Bangko Sentral ng Pilipinas as lead agency, shall coordinate 
to establish uniform rules and regulations pertaining to the following subject 
matters: 
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a. Qualification and disqualification standards for Administrators, Custodians 
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c. Disclosure requirements on the terms and conditions of the PEW 
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investments; 
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d. Minimum requirements imposed on the Administrators as regards 
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and Investment Managers, including directors and officers thereof; 
b. Qualified and/or eligible PERA investment products; 
inculcating financial literacy in investors; 
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e. Ascertainment of client suitability for PERA products; 
f. Record-keeping, reporting and audit requirement of Administrators and 
Custodians pertaining to records for all contributions, earnings and total 
account balances; and 
g. Other pertinent matters to be determined by the Regulatory Authorities. 
Section 16. Administration of Tax Incentives - The BIR shall issue 
the i,mplementing rules and regulations regarding all aspects of tax 
administration relating to PERA. 
The BIR shall coordinate the qualification 
standards of the Administrator with the Regulatory Authorities. 
Section 17. Penalty - A fine of not less than Fifty Thousand Pesos 
(P50,OOO.OO) 
nor more than Two Hundred Thousand Pesos (P200,OOO.OO) or 
imprisonment for not less than six (6) months nor more than two (2) 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 or Investment Manager 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, or invest the contribution in contravention 
of the instructions of the Contributor,; 
c. Knowingly and willfully make any statement in any application, report, or 
document required to be filed under this Act, which statement is false or 
misleading with respect to any material fact; 
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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 or Investment Manager of any of the provisions of this 
Act, or its implementing rules and regulations, or other terms and conditions of 
the authority to act as Administrator, Custodian or Investment Manager may be 
subject to the administrative sanctions provided for in applicable laws. 
The above penalties shall be without prejudice to whatever civil and 
criminal liability provided for under applicable laws for the same act or omission. 
Section 18. Abuse of the Tax Exemption And Privileges - Any 
person, natural or juridical, who unduly avails of the tax exemption privileges 
herein granted, possibly by co-mingling PEW accounts in an investment with 
other investments, when such person is not entitled hereto, shall be subject to 
the penalties provided in Sec. 17 hereof. In addition, the offender shall refund 
to the government double the amount of the tax exemptions and privileges 
enjoyed under this Act, plus interest of twelve per cent (12%) per year from the 
date of enjoyment of the tax exemptions and privileges to the date of actual 
payment. 
Section 19. 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. 
Section 20. Repealing Clause - All laws, decrees, orders, rules and 
regulations or parts thereof, inconsistent with this Act are hereby amended or 
modified accordingly. 
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Approved, 
Section 21. Effectivity. This Act shall take effect 15 days following its 
publication in a newspaper of general circulation, provided that the tax incentives 
granted hereunder shall take effect on 01 January 2009. 
9 


COMMIlTEE ON BANKS, FINANCIAL INSTITUTIONS AND CURRENCIES 
SUMMARY OF PROCEEDINGS 
I. BACKGROUND: 
The country's financial sector remains an important intermediation 
channel. 
However, unless critical reforms are undertaken to improve its 
efficiency and competitiveness, it will remain underdeveloped. 
Statistics show that the Philippines lag behind other ASEAN and Asian 
economies in terms of savings and size of deposit. 
Gross National 
SavingsIGDPl, 
2004 
Public interest in savings instruments outside of the banking sector is low 
as the Philippine capital market is still in the early stages of development. 
Domestic credit depends largely on banks' lending and there is little participation 
in the equity market. In fact, as compared to the ASEAN and other Asian 
countries shown below, the Philippines showed as one of the least developed 
stock market. 
*As of 2005 
Source: Centennial Database, based on World Bank Financial Structure 
Dataset 
' Source: ADB: Philippine Data: NEDA 


L 
Moreover, in contrast to countries with more developed capital 
markets, the country's pension funds are primarily derived from mandatory 
schemes such as the GSIS and the SSS. To make it worse, the GSIS and the SSS 
are plagued with uncertainties. Studies show that the two institutions are 
suffering from poor financial health resulting in growing funding gaps, deficits 
and declining surpluses. Some estimates for SSS show that the fund is expected 
to last until 2015, assuming there are no pension increases. For the social 
insurance fund of GSIS, it was projected that expenses will exceed revenues by 
2042. While these institutions are carrying out reforms to address these 
projections, the pension system problems pose a potential national government 
bail-out, with serious repercussions on fiscal consolidation efforts. The 
government guarantee of the SSS and GSIS obligations presents a potential fiscal 
liability, commonly known as implicit public debt, which would present a 
constraint on the country's national budget. 
Furthermore, the pension system problem adversely affects not only the 
national government but more significantly, the aging work force whose source 
of sustenance during retirement would primarily be dependent on these 
government pensions. The pension benefits, particularly from the SSS, cannot 
be expected to sustain even the barest necessity. As of June 2006, the SSS 
monthly pension amounts to P2,546.00, at the average2. This is particularly 
disheartening for our hard-working OFWs, whose immense contribution, in terms 
of foreign remittances, have helped propel our economic growth. It is quite 
common and very sad to see our hard-working OFWs, old and tired from years 
of employment abroad, yet without any savings for their retirement. Much of the 
O W  earnings funds present consumption of the OFWs' families such as the 
purchase of housing units, payment of tuition, setting up of small-scale 
productive ventures, with very little left for any savings for one's retirement. It 
is even more unfortunate that these OFWs are not mandatorily covered under 
the Social Security System ('SSS") retirement benefits. This is true not only for 
OFWs but also for most of the domestic labor force. The National Statistics 
Office reported that the country has a labor force of about 35.81 million, 
representing a 64% labor participation rate. 
Unfortunately, of the total labor 
force, only 78% are members of government-initiated pension funds, broken 
down as follows: 26.49 million for SSS and 1.4 million for GSIS3 . This means 
that about 7.92 million Filipinos, including their dependents, will have absolutely 
nothing to look forward to in their retirement years. 
Moreover, 70% of the 
domestic workforce is employed by micro, small, and medium enterprises, which 
more often than not, do not provide private retirement benefit plans for their 
employees. 
Thus, 70% of the domestic workforce have to rely solely on their 
measly SSS monthly pension ranging from P1,OOO to P14,970 during their 
retirement. 
These are just some of the myriad factors that hamper the growth of the 
country's financial sector. Several measures, legislative or otherwise, still have to 
be done to make the country's financial system as competitive as those of other 
countries. 
Although this is not the single answer to the country's problems in the 
financial sector, the enactment of a law on the Personal Equity Retirement 
Account (PERA) is envisioned to provide an alternative financial instrument to 
augment non-bank savings. It will likewise address the need for an alternative 
2 Social Security System - lowest monthly pension is P1,OOD and highest is P14,970. 
3 As of June 2006 


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pension fund which will encourage the people to save up for their old age. It is 
intended to be the first step towards pension reform, establishing a multi-pillar 
retirement income structure. 
The enactment of the PERA, however, will not be cost-free to the 
government. It is estimated that the revenue loss due to the tax benefits under 
the bill will amount to around P10 billion annually. The estimated loss of revenue 
from the tax incentive (tax credit) on the PERA contributions is P1.22 billion 
whereas the estimated loss from tax exemption of the investment income of the 
PERA is P1.16 to P8.82 billion4. 
Admittedly, the PERA can lead to short-term revenue losses to the 
government. However, the foreseen benefits that the PEW will bring to the 
country's financial system surely outweigh the perceived costs. Moreover, 
investments in PERA products will generate more tax revenues, in the form of 
turnover taxes. As firms are encouraged to list in the stock market, government 
will also earn substantial sums from the IF0 tax which is from 1-4% of the gross 
selling price of offered shares. 
The IPOs issued during the last 4 years 
generated some P739 million in taxes. Additionally, 12% VAT is collected on 
processing, listing and maintenance fees. 
11. COMMIlTEE ACTION 
The bill on the PERA has been pending in the Senate since the Twelfth 
Congress. The bill could have passed during the Thirteenth Congress, except for 
some technicalities in the passage thereof in the House of Representatives. The 
Fourteenth Congress seeks to build on the consensus during the thirteenth 
Congress by adopting substantially the bill approved on third reading during the 
Thirteenth Congress. The following bills on PEW has been filed with the Senate: 
Senate Bill No. 70 (Edgardo I. Angara), Senate Bill No. 1194 (Mar Roxas) and 
Senate Bill No. 1545 (Miguel Zubiri). 
The PERA bills were heard by the Committee on Banks Financial 
In drafting the proposed substitute bill, the Committee reviewed all the 
current PERA bills originating from the Senate, the proposed consolidated PEW 
bill originating from the House of Representatives during last congress, transcript 
of stenographic notes taken during the Senate deliberations last Congress, the 
Individual Retirement Accounts ("IRA") under US. jurisdiction and the position of 
the private sector, in particular that of the CMDC. 
Institutions and Currencies on (please specify date). 
111. SUMMARY OF THE BILL 
1. State Policy behind the enactment of the PEW bill: 
a. Establishment of supplementary retirement benefits for the working 
population. 
Figures provided by the Department of Finance to Business World, as published on January 13- 
14, 2006. 


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The retirement benefit is especially helpful to SSS pensioners, 
who receive smaller pensions compared to GSIS pensioners, in 
achieving a minimum subsistence level during retirement. 
b. Savings mobilization; 
PERA is an alternative scheme, voluntary and private in 
character, designed to supplement the present public pension schemes 
administered by SSS and GSIS. 
Investments in PEW products are 
designed to be locked in on a long-term basis, i.e. up to age fifty- five 
(55) and held for at least a minimum of five (5) years. This could very 
well translate to thirty-five (35) years of accumulated savings 
assuming entry age in the labor force is 20. 
c. Capital market development 
The savings that may be generated from the establishment of 
PERA accounts are long-term and can be ideally invested in the 
domestic capital market. The underlying investment instruments can 
be in the form of unit investment trust fund, mutual fund, annuity 
contract, insurance pension products, pre-need pension plan, shares of 
stock listed in exchange, exchange-traded bonds or any other 
investment product or outlet, approved by the appropriate Regulatory 
Authority. 
d. Long-term fiscal sustainability. 
By empowering an individual to manage his retirement benefits, 
concerns regarding the actuarial fund life and viability of SSS and GSIS 
will be mitigated. 
2. Mechanics: 
Under the proposed Substitute bill on PERA, 
a, A contributor may establish a PERA with a maximum annual 
contribution of P50,OOO.OO. In case of married individuah each 
spouse shall be entitled to make a maximum annual contribution of 
P50,OOO.OO. The Secretary of Finance may adjust the amount of 
annual contribution to reflect the present value of the proposed 
annual contribution. 
For purposes of administrative simplicity, a contributor cannot 
contribute more than P50,OOO to his PEW. The entire PEW account, 
at different stages, 
is subject to certain tax incentives, the 
administration of which will be easier if there will be no mixing of 
funds not entitled to the incentives. 
6. The contributor must be a taxpayer, 
A contributor must necessarily be a taxpayer in order to avail of 
the tax privileges of the PERA. Moreover, the TWG hopes to capture 
more taxpayers into the system with the introduction of these tax 
incentives. 


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c. The annual contribution made shall be entitled to a tax credit of 
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5%. 
Any contributions in excess of the maximum annual contribution 
shall not be entitled to a tax credit. 
According to the BIR, the tax credit scheme is administratively 
A tax credit was preferred, in lieu of a tax deduction, in order to 
level the impact of the tax privilege given to the contributors. A tax 
deduction would give higher tax benefits to the higher income group 
considering that they belong to a higher tax bracket. The tax impact of 
a deduction would depend on the tax bracket of the taxpayer. 
d. The contributor may establish a maximum of 5 PERA, at any one 
time with only one administrator. 
A contributor must have the flexibility to establish more than 
one PERA in order to have a wider choice of investment products and 
to spread his risk. As a new player in the market, he should be able to 
test the different product in the market. However, in order to simplify 
and facilitate the grant of tax incentives, he should maintain all his 
PERA with only one administrator, with the option of changing said 
administrator. These features would enable the contributor to better 
control his investments, without sacrificing administrative simplicity. 
e. A PERA must be under an Administrator. 
feasible. 
The administrator plays an important role in educating the 
contributor with respect to the choice, risk and rewards of his 
investments and in facilitating the grant of tax incentives. 
An 
administrator can also pool the investments in PERA in order to lower 
the administrative costs and get higher returns on the investment. 
Under the proposed substitute bill, the Administrator must necessarily 
be a regulated entity (either by the BSP, I C  or SEC) to ensure that 
PERA contributions are invested in accordance with the prudential 
guidelines set by the Regulatory Authorities. The Administrator must 
be pre-qualified by its respective regulatory authority and accredited 
by the Bureau of Internal Revenue. 
f: A PERA may be constituted under either an agency or trust 
arrangement. 
I n  case of an agency arrangement, the contributor retains legal 
title to his investments. On the other hand, the contributor retains only 
beneficial title to his investments in case of a trust arrangement. The 
advantage of a trust arrangement, however, is the pooling of funds in 
order to get higher returns on the individual investments. 
g. PERA investment products must be pre-qualified by the Regulatory 
Authorities. 


6 
Considering the level of contributor’s financial sophistication, the 
investment products offered under the PERA must be pre-approved by 
the Regulatory Authorities. 
h. Private employers mgy contribute to its employee’s PERA to the 
extent of the amount allowable to the contributor. 
The employer contribution should be in addition to the 
mandatory SSS contribution and retirement pay under the Labor Code 
of the Philippines. The employer’s contribution to the PERA shall be 
treated as part of the employee‘s compensation for tax purposes. 
i. The assets under PERA shall be kept separate from the other 
assets of an AdministratorKustodian. 
The Committee adopted the provision of SB No. 1747 regarding 
the separation of the PERA assets from that of the Administrator/ 
Custodian. Accordingly, the PERA assets shall not be part of the 
general assets of the Administrator/Custodian for purposes of 
insolvency. 
j. All income earned by PERA investment products are tax exempt. 
Under current tax laws5, only long term deposits or investment 
(with a maturity period of not less than 5 years and issued by banks 
only) in the form of savings, common or individual trust funds, deposit 
substitutes, investment management accounts and other investments 
evidenced by certificates in such form prescribed by the BSP shall be 
exempt from the 20% final tax. 
Under the proposed provision, even other instruments offered 
by other institutions under the PERA shall likewise be entitled to the 
exemption. This would level the tax incentives given to the same 
products offered by different institutions. 
k. All distributions from the PERA are tax-exempt. 
The contributor should likewise be granted a tax incentive upon 
his receipt of the PERA benefits considering the required investment 
period. Otherwise, the tax incentives offered under the bill would not 
be sufficient to entice a contributor to tie-up his money for a 
considerable period of time. 
However, distribution to the contributor is limited to only two 
instances: (a) when the contributor reaches 55 years old, provided 
that the contributor has made contributions to the PEW for at least 5 
years; and (b) upon the death of the contributor, irrespective of the 
age of the contributor at the time of his death. 
In case of the earlier instance mentioned, the distribution shall 
be made in either lump sum or pension for a definite period or lifetime 
pension, the choice of which shall be at the option of the contributor. 
Section 24 (B) of the 1997 National Internal Revenue Code 
5 


7 
The contributor, however, has the option to continue on with the 
account. 
In case of the latter instance, there shall be complete 
distribution of the benefits. 
I. Distributions may not be made from the PERA until the contributor 
reaches the age of 55 and his contributions have been made for at 
least 5 years. 
In order to ensure that contributions stay in the system on a long- 
term basis and reinforce the objective of making the PEW as a 
retirement pension fund, any withdrawal shall subject to an early 
withdrawal penalty. This will temper the tax incentives given to PERA 
investment products. 
However, there will be no early withdrawal penalty for 
a). For payment of accident or illness-related hospitalization 
in excess of 30 days; and 
b). For payment to a contributor who has been subsequently 
rendered permanently totally disabled as defined under 
the Employees Compensation Law, Social Security Law 
and Government Service Insurance System Law. 
withdrawals made for the following purposes: 
m. Rules and regulations on PERA, with the exception of the subject 
matter on tax incentives, shall be promulgated by the DOF and 
Regulatory Authorittes, with BSP as lead agency. The BIR will be 
tasked to formulate rules and regulations on the grant of tax 
incentives. 
The TWG thought it would be better not to create a new entity 
to supervise or oversee the implementation of this bill. Instead, a 
consortium of the Regulatory Authorities and the DOF will formulate 
the rules and regulations to govern the administration of the PEW. 
This consortium, however, would not have a separate legal 
personality. Thus, the rules and regulations shall be promulgated 
individually by the Regulatory Authorities to its respective supervised 
or regulated entities. The consortium was resorted to in order to 
ensure uniformity of rules and regulations over the different industries 
involved.