Republic of the Philippines
HOUSE OF REPRESENTAT.
Pasay City

THIRTEENTH CONGRES:
First Regular Session

HB. No. 94

EXPLANATORY NOTE

This bill seeks to institutionalize the Personal Equity and Retirement Account (PERA) for all
public and private employees in order to promote among them positive attitudes toward savings for
their retirement years.

Retirement is a particular stage in every employee’s life when he/she is suppose to find all the
time to relax and enjoy the pleasure of having the convenience of time oneself and one’s family, away
from the pleasure of daily work. However, the absence of a dependable retirement plan could give
one more insecurities, dilemma to the retiring employee rather than comfort, leisure and security,

Let us consider the following 1998 data from the National Statistical Information Center.
Out of the 73,131,000 Filipinos, only 1.25 million are covered by Government Service Insurance
System (GSIS) Funds, 19 million are members of the Social Security System (SSS) and
approximately 4 million are covered by the Pag-IBIG Fund. This makes around 24.5 million
Filipinos to have some kind of a retirement plan. However, with this number of Filipinos enjoying
such retirement benefit plan, there are still a number of millions left problematic after finally leaving
their respective workplaces for retirement.

Given this, several efforts both from the private and public sectors have been initiated to
increase the general public’s awareness and understanding on the significance of thriftiness and
saving (in any investment possible). The government’s responsibility now is to strengthen and
expand such efforts in order to bring sustainable security for everyone. It is always a best policy to
save and plan— to prepare for the worst and for the future ahead.

While the proposed institutionalization of Personal Equity and Retirement Account (PERA)
will ultimately achieve a comfortable and financially-secure retirement through a sound investment
and planning scheme, it will likewise benefit a significant number of our workforce who are neithe?
members of government-initiated insurance funds. Because certain contributions to the savings funds
are deductible from the taxable income, and earnings of such savings are sheltered from taxation as
they grow and are taxed upon their withdrawal from PERA, such scheme will encourage more
people to save, Besides, one can take out or withdraw his/her money or a portion of his/her savings
with a minimum inconvenience in case of an emergency unlike pension scheme wherein one’s money
is locked in and rendered practically inaccessible for urgent and unprecedented necessities

With the aforementioned premises, approval of this bill is earnestly sought.

htc Bk.
JUAN EDGARDO SONNY” M. ANGARA

Representative
Lone District, Province of Aurora


THIRTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

94

‘HB. No.

INTRODUCED BY HON. JUAN EDGARDO “SONNY” M. ANGARA

AN ACT
TO ESTABLISH 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 1. Title. - This Act shall be known as the “Personal Equity and Retirement
‘Account (PERA)”.

SEC. 2. Declaration of Policies. - 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, comprised of voluntary personal savings and investments, that is
supported by government incentives. For this purpose, the State 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, unless the context requires otherwise:

a) “Administrator” is an entity 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, investment houses, stockbrokerages and pre-
need plan companies; or by the Office of the Insurance Commissioner (OIC), in the case
of life insurance companies. The Administrator shail assume fiduciary responsibility over
PERA funds. Its functions shall include but not limited to: reporting on contributions
made to the account; computing the values of investments; educating the Contributor;
enforcing PERA contributions and withdrawal limits; acting as withholding agent in the
collection of appropriate taxes and penalties; issuing certificates of contribution 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 Taxpayer

Identification Number (TIN), and who establishes and makes contributions to a PERA.

“Custodian” is a financial services institution with trust licenses or an insurance company,
separate and distinct from the Administrator, accredited by the BIR after pre-qualification
by the concerned Regulatory Authority, providing services in connection with the

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custodianship of funds and securities of the PERA. The Custodian shall assume fiduciary
responsibility over PERA funds and assets. It shall receive and disburse all funds in
connection with the PERA, maintaining custody of all original securities, evidences of
deposits or other evidences of investment. The Custodian shall operated 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) “Investment Manager” is an Administrator additionally authorized by a Contributor to
make investment decisions for his PERA. As such, it shall assume fiduciary duty and
responsibility for PERA investments. It shall act with utmost fidelity by observing
policies directed towards confidentiality, scrupulous care, safety and prudent management
of PERA funds.

“Personal Equity Retirement Account (PERA)” refers to 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 fund, mutual fund, 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
by 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.

i) “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 a 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 or electronic form,
to make all investment decisions 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 or
officer 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 charge 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 his 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:

(b) Approved annuity contracts and pre-need pension plans; and

(c) Other investment vehicles which the concerned Regulatory Authority may be rule allow
subject to the approval of the Secretary of Finance.

SEC. 9. Permitted Investments of PERA Investment Vehicles. - Investments 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
concerned 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 assetbacked securities, which are rated by a
recognized rating agency in the Philippines,

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

(d) Foreign currency denominated investments authorized by the BSP, including the
currencies themselves, traded on any recognized exchange but not to exceed 7.5% or
whatever is the current Social Security System (SSS) limit on foreign denominated
investments, for the aggregate PERA assets held by the Administrator;

(e) Non-speculative equities listed in the Philippine Stock Exchange (PSE); and

( Other investment outlets which the concerned Regulatory Authority may be 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 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 are 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

(b) For payment to a 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 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 or 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 employce’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,
earnings and total account balances and shall be required to report to the Contributor these amounts
‘on a quarterly basis for each calendar year. Such records shall be made available for inspection by
the Regulatory Authority during office hours. The Regulatory Authority concerned may conduct
routine and cause audits of Administrators, Custodians, Investment Managers and Investment
Vehicle Providers.

SEC. 18, Distributions Upon Retirement. - Distributions shall 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, distributions 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 Contributor 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 for 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:

(1) 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:

Invest the contribution without written or electronically authenticated authority from the

Contributor except in the case of Self-Directed Accounts;

(3) 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; and

(4) Violate any provision of this Act or rules and regulations issued pursuant to this Act.

Q


Notwithstanding the foregoing, any willful violation by the accredited Administrator,
Custodian, Investment Manager and Investment Vehicle Provider 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 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 in 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 under this Act, plus interest of twelve percent (12%) per year
from the date of enjoyment 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 promulgations of the
implementing rules and regulation 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 is 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 after fifteen (15) days following its
publication in a newspaper of general circulation.

Approved,