Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH CONGRESS
First Regular Session

274

House Bill No.

Introduced by HONORABLE JOSE C. DE VENECIA, JR.

Explanatory Note

About 6.2 million Filipinos or 20% of the country's total labor force ate not covered by any
type of retirement plan. This segment of the population is deprived of the privilege of enjoying
security in their retirement years. As of December 2000, only about 23.22 % of private or self.
employed employees are members of the Social Secutity System (SSS) and another 1.7 million
government workers ate covered by the Government Service Insurance Funds administered by the
Government Service and Insurance System (GSIS).

Savings accounts cannot be depended upon to provide financial security to those not
covered by retirement plans. They barely make both ends meet, thus not able to save much
Motcover, retirement or pension plans being offered by pre-need companies are quite expensive and
can only be afforded by high income eamers. A savings scheme is needed to encoutage the majority
of Filipinos to save for their retirement years. The Personal Equity Retirement Account (PERA) is a
form of savings scheme that will help improve the country's savings rate, which is one of the lowest,
in the region.

The bill provides that contributions made to PERA per taxable year shall be 100%
deductible from the taxable income of the contributory subject to certain conditions. This aims to
encourage more people to invest their money in PERA. This scheme is similar to the US experience
wherein savings of up to $2000 in mutual fund are tax deductible as Individual Retirement Accounts
(IRA). This paved the way for mutual funds in the US to reach $2.5 trillion in 1996 from $50 million
in the 1970s prior to the IRA. In Singapore, employee contribution to the Central Provident Fund
(CPF), which amounts to 25% of employee income, is also tax-free. The CPF not only serves as
pension fund for Singaporeans but is also use by members for othet purposes such as housing. The
amount of the CPF allows the government to finance infrastructure projects such as roads, airports,
seaports, mass transport, and high rise public housing.

Non-members of government insurance funds can avail of PERA. Those with very limited
retirement plan options are especially targeted to invest in this scheme. Investors will be allowed to
keep track of their funds and even directly manage their PERAs as an investment portfolio.


In view of the foregoing, immediate approval ofthis bill is requested.

E C. DE VENE; (A, JR.



___ Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

THIRTEENTH CONGRESS
First Regular Session

House Bill No. 274

Introduced by HONORABLE JOSE C. DE VENECIA, JR.

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

Be it enacted by the Senate and the 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) Act of 2004.”

SEC. 2. Declaration of Policies. - It. is declared the policy of the State to promote and
encourage individual and personal savings, investments and retirement plans supported by
government incentives, especially savings that are long term in nature.

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

a) Retirement Account or the Trust - the trust created or organized by an_ individual,
known as "trustor”, for his exclusive use and benefit upon and during his retirement, in
which said trastor retains only the equitable ownership of the funds he deposits therein
as savings, as well as the income thereof from investments of said fund;

b) Trustee - a bank or investment company accredited by the Bangko Sentral ng Pilipinas
(BSP) designated by the trustor to administer and manage the retirement account and
hold legal title to the trust until the retirement of the trustor or the termination of the
trust as provided in this Act;

©) Trustor - the contributor or depositor to the fund creating or organizing a retirement
account, as well as the funds annually or regularly increasing and augmenting the
deposited capital as authorized under this Act;

4) Year - every taxable year under the National Internal Revenue Code;

©) Notify - send notice in writing;


f) Portfolio - the record or list of investments made by the trustee for and in behalf of the
trustor;

g) Tax - the income tax as defined under the National Internal Revenue Code;

h) Penalty - the sum to be paid by the individual contributor for early withdrawals of any
part of the account held by the trustee-bank;

i) Tax Code - the National Internal Revenue Code; and

Beneficiaries - all the heirs and assigns who shall succeed to all the rights, under the
D signs ig!
law, acquired by the contributor in and through his retirement account.

SEC. 4. Opening of Retirement Account. - An individual person of legal age may create,
organize or open a retirement account with a trustee accredited by the Bangko Sentral ng Pilipinas,
with an initial deposit or contribution of not more than Twenty Thousand Pesos (P20,000.00).

A married couple may create, organize or open a joint retirement account with an initial
deposit of not more than Forty Thousand Pesos (P40,000.00). No individual or married couple may
open a retirement account with an amount more than what is required under this Act.

SEC. 5. Qualifying Investment Rules. Funds deposited in a retirement account shall be
qualified for investments only in:

a) secutities including ordinary shares of stocks, not being shares in an investment trust, issued
by a company which is incorporated in the Philippines and quoted in the official list of a
recognized stock exchange in the Philippines or dealt in on the unlisted securities market; or

b) cash which the trustee is entitled to hold for investment under the rules of the account.

SEC. 6. General Investment Rules, - Investment of fands held in the retirement account
shall observe the following rules:

a) Alt transactions, whether by way of sale, purchase or otherwise, handled by either the trustor
himself or the trustee-bank, shall be made price which those investments might reasonably
be expected to fetch in the open market;

b) Investments made by a trustor shall he supervised by the trustee;

©) A trustor's cash contribution and any other cash by way of interest, income and others
held by the trustee shall be held in pesos and other legal tender in the Philippines and
deposited in the account of the trustor;

d) The trustee shall account for any amount representing income, penalties and taxes applicable
on the contribution of the trustor in accordance with the provisions of this Act and the Tax

Code;

©) Investments may be made only by way of cash or shares of stocks;


An investment portfolio shall be presented to the trustor by the trustee whenever necessary;
© No part of the trust fund shall be invested in life insurance contracts; and

h) The trustee shall notify the trustor of every investment made and income earned on the
latter's behalf.

SEC. 7. Maximum Annual Contributions. - The maximum annval contribution or
deposit of capital to a retirement account shall in no case be more than Twenty Thousand Pesos
(P 20,000.00) in the case of an individual trustor or Forty Thousand Pesos (P40,000.00) in the case
ofa married couple.

SEC. 8. Income Tax Deductibility. - The contributions made per taxable year shall be
One Hundred Percent (100%) deductible from the taxable income if they fall within any of the
following qualifications: An individual member or any ot both of the working spouses are not
covered by an employer-sponsored retirement;

a) Both spouses are covered by an employer-sponsored retirement plan but their joint
adjusted gross income is Three Hundred Thousand Pesos (P300,000.00) or less and One
Hundred Fifty Thousand Pesos (P150,000.00) for individuals; and

b) Only one spouse is covered by employer-sponsored retirement plan but the combined
adjusted gross income is aot more than Three Hundred Thousand Pesos (P300,000.00)..

SEC. 9. Benefits Upon Retirement - No tax shall be imposed and collected from funds
withdrawn from a retirement account created or opened at least five (5) years earlier by any trustor
who has reached the age of fifty-five (55) years.

All interest of a trustor in a retirement account and/or funds withdrawn from said account
shall not be subject to levy on attachment or execution as security or for the satisfaction of any
judgement against the trustor or his spouse.

SEC. 10. Tax on Early Withdrawals, -1f any withdrawal is made from a retirement
account before the retirement benefits vest in favor of a trustor as aforestated, a tax equivalent to
Twenty Percent. (20%) of the amount withdrawn if part of the income of the retirement account, ot
Ten Percent (10%) of the amount withdrawn if part of the principal amount deposited, shall be
imposed on the withdrawal: Provided, That no tax shall be imposed on any withdrawal of any
fund -

a) used toward the purchase of a first family home for the trustor himself or for any member of
his immediate family;

b) used to pay for certain qualified college expenses;

©) used to pay for medical expenses;

) fora trustor who has been disabled or otherwise become physically incapacitated to earn.
income for his subsistence; and

¢) the member has become unemployed for a period of at least three (3) months and uses the
money to put up capital for small business.



SEC. 11. Separability Clause. - All laws, decrees, orders, rules and regulations ot parts
thereof, inconsistent with this Act are hereby amended or modified accordingly.

SEC. 12. Effectivity. - This Act shall take effect fifteen (15) days following its publication in a
newspaper of general circulation.

Approved,