Amicus Curiae

The Personal Equity and Retirement Account Act: Finally a viable option

Eric M. Menchavez Jr.

August 10, 2016

Retirement planning can be a tedious process.
It requires serious contemplation, having in mind the end goal of living comfortably during one’s twilight years. To do that, several factors are considered, most important of all where to put one’s savings where it might give the best rate of return. The State, on its part, assists in reaching this goal by providing for mandatory social security systems such as the SSS and the GSIS. 
But are these systems enough?
Apparently, the state itself is cognizant that these systems might be inadequate to provide a pleasant life for the ageing population. That is why in 2008, it enacted Republic Act No. 9505, or the Personal Equity and Retirement Account (PERA) Act of 2008, to give Filipinos another option in planning for their retirement.
The PERA Act gave life to a personal and voluntary retirement savings plan in addition to the mandatory retirement schemes under the SSS and GSIS. It was enacted to not only establish a supplementary retirement benefit for the working population, but also to mobilize savings toward low-risk investments and to help develop the capital market.
The Personal Equity and Retirement Account itself, or PERA, is an alternative voluntary retirement account established by and for the exclusive use of a Contributor for the purpose of being invested in PERA investment products. But to qualify as a PERA investment product, the product must be non-speculative, readily marketable, and with a track record of regular income payments to investors. But as with any investment, profits are not guaranteed.
Under the law, any person with the capacity to contract and who possesses a tax identification number (TIN) may open a PERA and become a Contributor. Contributors may open a PERA through Administrators, such as banks, other supervised financial institutions and trust entities, investment companies, investment houses, stockbrokerages and pre-need plan companies, or insurance companies.
A Contributor may establish a maximum of five PERA accounts, with each account confined to one category of investment product. However, unmarried contributors can chip in only up to a maximum of P100, 000 per year (P200,000 for Overseas Filipino Workers).
To entice the use of the PERA, the law provides several fiscal incentives.
Under the PERA, contributors are entitled to an income tax credit equivalent to 5% of the total PERA contribution per year, an income tax exemption on all income earned from PERA investments, and tax exemption upon distribution. However, distributions can only be made upon reaching the age of 55 years and provided that the Contributor has made contributions to the PERA for at least five years, but need not be consecutive. An early withdrawal is subject to strict penalties.
The PERA Act is an old law. It was signed on August 22, 2008, and its Implementing Rules and Regulations were approved last October 21, 2009. The BIR, being the agency tasked to implement the fiscal incentives, came out with Revenue Regulation No. 17-2011 on October 27, 2011, which implemented the tax provisions of the PERA Act. 
However, despite its passage, the PERA Act has not been properly realized as there was yet no rule defining the guidelines for proper administrative reporting to the BIR of PERA transactions as required under RR No. 17-2011. It was only until last 21 July 2016 when the BIR came out with Revenue Memorandum Order No. 42-2016, which finally defined these guidelines.
Under RMO No. 42-2016, the BIR’s PERA Processing Office (i.e., the Audit Information, Tax Exemption and Incentives Division (AITEID) under the Assessment Service) is in-charge of processing applications for accreditation as PERA Administrator, and of extracting and disseminating all pertinent data and information to or from the concerned Revenue District Offices (RDO) or Offices under the Large Taxpayers Service (LTS) having jurisdiction over the PERA Administrator. However, before applying with the AITEID, Administrators should first obtain a Qualification Certificate issued by their respective Regulatory Authorities, and a Tax Clearance issued by the Regional Director of the BIR or Assistant Commissioner of the LTS that the PERA Administrator is a regular filer and has no final and executory liability.
In turn, the RDO or Office under the LTS is tasked to process applications for, and to issue PERA Tax Credit Certificates, Certificates of Entitlement to 5% Tax Credit, and compute penalties on early withdrawals of PERA contributions. With the RMO in place, the long-awaited PERA should become available to all as another option in planning for retirement. 
Indeed, it would be interesting to see the realization of an almost eight-year old law. Although the government would stand to lose billions in income tax collections, it is hoped that the benefits of the PERA Act would outweigh the perceived costs.
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.