Some thoughts on the PERA law

The PERA bill, signed into law by the President yesterday, brings new hope for Filipino professionals who look forward to a comfortable retirement. PERA is the Personal Equity and Retirement Account Act of 2008, or Republic Act 9505.

In a nutshell, the PERA law "aims to set up private pension schemes that would allow workers to save money for their retirement."

Below are excerpts from the BusinessWorld:

• Contributors can open up to five accounts to be managed by one administrator, which can be a bank or a financial company. There will be separate custodians of funds and a designated investment manager. Administrators can be investment managers.
• The contributions can be invested in mutual or unit investment trust funds, stocks, and other financial products.
• A contributor may make a total maximum annual contribution of P100,000 or its equivalent in any convertible foreign currency. If the contributor is married, each of the spouses can make a contribution of P100,000. The contribution can be as high as P400,000 for an OFW and his or her spouse.
• Income and interest from contributions will be tax-exempt provided the contributor does not withdraw the funds before reaching the age of 55. A contributor can also claim an income tax credit equivalent to 5% of the total PERA contribution.
• A contributor may choose to contribute beyond the maximum account but the excess would no longer be entitled to the tax credit.

While the authors of the bill say that the pooled funds will help create new "investments" that will generate more jobs for our countrymen, I remain skeptical about how this will be effectively brought about.

For starters, to simply state that pooled funds will generate "investments" is to be vague about the usage of the term. There are several types of investments ranging from securities, properties, direct, indirect, etc. What specific investments vehicles - particularly those that will generate employment - are most likely to be involved?

To its credit, the government together with the private sector, has done fairly well in generating foreign investments. From a Machiavellian viewpoint, adult entertainment (a.k.a casinos) and BPO-locators that have set up shop in the country have been providing steady employment to a significant number of locals, especially in the first-class towns outside the National Capital Region.

More so, the multiplier effect has spawned small- to medium-scale enterprises (SMEs) such as 24/7 cafes and convenience stores around these locators. However, some establishments such as those from the gaming industry have already drawn flak from the religious, the left- and the right-wing groups, and I - not wanting to draw myself into the muck - am merely stated the point for argument's sake.

In the greater scheme of things, what counts most to an investor is the image of stability conveyed by a potential investment destination. Businessmen - beyond market profitability - look for peace & order (evidenced by a law-abiding citizenry) and laws that will protect protect their businesses and - yes - their interests. Protecting businesses means ensuring the general populace of jobs leading to a better standard of living. This is nothing new and the recurring themes are reminders for us to revisit our investment fundamentals, which lead me back to the original topic: the PERA law.

What our government should focus on is to educate Filipinos about the PERA law and to stress the amount of security and peace of mind that retirement savings offers - notwithstanding the potential earning benefits. Education is especially vital to those who are not keen on investment vehicles. In the meantime, as we wait for the rollout of the implementing guidelines to the PERA law, most of us will have to depend on and contend with our daily and monthly salaries to secure our not so distant futures.