BSP looking to tweak rules for PERA scheme
THE CENTRAL bank is looking into amending the implementing rules and regulations (IRR) of the Personal Equity and Retirement Account (PERA) law, such as easing the guidelines imposed on cash custodians.
“We are tweaking our approach, we are exploring a self-custody concept,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr., who chairs the PERA Board, told BusinessWorld in a recent interview. “Basically, the customer will be taking charge of his own money through a dedicated account to make it simpler.”
Under the IRR of Republic Act 9505 or the PERA law, there are two types of custodian — a cash custodian that maintains custody of all funds in the client’s account, and a securities custodian that keeps custody of all securities, and other evidence of investment.
The custodian is a separate and unrelated entity to the PERA administrator.
“Right now, you need a thirdparty custodian and there’s only one now, Landbank. It’s kind of expensive and there’s only one, so we have identified that to be a pain point,” Mr. Espenilla said.
To date, state- owned Land Bank of the Philippines ( Landbank) is the sole and accredited cash custodian for the investment tool.
“So what we’re going to do is make it easier by allowing the customer to take custody of his own funds in a special purpose account,” Mr. Espenilla added.
According to the central bank official, it is important that the customer’s cash be contained, as there is a tax advantage to it.
“So we had to think on how to make sure that once the money is put into the PERA system, it stays there,” Mr. Espenilla said.
Under the PERA scheme, a contributor can enjoy a 5% tax credit that can be deducted in his/ her annual tax liabilities to further encourage saving up for the future.
Any individual can contribute as much as P100,000 annually under the investment tool, but the amount may be up to P200,000 for overseas Filipino workers.
A qualified contributor may place money in five PERA accounts at once across recognized investment products, namely: a unit of unit investment trust fund; shares of stock of mutual funds; annuity contract; insurance pension product; pre-need pension plan; shares of stock or other security listed and traded in a local exchange; exchangetraded bond; government securities; and any other regulatory approved investment tool.
The contributions will then be invested in specific investment products for the money to grow, the proceeds of which may be claimed once a person reaches the age of 55 or has invested in the fund for at least five years.
Income generated from PERA contributions would be tax-free
up to the P100,000 cap, and may be reinvested, unless withdrawn ahead of retirement.
“So originally, you need the custodian to keep the security or the money so when it moves, it stays within the system. So now we’re going to improve it by creating a self custody mechanism,” Mr. Espenilla noted.
The chairman of the PERA Board said the law’s IRR will be amended.
“I can convene the other agencies so we develop a proposal to do this so we will now recommend it to the heads of agencies to go in that direction… So hopefully, that gets approved then once that’s approved, that will further simplify the PERA system,” he added.
Asked when the amendments are expected to be approved, Mr. Espenilla said, “I’ll be happy to say it will happen in the next three months.”
Sought for comment, Landbank President and Chief Executive Officer Alex V. Buenaventura told BusinessWorld in an ambush interview: “It depends on what the central bank wants. To me, whatever is better for all participants, especially the banks, na bibilis, mumura, OK sa akin (that will hasten, make it cheaper, it’s OK for me.)”
“We’re just a… cash custodian, hindi kami talaga ang (we are not really) the major player,” he added.
Under the PERA scheme, there are three parties to the investment tool, particularly the administrator, custodian and investment manager. Currently, BDO Unibank, Inc. and the Bank of the Philippine Islands have obtained accreditation to administer PERA.
The BSP formally rolled out PERA on Dec. 16, 2016, eight years after RA 9505 came into effect in 2008. PERA serves to complement the savings of workers through the Government Service Insurance System or Social Security System, as well as boost the development of the capital markets.
The PERA Law seeks to promote capital market development and savings mobilization by establishing a legal, regulatory framework of retirement plans for individuals composed of voluntary personal savings and investments.