PERA: Voluntary Retirement Saving Program in Philippines (2008-2023)

You can be young without money, but you can’t be old without it. —TENNESSEE WILLIAMS Course Objectives Provide participants with conceptual/practical understanding of PERA Initiatives and Implementation issues Discuss Social and Ec...

You can be young without money, but you can’t be old without it. —TENNESSEE WILLIAMS Course Objectives Provide participants with conceptual/practical understanding of PERA Initiatives and Implementation issues Discuss Social and Economic Relevance of PERA Status of PERA Implementation Life Cycle Hypothesis Is GSIS and SSS enough?  What is PERA? https://youtu.be/77RqTvkF5U8 What is PERA? Voluntary retirement saving program Established by and for the exclusive use and benefit of the Contributor Invests solely in PERA investment products in the Philippines  What is PERA? PERA adds to PH’s menu 0f retirement income provisions Private Sector Government Sector Mandatory SSS GSIS R.A. 7641 Voluntary Employer-Related Employer-Related (Non-portable) Contribution Contribution Plans Plans Voluntary (Portable) PERA PERA  PERA Milestones 2011- 2008 2009 2013 2015 2016 2020 Enactment Issuances PERA of the Law IRR of BIR, Database/ PERA ePERA (PERA Act (PERA BSP Registry Launch Launch of 2008) Rules) Policies Legal Framework & Regulatory Issuances q RA 9505 (PERA Act of 2008) q Implementing Rules and Regulations (PERA Rules), as amended q BSP Issuances – § Circular No. 1168 – (2023-02-21) - Removal of the Basic Security Deposit Requirements on PERA § Circular No. 1081 (2020-03-04) - Amendments to the PERA Regulations Allowing Cash Self Custody Arrangement § Circular No. 880 (2015-05-22) - PERA Reportorial Requirements § Circular No. 878 (2015-05-22) – Amendments to the MORB and MORNBFI relative to PERA implementation § Circular No. 860 (2014-11-28) – Guidelines on the Qualification/Accreditation of PERA Market Participants and Investment Products § M-2014-045 – Operational Guidelines on the Administration of PERA Legal Framework & Regulatory Issuances Other Issuances: q IC Circular Letter dated 04 September 2013 - Guidelines for the Approval of PERA Investment Products q SEC Memorandum Circular No. 7 (11 Aug. 2022) - Rules on Qualified and/or Eligible PERA Investment Products Legal Framework & Regulatory Issuances q BIR Issuances: Main Policies § Revenue Regulation (RR) No. 7- 2023 – Increase in the maximum allowable PERA contributions § RR No. 17-2011, as amended by RR No. 2-2022, RR No. 6-2021, and RR No. 23-2018 - Implements the tax provisions of PERA Act of 2008 § RR 10-2016 – Penalty Rate for Early Withdrawal § RR No. 23-2018 – Reportorial Requirements on PERA § Revenue Memorandum Order (RMO) No. 042-2016, as amended by RMO 28-2017, 17-2022 – Guidelines and Procedures on PERA Implementation § RM Circular (RMC) No. 131-2016, RMC 30-2017, RMC 25-2021 - List of UITF Accredited Products § RMC 86-2023 – List of SEC-Accredited Products Legal Framework & Regulatory Issuances q BIR Issuances: Others § RMO 17-2022 - Prescribing the Policies and Procedures in the Issuance of Tax Credit Certificate Arising from PERA and Its Utilization using the ePERA System § RMC 4-2023 – Clarification on Imposition of Penalties § RMC 45-2022 – Revised Requirements on the Remittance of Penalties § RMC 139-2020 – Guidelines on the Utilization of 5% Tax Credit § RMC 103-2020 – Registration of OF for purposes of account opening on PERA § RMC 99-2018 – Clarifications on RR No. 17-2011, as amended, that implements the tax provisions of PERA Act of 2008 Types of PERA Contributors Employed (Employee or Employer-Driven) Self-employed Overseas Filipino Workers Who are the Qualified Contributors? Employed/Self Employed/OFs Filipino Of legal age Has a Tax Identification Number Overseas Filipinos Filipino citizens living or deriving income abroad Individuals who have retained or reacquired Filipino citizenship Spouse and children of OFs who may open PERA on behalf of the OF Contribution Limits – 2023 Updated Maximum Annual Contribution-General Rules Contributor Php200,000 Married Contributor Php200,000 for each spouse Overseas Filipino Php400,000 To the extent allowable to the contributor Private but not to exceed P200K (combined Employer employee and employer)  Contribution Limits – Sample Scenarios Maximum Qualified Contributor PERA Contribution in Peso* 1. Unmarried Filipino Citizen Php200,000 2. Married Filipino Citizen and both spouses qualify as a Php200,000 Contributor for each spouse 3. Married Filipino Citizen and only one spouse qualifies Php200,000 as a Contributor 4. Unmarried Overseas Filipino Php400,000 5. Married Overseas Filipino whose legitimate spouse is neither an Overseas Filipino nor a qualified Contributor Php400,000 *Or its equivalent in any convertible foreign currency at the prevailing rate at the time of contribution Contribution Limits–Sample Scenarios, con’t. Maximum Qualified PERA Contributor Contribution in Peso* 6. Married Overseas Filipino whose legitimate spouse is Php400,000.00 for the not an Overseas Filipino but a qualified Contributor Overseas Filipino and Php200,000 for the spouse 7. Married Overseas Filipino whose legitimate spouse Php400,000.00, cumulative for and children (not otherwise disqualified as the spouse and children in contributors) of an Overseas Filipino who did not representation of the Overseas directly open any PERA Filipino 8. Married Overseas Filipino whose legitimate spouse is Php400,000.00 for each also an Overseas Filipino qualified contributor 9. Married Overseas Filipino whose legitimate children Php400,000.00 for the are not Overseas Filipinos and are not qualified Overseas Filipino Contributors  PERA Investment Products Contributor’s investment decisions pertaining to his PERA shall be purely directional 1 Unit Investment Trust Fund 2 Mutual Funds 3 Annuity Contract 4 Insurance Pension Product PERA Investment Products, con’t. 5 Pre-need Pension Plan 6 Exchange Listed Securities/Stocks 7 Government Securities 8 Any other category of investment product or outlet which the regulatory authority may allow  Why PERA? Tax Free Earnings from Investments Tax Tax Incentive on Contributions (Annual Tax Credit = 5% of total Benefits contributions) Tax Free Distribution (55/5 Rule) (PERA Investment not subject to Estate Tax and shall not form part of Contributor’s Assets in case of Insolvency) Tax Benefits Offered by PERA Tax benefits for Employers under an employer-sponsored program Deduction from gross income of the employer § Only to the extent of the contribution that would complete the maximum allowable PERA contribution of an employee § Not entitled to 5% tax credit Tax Benefits Offered by PERA Tax benefits for Employees under an employer-sponsored program Not subject to withholding tax on compensation or fringe benefit When can PERA Contributions be Withdrawn? Subject to 55/5 Rule – PERA is meant to encourage long term savings for retirement planning Contributor Contribution should be 55 years AND made for at least old and above 5 years A person over 55 years of age may still open a PERA and be a qualified contributor 55/5 Rule, illustrated Age: 55 Age: 55 Years Years contributed: contributed: 2017-2021 2017-2019 X - Subject to ü Qualified early for tax withdrawal incentives penalties  55/5 Rule Early withdrawal penalties Tax incentives enjoyed – RETURNED ü 5% Tax Credit ü 20% flat penalty rate for all the cumulative earnings The amount of penalty shall in no case be less than the tax incentives enjoyed by the Contributor Penalty Imposition- Illustration  55/5 Rule - Exceptions No early withdrawal penalties For payment of accident or illness – related hospitalization in excess of 30 days Contributor’s permanent disability Contributor’s death Immediate transfer of assets to another PERA eligible investment product/administrator within 15 calendar days from withdrawal thereof PERA Participants and Oversight Bodies INVESTMENT MANAGER PERA PERA ADMINISTRATOR Investment Product Product Provider CASH SECURITIES CUSTODIAN CUSTODIAN PERA Market Participants PERA PARTICIPANT Must Be Accredited/Pre- qualified by the BIR and Concerned PERA Regulatory Authority (RA) BSP ØBanks and Trust Entities SEC ØInvestment Companies, For PERA Investment Houses, Administrator: Securities Brokers Insurance Commission § BIR Accredits § RA Pre-qualifies Ø Insurance Companies  Administrator Entities eligible to act as Administrator Regulatory Authority Applicant Bangko Sentral ng Banks, trust entities Pilipinas (BSP) Securities and Investment company advisers, Exchange Commission securities broker, investment houses (SEC) including those with QB license Insurance Insurance companies, insurance Commission (IC) brokers Other entities as maybe determined Concerned RA eligible to act as PERA Administrator Roles of the PERA Administrator ü Educates the Contributor ü Opens PERA account on behalf of Contributor ü Custodizes Contributor assets with Cash and Securities Custodian ü Applies for tax credit certificates in behalf of Contributor ü Executes investments for the Contributor or his designated Investment Manager ØAdministrator cannot exercise investment discretion ü Prepares and submits reports to the Contributor and PERA Regulatory Authority ü Enforces PERA guidelines especially on limits ü Collects taxes and penalties Qualifications of a PERA Administrator Net worth of P100M Clear and sufficient organization to conduct PERA Administrator functions Adequate systems and technological capability to perform required functions Sufficient personnel who have undergone the requisite training  Investment Manager Entities eligible to act as Investment Manager Regulatory Applicant Authority BSP Trust entities SEC Investment company advisers RA Other entities as maybe determined by the RA as having the qualifications to be accredited as Investment Manager Investment Manager, con’t. Roles of the Investment Manager üMakes investment decisions in behalf of the Contributor üCannot recommend its own investment products or that of its subsidiaries/affiliates Qualifications üWritten supervision and control procedures üProof of experience and qualifications üContract draft explaining investment process, philosophy, and fees  Cash Custodian Must be a bank licensed by the BSP that has: q Complied with the minimum capital required under the Manual of Regulations for Banks q A SAFr (previously “CAMELS”) composite rating of not lower than “3” in its latest examination q Roles üReceives funds in connection with PERA üActs on instructions of the Administrator regarding disposition of funds üSubmits reports to Contributor, Administrator, and concerned PERA regulator  Cash Custodian, cont. Under a Cash Self-Custody Arrangement (BSP c1081/MORB Section 1121, App 114): q Selection by Contributor of the Designated Depository Bank of the Administrator (a) The PERA self-custody deposit account shall be used exclusively for purposes contemplated under the PERA Rules; (b) All funds under the account are non-transferrable except for instances set forth in the PERA Rules; and (c) Withdrawal or transfer of any amount therefrom that is not consistent with the PERA Rules shall result in the termination of the self- custody account, including all PERA investments.  Securities Custodian q Banks and other entities with trust license which have complied with the MORB requirements for a securities custodian (BSP c1121) q Roles ü Maintains custody of all original securities, evidence of deposits or other evidence of investment ü Acts on instructions of the Administrator regarding disposition of non-cash assets ü Submits reports to Contributor, Administrator, and concerned PERA Regulator  PERA CASH FLOWS Investment Discretion CONTRIBUTOR INVESTMENT MANAGER REGULATORY BODY Apply for Investment TCCs Instruction CUSTODIAN Issues Remit Consolidated ADMINISTRATOR Funds Reports Investment Instruction/ Securities Cash PERA Investment PERA Investment PERA Investment PERA PERA Investment Investment  Check and balance is achieved through the separation of functions… Cannot exercise investment discretion can be accredited as Administrator Custodian but never simultaneously for the same Contributor Can exercise investment discretion but cannot be the Product PERA Must be unrelated to Provider the Administrator Investment Investment Manager Custodian Summary of Roles – at the client level PERA Market PERA Cash Securities Investment Product Participant Administrator Custodian Custodian Manager Provider PERA X X ü *TE ü* Administrator Cash Custodian X ü ü ü Securities X ü ü ü Custodian Investment ü *TE ü ü X* Manager Product Provider ü* ü ü X*  True or False 1. PERA is both mandatory and portable 2. To qualify for PERA, the Contributor must be a Filipino, of legal and has a TIN 3. PERA may only be withdrawn without penalties but only in case of death 4. The BSP accredits a Trust Entity that applies as PERA Administrator 5. Unmarried OFW is entitled to P100K maximum annual contribution 6. The Contributor can only appoint one Administrator in his lifetime. 7. A Contributor is allowed to open up to 5 PERA, with maximum allowable contribution of P00K for each account 8. The Administrator and the Custodian may be the same entity for the same Contributor 9. The Administrator is allowed to be an Investment Manager but only in case of Trust Entities 10. The Investment Manager cannot be at the same time a Product Provider Creating a Virtuous Cycle Through PERA * Retirement planning * Retirement * Increase in savings money as long- rate term investment Savings Capital Mobilization Formation Capital Institutionalized Market Investor Base * Creating Development liquidity & depth * Professional * Attracting foreign capital investors pooling * Development of new retail investors products Initiatives on PERA Implementation ü PERA Database ü MoA (Regulatory Authorities, Industry Players, BTr) ü Policy Development and Issuance, (BSP, BIR, SEC, and IC) ü Investment Product Accreditation ü Players Accreditation  PERA Database System development project (August 2014-July 2015) Ensures: PERA Contributors are under the exclusive administration of their respective PERA Administrators; PERA Contributions are within prescribed limits; and CONTRIBUTOR’S DATABASE REPORTS PERA Contributions are ADMINISTRATORS invested in accredited PERA Investment Products  PERA Database Access allowed to the PERA System BSP As operator SEC Covered by an Inter- BIR Regulatory MoA IC CONTRIBUTOR’S DATABASE REPORTS Industry Covered by Participation MARKET Assoc. Agreement PARTICIPANTS Cost Fees and Service Recovery Mechanism Charges Investment Product Accreditation BSP-Recognized Eligible Instruments q Unit Investment Trust Funds q Debt instruments such as but not limited to Long-Tern Negotiable Time Certificate of Deposit (LTCTCD) and Unsecured Subordinate Debt (UnSD) q Deposits q Government-issued securities Provided that for UITF and Debt Instruments (LTNTCD and UnSD), these should be issued by BSP-supervised entities with composite SAFr of at least “3” in the latest Report of Examination Investment Product Accreditation SEC-Recognized Eligible Instruments (www.sec.gov.ph) (RMC 86-2023 – List of SEC-Accredited Products) q Newly formed Mutual Funds, including sub-funds of an umbrella fund and ETFs: o 5-year track record o The name of the fund should contain “PERA” q REIT shares q Corporate bonds with an investible rating issues by an accredited Credit Rating Agency q Equity securities which form part of the PSE Dividend Yield Index q Others (SEC-exempt securities): o Government Securities o Securities issued by the BSP o Corporate Bonds issued by Banks in compliance with the requirements of the BSP Existing PERA Participants Administrators Cash Custodian BDO Land Bank BPI AMTC Self-Custody ATRAM TC PERA Products 17 UITFs (6 Banks) Product Providers Government Securities BDO SEC accredited/exempt securities BPI Land Bank Metrobank Digital Platform Provider RCBC Seedbox PNB BDO Key Challenges prior to Digital PERA § Tax regulatory concerns § Fee structure § Limited accessibility/ Limited number of individual PERA Administrators § Numerous on-boarding requirements § Availability and accessibility of other financial products § Limited distribution channels § Lack of interconnectivity among market participants  Problems of Scale Administrator HOW MUCH DO YOU NEED TO HOW MUCH CAN INVEST FOR THE YOU CHARGE REQUIRED INVESTMENTS OF INFRASTRUCTURE PERA < P200K ? Product ? Investment Custodian Manager HOW MANY CLIENTS DO YOU NEED TO BE VIABLE ? What’s new with Digital PERA? How can I open a Digital PERA? Mechanics of ePERA (seedbox) https://www.youtube.com/watch?v=pXScftZUi14  PERA-related websites Digital Platform Providers: Seedbox – https://pera.seedbox.ph BDO – https://online.bdo.com.ph PERA Administrators: ATRAM – https://www.atram.com.ph BDO - https://www.bdo.com.ph/PERA BPI - https://www.bpiexpressonline.com/p/1/676/ personal-equity-and-retirement-account Role of the BSP in advocating PERA investments § Coordination with industry players, regulatory agencies and other stakeholders in promoting awareness on PERA § Identification and implementation of viable measures and practical solutions to make PERA an economically-efficient retirement vehicle § Periodic review of policies, rules and procedures; propose changes to MB; § Act as secretariat of the PERA Inter Agency Board Key Initiatives to Promote the Growth of PERA Where are we now? (www.bsp.gov.ph) As of 30 Sept. 2024 5,774 4,096 (71%) 894 (15%) 784 (14%) Cont.,…Where are we now? (www.bsp.gov.ph) As of 30 Sept. 2024 P470.6 Million P325.4 M (69%) P80.3 M (17%) P64.9 M (14%) Thank you!