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In March 2007, 9 years after its introduction in the Philippine Parliament, the Personal Equity Retirement Account (PERA) bill became law. Proponents of the new law claim it will encourage voluntary retirement saving and savings portability, promote capital market development, and generate long-term investments. To this end, a provident savings plan called the Personal Equity and Retirement Account will soon be established.

PERA contributors must be citizens of the Philippines, be of legal age, and hold a government-issued tax identification number. After January 2009, contributors will also enjoy a one-time 5 percent nonrefundable income tax credit. Contributors may own up to five PERA accounts; contributions made to each account will be tax exempt up to a maximum of 50,000 pesos (US$1,031) annually. Additionally, interest earned in PERAs and withdrawals made after the owner reaches age 55 will not be taxed.

A PERA contributor may receive a lump-sum distribution or lifetime monthly pension payments upon reaching age 55 and with at least 5 years of contributions. The law imposes early withdrawal penalties except in cases where PERA funds are used for accident- or illness-related expenses. Families of a deceased PERA contributor will receive the decedent's PERA account balance regardless of the contributor's age at the time of death.

The Department of Finance and the central bank will license an entity to manage PERA and invest funds in government securities, foreign currency deposits and investments, and nonspeculative stocks, with individuals making their PERA contributions through banks. Employers may also contribute to employees' PERAs as long as both employers and employees comply with either the Social Security System (SSS) rules or Government Service Insurance System (GSIS) rules. These two systems are described below.

First, SSS is the Philippines' compulsory social insurance system that covers the majority of private-sector workers. With some exceptions, most workers earning at least 1,000 pesos (US$20.99) a month who are aged 60 or younger must participate in SSS. According to government officials, over 1 million SSS pensioners will soon receive a 10 percent increase in their benefit payments because of the plan's improved financial status. Officials say that SSS is in such good standing that increases in individual contributions will not be needed to pay for the benefit increase.

Second, public employees are covered by one of four compulsory retirement plans under GSIS, depending on their date of entry to federal service. At least for now, however, they will not receive the benefit increase that SSS participants will receive.