Philippines signs rules for tax-free pension schemes

MANILA, Oct 21 - The Philippines on Wednesday issued rules to implement a new law to allow the creation of tax-free personal retirement plans that will see funds flow into the domestic debt and stock markets.

Similar to the 401K plan in the United States, the Personal Equity Retirement Account (PERA) provides tax incentives for long-term savings channeled into local financial instruments.

"The PERA law provides an organised framework for cultivating retail savings and offering the means to transform the resource of saving into the opportunities of long term investment," central bank governor Amando Tetangco said in a speech.

The law allows a maximum annual contribution to tax-free savings accounts of 100,000 pesos ($2,129) per individual and double that amount for Filipinos working overseas.

Funds invested into PERA may be placed in a host of local financial instruments, including stocks, bonds and mutual funds.

Fund managers said they were waiting to see the details of the rules, which will be published this week, and it was too early to say how much this scheme would impact the stock and debt markets. The law will take effect immediately after the rules are published.

Nestor Espenilla, central bank deputy governor, told reporters it was hard to gauge how much funds would actually flow into the capital market, but the potential was huge.

"The total deposit base of the banking system is already in the order of around 5 trillion pesos," he said.

"Of course only a portion of that could be re-directed towards long-term (savings) but we are after those outside the system, those who have not been saving before, especially OFW (Overseas Filipino Worker) money," Espenilla said.

More than a tenth of the country's 92 million people live and work abroad. Last year they sent a total $16.4 billion pesos to their families and the amount is expected to climb 4 percent this year, based on central bank estimates.