Enhancing Savings for Capital Formation

Manila Bulletin, June 8, 2008 | Go to article overview

Enhancing Savings for Capital Formation


Right now, our country suffers a low savings rate and weak capital market. Our financial system is not supportive to business and entrepreneurship, and that is why job creation is slow. Money does not circulate smoothly because we do not have enough vehicles that encourage savings and allow access to financing. While I have nothing against banks, it is unhealthy that financing for business mainly comes from banks.

Together, PERA and the Pre-need Code will encourage long term saving and inject fresh financing into the capital market.

The PERA bill is at the bicameral level and will be enacted, if not by next week, then certainly within the year. PERA will supplement the existing government-sponsored pension scheme by setting up a privately funded retirement fund. It allows private individuals to set aside P50,000 a year, withdrawable when the contributor reaches the age of 55, and tax-exempt. It will reduce our heavy reliance on the already overwhelmed publicly-funded retirement scheme.

PERA targets Overseas Filipino Workers and small business owners, as they are not covered by the government's current pension programs. This is also true for the domestic labor force, of which only 78 percent are members of government-initiated pension funds.

Like PERA, savings mobilized through pre-need helps build a stronger capital market. In fact, the multi-billion pre-need industry is the biggest accumulator of savings.

This week, the Pre-need Code was passed on second reading, and it won't take long before it is made into law.

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