When the Pag-IBIG Fund was first conceived, it was intended to offer the following services and benefits to its members:
- Provident Savings
- Short Term Loans (Multi-Purpose Loan, Calamity Loans, etc)
- Housing Loans
All of these are still available today.
Over time, Pag-IBIG has grown (both in terms of finances and membership) that it introduced other programs and services.
There was the Pag-IBIG Overseas Program, which was a special program meant to address the needs of the Overseas Filipino Workers. Then there was the Pag-IBIG II Program, which was not so popular but is nonetheless very beneficial to those who participated in the Program.
The original Pag-IBIG program is now called Pag-IBIG I to distinguish it from the other programs of Pag-IBIG especially the Pag-IBIG II Program.
Pag-IBIG I vs. Pag-IBIG II
One site visitor asked, “Is Pag-IBIG II better than Pag-IBIG I?”
First, please be aware that the two programs are different from each other and as you read along this article we’ll touch base with some of the benefits you can derive by participating in the Pag-IBIG II Program.
The following are the differences of the two:
1. Membership — In order to participate in Pag-IBIG II, the only requirement is that you have to be a member of Pag-IBIG I. There’s no other way. Think of it as placing an investment in the Fund, and it is really that – an investment program. Participating in Pag-IBIG II program is voluntary and is open to all Pag-IBIG I members only.
2. Contributions — With Pag-IBIG I, your regular monthly contribution is P 200. For employees, that is a 50-50 split, with the other half courtesy of the employer. Self-employed and self-paying members have to shoulder the whole amount. With Pag-IBIG II, the monthly investment is at least P 500; remember: no less!
3. Maturity — Pag-IBIG I will mature in 20 years. Pag-IBIG II matures in 5 years, though you have an option of extending it for another 5 years.
4. Dividend Rate — There’s that word again. Remember, your money in Pag-IBIG Fund will not earn an interest, but it will earn a dividend. The difference between the two is the difference between a savings program and an investment program.
The Management of the Pag-IBIG Fund assures those who are participating in Pag-IBIG II that their money will earn dividend that is a bit higher than their earning in Pag-IBIG I. However, there is no pre-stated rate of return, because the amount of dividend has to be decided by the board every first quarter of the year and whether you like it or not this will depend on many things among them is the performance of the Pag-IBIG Fund.
5. Access To Loans — Here is a slight downside of the Pag-IBIG II Program: You can’t loan against it. Remember that when you apply for a Pag-IBIG Multi-Purpose Loan, your loan eligibility depends on the amount of your TAV (contributions + dividend) from the Pag-IBIG Fund. You can’t use Pag-IBIG II in such kind of short-term loan.
[Further reading: The Pag-IBIG II Savings Program — our first article about the Pag-IBIG II Program.]
You really should think of Pag-IBIG II as an investment program and keep the following points in mind:
- higher dividend
- shorter maturity term
- guaranteed by the government
- tax shelter
Tax Shelter — Is that a Joke?
Maybe it’s true. The government is joking about the Pag-IBIG II as your tax shelter. But, don’t you think you deserve a tax break from time to time? Thanks to the Pag-IBIG Program, it becomes legally possible to avoid paying a portion of your tax.
Actually, it’s not just the Pag-IBIG II that’s tax exempt, your Pag-IBIG I is tax exempt as well. But since Pag-IBIG I contribution is normally pegged at P 200 per month, that doesn’t have a big impact on your tax due. And since there is no limit on the amount of contribution to the Pag-IBIG II, it could spell a difference on your taxable income.
In general, the simple equation helps to make the point much clearer.
Taxable Income = Basic Pay – [ (Pag-IBIG I) + (Pag-IBIG II) + (SSS) + (Phil Health) ] + …
The Home Development Mutual Fund Law of 2009 stated in its Rule IX, Section 12:
Pag-IBIG Contributions are Excluded from the Computation of the Gross Income. Pursuant to Section 32 (B)(7)(f) of the National Internal Revenue Code of 1997, as amended, Pag-IBIG Contributions are excluded from the computation of the gross income and shall be exempt from taxation.
In other words, one of the ways you can reduce your tax payment is by investing in Pag-IBIG II.
Patriotism aside, remember that tax avoidance is legal while tax evasion is illegal. And you should not confuse the two.
“Beyond Loans: The Pag-IBIG II Program As Investment And Tax Shelter” is written by Carlos Velasco.