Is PERA a Good Investment for Retirement?

August 13, 2018 | Posted by: Venus Zoleta | Personal Finance

August 13, 2018


PERA Investment Philippines | MoneyMax.ph

The problem with retirement planning in the Philippines—aside from the lack of it—is the limited investment choices available for Filipinos who want to save up for when they retire. Addressing that challenge, the government offers PERA as an additional source of retirement income to help Pinoys achieve a comfortable and financially secure retirement.
Will a PERA investment suit your retirement goals? Here’s a guide to help you decide whether it’s worth investing in PERA or not.

What is PERA Investment?

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PERA stands for Personal Equity and Retirement Account, a long-term and tax-free voluntary retirement investment program in the Philippines. Created through Republic Act 9505, PERA is similar to the Individual Retirement Account (IRA) and 401(k) retirement plans in the United States.
The PERA law is meant to encourage Filipinos to save money for retirement through generous tax benefits for investment earnings held for five years or longer and until the age of 55. Designed as an additional retirement savings option, PERA supplements rather than replaces GSIS or SSS pensions and retirement pay from private employers.
Filipinos here and abroad aged 18 and above with a Tax Identification Number (TIN), whether employed or self-employed, may open a PERA account. Each PERA investor in the Philippines may contribute up to PHP 100,000 every year. OFWs can invest up to PHP 200,000 yearly.

Where are PERA Contributions Invested?

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PERA contributions may be invested in the following:

  • Unit investment trust funds (UITFs)
  • Mutual funds
  • Government securities
  • Annuity contracts
  • Exchange-traded bonds
  • Insurance pension products
  • Pre-need pension plans
  • Shares of stocks listed and traded in the Philippine Stock Exchange
  • Other investment products authorized for PERA purposes

When Can You Withdraw PERA Investments?

You can withdraw your tax-exempt PERA contributions when you meet the 55 and 5 rule, meaning you’ve reached 55 years old and contributed for at least five years. The amount can be paid either in lump sum or monthly pensions for a lifetime or a certain period.

Why Should You Invest in PERA?

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Compared to regular savings accounts and time deposits, PERA yields higher returns because it provides tax exemptions on investment income and allows investors to choose investment products that fit their needs and risk appetite.

Higher Investment Returns Through Tax Benefits

PERA investors enjoy the following tax advantages:

  • Income tax credit – Each year, you’ll get a 5% tax credit of your total PERA contributions. You can use this tax credit to pay your income tax liabilities. Let’s say your income tax is PHP 150,000, and your total PERA contribution is PHP 100,000. Because you’re entitled to a 5% tax credit of PHP 5,000, you’ll pay only PHP 145,000 in income tax for the year.
  • Tax-free investment income – PERA investors are exempted from final withholding taxes, capital gains tax, and regular income tax.
  • Exemption from estate tax – In case of the PERA contributor’s death, the money will be released to the heirs or legal beneficiaries without having to pay estate taxes and going through the lengthy process of probate.

Ability to Choose PERA Investment Products

Unlike with GSIS/SSS and Pag-IBIG contributions, you have control over where to invest your money as a PERA contributor. You can choose to grow your retirement savings in different PERA investment products that suit your risk profile, whether it’s conservative, moderate, or aggressive.
Young investors in their 20s or 30s, for example, can beat inflation and maximize their returns by putting their money in high-risk investment vehicles such as a PERA equity fund. Those with conservative to moderate risk appetites can opt for a PERA money market fund or a PERA bond fund.
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What are the Disadvantages of Investing in PERA?

Investment Risks

Like other investment types, PERA comes with certain risks, depending on your chosen investment product. For example, investing in a PERA equity fund exposes the investor to the usual risks of a stock investment, like the fluctuating stock prices.
The specific risks associated with your PERA investment product will be explained to you when you open a PERA account. Make sure to understand the risks before you sign the dotted line.

Penalties for Early Withdrawals

Because you’re investing for retirement through PERA, you can’t touch your funds until you’re 55 and you’ve contributed for five years or longer. Earlier than that, you can fully or partially withdraw your PERA contributions, but you’ll no longer enjoy the tax incentives. Exempted from early withdrawal penalties are PERA contributors with a permanent disability or those hospitalized for over 30 days due to an accident or illness.

Administrator Fee and Other Service Fees

Investing in PERA comes with additional costs. For every contribution, you’ll pay a 1% administrator’s fee plus 0.5% to 1.5% trust fees and custodian fees. To minimize these fees, pay in a lump sum each year rather than make monthly contributions.

How to Invest in PERA

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To start your PERA investment, you need to open a PERA account through an administrator. To date, BSP has accredited only two banks, BDO and BPI, as PERA institutional administrators.
As soon as you open a PERA account, you can start making your contributions through your bank account with your chosen administrator or over-the-counter cash or check payments.

Steps to Opening a PERA Account

  1. Visit a BDO or BPI branch where PERA is available. Contact the bank first to ask which branches you can go to open an account.
  2. Fill out an application form, a Client Suitability Assessment, and other related PERA documents. If you’re applying at BPI, you can download the forms here.
  3. Submit the PERA account opening requirements (See the list of requirements below).

PERA Investment Account Requirements

BDO PERA Opening Requirements:

BPI PERA Opening Requirements:

  • A BPI savings or checking account
  • One valid ID
  • TIN ID or ITR
  • PHP 1,000 as an initial investment (exclusive of admin fees)

PERA Opening Requirements for OFWs:

If you’re an OFW, your spouse or child in the Philippines can open a PERA account on your behalf. Your representative must submit the following documents:

  • Marriage Certificate (for spouse) / Birth Certificate (for child)
  • Sworn certification that the spouse or child is opening a PERA for the OFW who has not availed of the benefits under the PERA law
  • Overseas Employment Certificate
  • Any official document that proves the OFW’s income from a foreign country

Final Thoughts

Should you invest in PERA? The tax benefits alone outweigh the risks, which you can minimize by being strategic with your PERA investments. If you’re looking to diversify your portfolio and you want to start saving early for retirement, then opening a PERA account makes a lot of sense.
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