Published: November 23, 2020 | Updated: December 17, 2020 | Posted by: Venus Zoleta | Personal Finance
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 the Personal Equity and Retirement Account or PERA as an additional source of retirement income to help Filipinos 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, and the steps to opening a PERA account in the Philippines.
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PERA is 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. Below is the basic eligibility criteria and requirements:
Each PERA investor in the Philippines may contribute up to PHP 100,000 every year. OFWs can invest up to PHP 200,000 yearly. Note that you are allowed to invest more, but any excess amount is not eligible for tax reliefs.
The earnings you will receive from a PERA investment depends on the choice of investments. Different products have different returns, so when you invest into something that has potential for higher returns your investment has a higher risk. On the other hand, modest risks usually means modest returns.
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.
PERA investments can also be withdrawn when the investor is sick for more than 30 days, was permanently disabled, or has passed away.
Compared to regular savings accounts and time deposits, PERA yields higher investment returns because it provides tax exemptions on investment income and allows investors to choose investment products that fit their needs and risk appetite. Here are the reasons to invest open a Personal Equity and Retirement Account.
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.
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.
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.
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.
To start your PERA investment, you need to open a PERA account through an administrator. To date, BSP has accredited four banks, BDO, BPI, Landbank, and Metrobank as PERA institutional administrators. However, take note that Landbank will soon launch PERA while Metrobank is available via Digital PERA (see below).
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.
Additional 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:
With an objective to give Filipinos a chance to save for their retirement 24/7 and wherever they are in the world, the Bangko Sentral ng Pilipinas (BSP) launched Digital PERA in September 2020.
Administrated by ATRAM, Digital Pera is available via Seedbox.ph. Filipinos can invest in PERA via BDO, BPI or Metrobank for as low as PHP 1,000.
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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