Retirement might be the least you have in mind in your 20s and 30s. But if there’s one thing you can do to secure your future, prepare for it as soon as possible. Time is of the essence when it involves compounding interests.
Reality check: In 2023, the Philippines has around 7.6 million citizens aged 60 and above, and that may include your parents, uncles, and aunts. The retirement system consists of the Social Security Services (SSS) for private individuals and the Government Service Insurance System (GSIS) for government employees.
If you want to save for retirement without an employer-sponsored plan, the Philippine government has a retirement program called PERA (Personal Equity Retirement Account). Let’s unpack this program and see how it can grow your money.
What is the PERA voluntary retirement program?
The PERA is a voluntary retirement savings program in the Philippines, established through Republic Act 9505. It complements existing retirement benefits from SSS, GSIS, and employers, adding to your savings for your retirement.
Contributions to a PERA account are made with after-tax income. The investment income earned from PERA is tax-exempt, potentially leading to higher returns than regular investments.
How does the PERA retirement program work?
PERA, similar to the Roth IRA or 401k in the US, encourages Filipinos to save for retirement. It offers tax benefits for investment earnings held for five years or longer until age 55. The maximum aggregate annual contribution is ₱200,000, or ₱400,000 for Overseas Filipinos.
For as low as ₱1,000, your PERA contributions are invested in UITFs, mutual funds, government securities, annuity contracts, bonds, insurance pension products, pre-need pension plans, and stocks listed on the Philippine Stock Exchange.
What are the benefits of having a PERA retirement account?
Having a PERA means you’re ready to think and hold off your funds for the long term — until you’re 55 years old. You’ll also enjoy these benefits as you save up for retirement.
- Tax incentives: Contributors may receive up to a 5% tax credit annually of their allowed maximum contribution, which is deducted from their income taxes. For example, if you max out to ₱200,000, then you are entitled to receive a 5% tax credit. For OFWs, the tax credit can be deducted from their tax liabilities in the Philippines.
- Supplemental retirement income: PERA is designed to supplement existing retirement benefits from SSS, GSIS, and private employers. It offers additional income during retirement.
- Access to diversified investment opportunities: PERA offers a diverse range of investment products, including unit investment trust funds, mutual funds, annuity contracts, insurance pension products, pre-need pension plans, shares of stock, and locally traded securities.
- Estate planning tool: Your PERA funds are automatically paid out tax-free to beneficiaries in case of death, offering a convenient way to plan your estate.
- Accessible to many Filipinos: Anyone 18 years old and above with a Philippine Tax Identification Number (TIN) can invest in PERA, making it an excellent tool for those who value long-term investments.
How do you start investing in PERA?
The PERA account isn’t the same as setting up an investment brokerage account like COL Financial or First Metro. You need to find PERA administrators to help you get started.
- Find an Administrator to open and oversee your PERA account. You can have up to five (5) PERA accounts but designate only one (1) Administrator and stick to one (1) investment product category per account.
- Once the Administrator is appointed, you can choose to appoint a third-party custodian or be the custodian of your own PERA funds.
- You can decide on the investment product, but if unsure, consider hiring an Investment Manager.
As of this time of writing, the legitimate PERA administrators below can help you set up your account and investment products.
- ATRAM (https://www.atram.com.ph)
- BDO (https://www.bdo.com.ph/PERA/requirements)
- BPI (https://www.bpi.com.ph/wealth/assetandwealth/investment-solutions/pera)
When you finally decide which PERA administrator you want to set up funds, it will conduct the following steps to assess risk tolerance and get to know your goals.
- During the Client Suitability Assessment (CSA), you’ll define your investment objectives and risk tolerance.
- You’ll receive a Pre-Acceptance and General Risk Disclosure Statement that outlines the risks for each PERA Investment Product category.
- You will receive investment options based on your risk profile.
Other information about PERA retirement funds
You can withdraw or distribute PERA contributions tax-free under these circumstances:
- Age 55 and at least 5 years of qualified contributions (55 and 5 rule). You can receive it as a lump sum or monthly pension.
- In the event of death, regardless of age or contributions made.
If you want to withdraw your funds earlier, you incur penalties, including repayment of waived taxes to the Bureau of Internal Revenue (BIR).
However, there are also exemptions to this rule if you meet these conditions — it means no withdrawal penalties are imposed.
In the case of:
- Hospitalization exceeding 30 days due to accident or illness
- Permanent total disability
- Transferring proceeds to another PERA investment product or administrator within 15 calendar days from withdrawal
Final thoughts
If you want to enjoy tax-free investments, then PERA is an excellent choice to jumpstart your retirement plan. The 5% tax credit is a good deal, especially if you max out your annual contribution of up to ₱200,000. With linear math, it’s setting aside an extra ₱16,667 per month.
Unlike other investments like stocks and REITs, where you can register and set up a trading account by yourself, PERA comes with a bit of a complex process that includes a third-party provider like the administrators mentioned above. Plus, you have to consider the third-party fees and charges as well. So, it’s best to read thoroughly and research about it.
What do you think of PERA benefits? Would you consider opening an account soon?
Let us know your thoughts in the comments below.