Have you heard of PERA or the Personal Equity Retirement Account?

It’s a bill signed by President Gloria Macapagal-Arroyo last August 22, 2008 which aims to help Filipinos, specially OFWs, to save for retirement.

This is actually very similar to the Roth IRA and 401(k) which Americans enjoy.

Unfortunately, available information about the PERA Bill is few.

Moreover, despite being passed into law for a couple of years already, it has not yet been fully implemented. But hopefully, it will be before the end of this year, 2010.

So for those who do not know about PERA, here are some basic information and frequently asked questions about the Personal Equity and Retirement Account.

What is PERA?
PERA in the Philippines refers to the Personal Equity and Retirement Account. It is primarily a retirement savings plan.

Who can open a PERA?
Anyone with a Philippine Tax Identification Number and verifiable income can set up a PERA. This is a voluntary savings and investment plan open to all Filipinos, employed or self-employed, in the country or overseas, which you can open anytime. Of course, the earlier, the better.

How do you open an account?
You have to first choose an administrator who will oversee your account. An administrator is a company approved by the BSP, the Insurance Commission and the Securities and Exchange Commission. Examples are banks, mutual fund companies, insurance companies and many others.

Once you have chosen an administrator, you will then choose a custodian who will receive the funds which you will contribute. The custodian must be an entity different from the administrator. They are investment managers or trust entities which are also approved and accredited by the BSP.

From there, with the guidance of your administrator and custodian, you can now choose which PERA investment product you’d want to put your money in. These can be unit investment trust funds (UITF), annuity contracts, insurance pension products, exchange-traded bonds, shares of stocks traded locally and many others.

As a simple example, opening a PERA can go like this: You’ve chosen to setup a PERA in “Bank A” and decided to assign “Investment Manager B” as your custodian. After talking and receiving guidance from “Bank A” and “Investment Manager B” regarding your financial capabilities and investment goals, you can now decide where to invest, in this case, you’ve chosen “Mutual Fund C”.

How much can you contribute?
People living in the Philippines can contribute a maximum of P100,000 per year. Those living and working overseas have a P200,000 maximum limit. This is per person, so if you’re married and you and your spouse are both OFWs, then your maximum limit is theoretically P400,000.

Can I diversify PERA investments?
You can only have one administrator but you can open up to five accounts – which can be invested in up to five different investment products to help you diversify.

What are the advantages? Why would I want to open a PERA?

1. Because you get 5% of your annual contribution as tax credit. This means if your contribution this year reaches P100,000, then you can deduct P5,000 from your annual taxable income,
2. Because all the income earned in your PERA is exempted from tax,
3. And upon the age of 55, you will NOT be taxed when you withdraw your money.

What if I die before the age of 55?
Then your money goes to your heirs without going into probate (a legal process which delays the release of the money).

Are there any disadvantages to opening a PERA?
None really, as far as how it looks on paper. Growth for your money is almost 100% guaranteed. But you will incur tax fees and penalties if you decide to terminate or withdraw money (full or partial) before the age of 55.

What if I suddenly need the money before the age 55? Is there an exception for financial emergencies?
There is actually. You will be allowed to withdraw money without penalty ONLY for hospitalization of more than 30 days and if you are suddenly totally disabled.

Author’s Note:
The PERA Implementing Rules and Regulations (IRR) was already released by the BSP last year. Currently, the Revenue Regulation (RR) from the BIR is still being drafted and awaiting release. Likewise, there is still no official list of approved administrators and custodians.

I will write more about PERA or the Personal Equity and Retirement Account once there is more information available. I’m actually planning to open a PERA as soon as it’s available and I will surely write about my experience of how I opened an account here.

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