PERA Facts: Personal Equity and Retirement Account Philippines
This article is posted under General Information, In Focus, Investing, Personal Finance.
Have you heard of PERA Law 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. Updates on the implementation is given at the end of this post.
So for those who do not know about the PERA Law, 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?
- Because you get 5% of your total PERA contribution as income tax credit. However, there could be no refund of the said tax credit arising from the PERA contributions. If the contributor is an OFW, then he or she shall be entitled to claim tax credit from any tax payable to the national government under the National Internal Revenue Code.
- Because all the income earned in your PERA is exempted from tax,
- 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.
Latest News and Updates on PERA:
November 2012According to my contact in Business World, implementation of the Personal Equity and Retirement Account (PERA) law will be “further delayed” as the Bangko Sentral ng Pilipinas (BSP) is still ironing out operational issues.
February 2012: According to Ms. Theresa Marcial-Javier, president of the Trust Officers Association of the Philippines (TOAP): “We are just working out some administrative requirements but before the end of the first half of 2012, PERA will officially be made available.”
October 2011: The Draft Tax Rules have already been issued by the Bureau of Internal Revenue (BIR) and is now seeking final private sector feedback before implementation.
May 2010: 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.
So don’t miss that and subscribe to Ready To Be Rich today.
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Hi, my name is Fitz and this is my blog.
Thanks Fits for this one! I’m also on a “stand-by” mode for PERA since 1st quarter of 2009. I hope the govt would make it available very soon.
May I ask how much the earning potential of PERA, hows the profits computed? I’m looking forward to invest on this too
@melanie
Yes, a lot of people I know are really excited for PERA and have already set aside money for it since last year.
@Cris
Earning potential depends on what product you will choose.
Your administrator and custodian will ideally give you an assessment test to determine if you should invest in conservative, moderate or aggressive products. They should also be able to explain to you how exactly you will earn from it.
But if you want an idea, you can research on the performance of UITFs and Bond Funds for the past years. I expect the products that will be available to PERA will have very similar performance and earning potential.
Lastly, it’s important to realize that PERA products will not make you rich. It will however, at the very least, ensure that you will have a comfortable and sustainable lifestyle when you retire at 55.
I actually inquired about PERA last year from my bank, and they still do not know anything about it… I’m glad you posted this. Hope you can post more info about it when it does take effect… I also set aside money for this.
Very informative post. I would study this PERA in the future. Thanks.
Hi! I’m happy to know that we have this bill which is very similar to HSA (health savings accounts) in the U.S. The only difference is PERA focuses more on retirement savings while HSA is a combination of a tax-favored savings plus a qualifying health insurance. It would be better if PERA also allows us to deposit tax-deductible funds into this account that we can use to cover medical costs and help save 40%-50% on our health insurance. This way, every Filipino can have health insurance plus retirement savings!
Wow, thank you so much for this!
I do hope PERA could be implemented soon. I honestly believe that SSS is not enough.
Thanks Fitz for the info. Have you started investing through this scheme or do you know someone who have opened a PERA account? I am asking this because I need some clarification regarding investment costs when one decides to invest his money through PERA. PERA is really a good opportunity for Filipinos to build a retirement fund due to the tax advantages (zero tax on income, 5% tax certificate). However, I find it too bureaucratic because one investor needs to deal with several agencies (Administrator & Custodian). Another issue linked to bureaucracy is cost. Investment cost will most likely increase since there will be additional layer of management. For example, if a person invest in mutual fund outside of PERA today, the cost would oly be the admin fee of around 2-4% being charged by the investment company, but when that person invest through PERA, admin cost would range 4-8% if the new player (the Administrator) will charge the same amount of admin fee. Please help shed light on this.
Hi, I heard about this PERA thing a few months ago and was very interested. It’s just sad that the implementation of this act is taking too long. Anyways, I’m looking forward for this to be offered to the public very soon.
Any updates on this now?
Hi, is this already implemented?
Hi Fitz,
Just want to ask if PERA is already available? Have you invested already? Please let me know. Thanks.
Hi Henry, unfortunately, PERA is still unavailable. Hopefully, it will be soon.
Can a juridical person apply as Contributor for PERA? I looked at the definition of “Contributor” and it states any person qualified to enter into a contract and has the TIN. The law is silent in including juridical persons having a TIN number. I am hoping if you can clarify me on this matter. Thank you.
I just want to point out a mistake in this post. You have confused tax credits with tax deductions. Tax credits are not deducted from the gross income but these are subtracted from the tax due itself. There’s a big difference!
Thanks Joel for pointing out the mistake, I have now made the necessary corrections.
Hi kuya Fitz, any update on PERA?
Hi Lianne… still no updates, sorry.
Hi! Any update on PERA?
hi Fitz,
I am researching about PERA and quite intrigue about it. it is nice to investment na hindi taxable though at age 55 pa. Do you have any new update sa PERA?
Ask ko pala, you mention that you will choose your administrator and custodian. Do you have any idea how much will the fee?
Thanks
@frugal expat
I tried to search in the past couple of days and it seems there’s still no significant update regarding PERA.
As for the admin or custodian fee, I also don’t have any idea how much it will be. The couple of bank managers (in BPI and BDO) whom I was able to talk to, both don’t even know what PERA means.
So I guess we don’t have a choice now but to just wait… for the next president perhaps? Haha.
Let’s just hope for the best that this will be implemented soon.
An update on this:
My bank manager just informed me today that she’s expecting details regarding the status of PERA very soon (as advised by their main office). I’ll surely write here any information that she’ll get. Thanks.
Can you have PERA account without a custodian? parang self-direct IRA sa US. Hope my updates na
Hi!
Any updates on PERA (e.g. admin fee, investment costs, etc)?
Thank you very much!
https://www.bpiassetmanagement.com/pages/pera-personal-equity–retirement-account-institutional/
http://business.inquirer.net/29451/the-pera-retirement-system-ready-for-take-off
I reside in Illinois, USA.
Can I open an account at the office of the Consult General in Chicago?
Tito
Any news on the implementation of PERA?
I think wala pa. Pero I found this on the PSE site.
http://pse.com.ph/resource/memos/2013/TPA_2013-0052.pdf
Atleast there’s a progress.
@Look Thanks.