Ready To Be RichWhere to invest in 2017? Well, that depends on your financial objectives. However, be sure to include PERA or the Personal Equity Retirement Account in your portfolio.
Senator Edgardo Angara authored and sponsored RA 9505 or the PERA Law to the Senate back in 2008. In the same year, President Gloria Macapagal-Arroyo signed it.
Now, after 8 years of waiting, Bank of the Philippine Islands (BPI) and BDO Unibank (BDO) become the pioneer PERA administrators as authorized by the Bangko Sentral ng Pilipinas (BSP) and the Bureau of Internal Revenue (BIR).
Both banks have already started accepting contributions last December 2016 in select branches for a limited number of clients. However, it’s expected to be available for everyone within the year.
I first wrote about PERA back in 2010 and you can read there the updates it went through in the past 6 years. But for those who’s reading about PERA for the first time, below is a summary of what it is.
What is PERA?
PERA or the Personal Equity Retirement Account, is a voluntary savings and investment account similar to the the Roth IRA and 401(k) of the United States. It is primarily a financial tool meant for retirement.
Anyone with a Philippine Tax Identification Number (TIN) and a verifiable income can open a PERA account. In short, all Filipinos, employed or self-employed, in the country or overseas can invest in PERA, any time.
Pinoys in the country can contribute a maximum of P100,000 per year. Meanwhile, those living and working overseas have a P200,000 maximum limit.
This is per person. So if you’re married, and both you and your spouse are OFWs, then your maximum limit as a couple is P400,000 per year.
Ultimately, PERA hopes to provide Filipinos an additional source of cash during retirement, apart from the pension benefits they’ll get from the Social Security System (SSS) or the Government Service Insurance System (GSIS).
PERA Terms and Benefits
The money you contribute in your account will be invested. You can choose from stocks to pooled funds, from bonds to annuity contracts, and many others.
This means over the long-term, the money in your account will grow faster than if you simply left it in a bank savings account.
Aside from this, you can get 5% of your total PERA contribution as income tax credit. If you put P100,000 in your PERA account, you can get P5,000 deduction from your annual income tax liability.
For OFWs, they’ll be entitled to claim tax credit from any tax payable to the national government under the National Internal Revenue Code. An example would be real estate tax for properties under their name in the Philippines.
Another great benefit is that the income you’ll earn in your PERA account is exempted from tax, but only if you withdraw it at the age of 55 or later.
It’s also tax exempt in case you die before reaching 55. Moreover, the money in your account will go to your heir without going into probate (a legal process which delays the release of the money).
Lastly, should you decide to terminate your account before you reach 55, you’ll incur a flat rate penalty fee of 20% based on the total income earned by the account, but on top of all the 5% tax credits you’ve received.
However, you will be allowed to withdraw money without penalty ONLY for hospitalization of more than 30 days and/or if you suddenly incur a disability.
How to invest in PERA
First, choose an administrator who will oversee your account. As of writing, only BPI and BDO are the authorized administrators. So if you want to open an account, just visit a major branch of these banks.
Next, you will choose a custodian and an investment. The custodian will receive your contribution, and they’ll put your money in your chosen investment. And you’re done!
To illustrate, opening a PERA can go like this:
Open a PERA account in “Bank A” (administrator). Assign “Investment Manager B” as your custodian. Choose “Mutual Fund C” (investment product).
Your money will be received by Investment Manager B and put it in Mutual Fund C. Any question or concern about your PERA account, you simply contact Bank A for information and assistance.
After a year, you decide to contribute P100,000 again. This time, you can choose “Equity Fund D” that “Investment Manager E” is offering.
Each person can have a maximum of 5 investment products, as long as the total amount does not exceed your annual limit of P100,000 (or P200,000 for OFWs).
Final Thoughts
The Personal Equity Retirement Account is something I’ve been waiting for since I learned about it back in 2010.
I’ve already talked to my bank manager to inform me as soon as it’s available in our branch.
And of course, I will write about the whole process and my experience of opening an account once I do. So watch out for it!
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Tags: Investing, PERA, PERA law, Personal Equity and Retirement Account
Hi, my name is Fitz Villafuerte and I’m a Registered Financial Planner living in the Philippines. In 2007, I started this blog to help people learn how to achieve financial freedom.
Thanks for the info sir fitz.
Yayy! Sa wakas! Long awaited. 🙂
This is very interesting. I will be waiting for more updates!
Thanks a lot for this update sir Fitz. Indeed it’s a happy new year for all Filipinos!
Hi fitz..
Hope there’s no age limit?
Can a 50+ contribute or participate in PERA?
Tedd
This is really another good option for expanding our investments.
Thanks sir!
100 k annually is the minimum contribution?
May insurance po ba ito?
[…] While it took a time for the Bangko Sentral ng Pilipinas (BSP) and Bureau of Internal Revenue (BIR) to announce a launch date, it seems that the new investment vehicle is now ready to roll out. Among one of the most excited about this development is seasoned financial coach Fitz Villafuerte. […]
Can someone detail the fees and expenses involved? From what I’ve read they will only discuss these in person.
Hi Fitz, just want clarification on this……..
” Client Suitability
Participation in the Fund shall be open to Participants who are (a) individuals; (b) have legal capacity to contract; (c) who have a Philippine Tax Identification Number (TIN); and (d) whose funds are in a PERA. The Fund is suitable for Participants with an aggressive risk profile and who seek potentially higher returns through stock market investments but are also aware of the possibility of capital losses that such investments may entail. In order to minimize risks and maximize earning potential, Participants are recommended to stay invested in the Fund for more than three (3) years. The Fund is not suitable for short-term investing. ”
This is from BDO PERA Equity Index Fund but it is not stated here that you will incur flat rate penalty based on the total income. . . . . accordingly, there’s a minimum holding period of only 30 calendar days…. Please enlighten us on this…..thanks
This is from BDO PERA Equity Index Fund but it is not stated here that you will incur flat rate penalty based on the total income when redeemed before reaching the age of 55. . . . . accordingly, there’s a minimum holding period of only 30 calendar days…. Please enlighten us on this…..thanks
Hi Fitz, as an ofw who will restrict or monitor me from placing 200k or more on each of my pera acct from different bank?
[…] the Roth IRA and 401(k) of the United States,” explains financial guru Fitz Villafuerte on his website. “It is primarily a financial tool meant for […]
[…] I know that it could benefit a lot of SavingsPinay readers. I first heard about PERA through Sir Fitz of Ready to be Rich. Reading his blog post is a good primer to know the facts about PERA. After 8 years, PERA is now […]
Hi Fitz! Have you gotten your PERA already? May we know from which Administrator? 🙂 Also, I would want to understand if it’s wise to invest in PERA while I’m still 23. I’m investing in stocks, insurance and cooperatives already. I’m planning to invest in UITF or MF to diversify. If yes, why? If no, which UITF or MF company do you recommend other than PERA? I was thinking I’ve got 32 years to wait before I could make use of my investment. Yeah I know it’s for retirement but isn’t 55 too old already? Hope they reconsider the terms soon, so I could at least get to enjoy my hard-earned money and retire at a younger age, say 45-50 (22-27 years of contribution of max 100K is not bad enough) Hope you could enlighten me. Thanks in advance!
Hi Jessica, no I have not. It’s still not available in BDO nor BPI, where I plan to get them. I also suggest defining your investment goals first, so you can determine the best investments for you.
I just went last week and it’s already available in BPI. They emailed me the details as well.
Hi JCE, that’s good to hear. Which BPI branch is this? I’ll go to my branch next week and inquire as well.
Please update us Fitz. Thanks
According to the Investment Councilor I spoke to…
Since it is in its early stages, all account opening for PERA will be done
at the BPI Head Office only — 17/F, BPI Head Office
Ayala Avenue corner Paseo De Roxas, Makati City 1226
Hope this helps!
[…] additional sources of retirement income, such as the Personal Equity Retirement Account (PERA). This voluntary savings and investment account allows you to save up to Php 100,000 (or Php 200,000 […]
Hi Fitz thanks for this article. Just want to clarify if the 5% tax exemption is applicable 1 time or applicable throughout the entire investment?
I overheard that it is only applicable to the first 100K? Please advise.
Hi Fitz, any updates on PERA
[…] first heard about PERA through Sir Fitz of Ready to be Rich. Reading his blog post is a good primer to know the facts about PERA. After 8 years, PERA is now […]
Hi Fitz, Just like to ask if were you able to use the 5% tax credit on your taxes? How does this work? Is it correct that the bank (right now only BPI & BDO can be Administrators) will apply the tax credit certificate to BIR? and then after that what is the next step? My PERA acct is with BDO.
Hi Sir Fitz, which is better, BPI or BDO?
@Weng, according to my accountant, yes. It will be deducted on the annual income tax return.
@Ned, based from experience, BPI has better customer service (at least in my area). But if you’re asking about performance, it’s irrelevant. That depends on where you are investing it.
Can a company open the PERA account for its employees? How will the tax credit be applied if an employee has basic salary plus commissions?
Hello, has there been any update on this?