Updated: January 5, 2017
Where 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).
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!