Updated: September 24, 2020
Have you heard of PERA Law or the Personal Equity Retirement Account?
It’s a bill signed by President Gloria Macapagal-Arroyo on August 22, 2008, which aims to help Filipinos, especially OFWs, to save for retirement. This is similar to the Roth IRA and 401(k), which Americans enjoy.
The bill was passed into law in 2008. In July 2016, the go-signal has been issued through Revenue Memorandum Order 42-2016 that laid out reportorial requirements for Republic Act 9505 or the Personal Equity and Retirement Account Law.
And it was only in March 2017 that it became available for the public to invest in. And in September 2020, a digital platform was launched to invest in PERA and make it more accessible.
Updates on PERA is actually available at the bottom of this article, in case you want to read the journey it had through the years.
Anyway, for those who do not know anything about the PERA Law, below 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 investment plan.
Who can open a PERA investment?
Anyone with a Philippine Tax Identification Number (TIN) and a 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.
Personally, my advise is of course, the sooner you do, 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.
As of September 2020, BPI, BDO, ATRAM, SeedboxPH, and Landbank have been approved to be administrators. So if you want to open an account, you will just have to visit these institutions.
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 that are also approved and accredited by the BSP. You also have the option to assign yourself as your own custodian.
From there, with the guidance of your administrator and custodian, you will choose which investment product that’s included in PERA you’d want to invest 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 set up PERA in “Bank A” (administrator) 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, for example, you choose “Mutual Fund C” (investment product).
Additional Info: List of PERA Administrators and PERA Investment Funds
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 then both you and your spouse can contribute a maximum of P200,000 (P100,000 each). Plus, if you and your spouse are both OFWs, then your maximum limit is P400,000 (P200,000 each).
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 and invest in PERA?
First, because you get 5% of your total PERA contribution as an 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.
Second, because all the income earned in your PERA is exempted from tax.
And lastly, 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 investment?
It’s important to note that there will be annual trust or management fees that will be deducted from your account, depending on where you invested it. And there’s possible processing fees whenever you contribute, depending on your administrator.
Furthermore, you need to remember that you will incur tax fees and penalties if you decide to terminate or withdraw money (full or partial) before the age of 55.
Other than these, I don’t see any other significant disadvantage.
What if I suddenly need the money before the age 55? Is there an exception for financial emergencies?
Yes, there are exceptions. 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.
Moreover, your family can also withdraw your PERA contributions in case of your death.
Digital PERA FAQ Video
Latest News and Updates on PERA:
September 2020: The Bangko Sentral ng Pilipinas launches Digital PERA, which will allow people to invest in PERA online.
March 2017: Everyone can now invest in PERA. But direct application is limited to the main branches of banks. Inter-branch coordination is possible upon request.
December 2016: Finally, PERA gets a green light. BDO and BPI starts to accept contributions in select branches from a limited number of clients.
September 2016: BDO Unibank becomes the first institution to obtain accreditation as an administrator. Soon you can invest in PERA through them. More banks and institutions are expected to be accredited soon.
July 2016: The go-signal was issued through Revenue Memorandum Order 42-2016 that laid out reportorial requirements for Republic Act 9505 or the Personal Equity and Retirement Account (PERA) Law.
February 2015: No news about PERA. Looks like the official launch will not be happening.
December 2014: BSP has finally announced a target launch date for PERA on January 2015, and people can start investing in it on February 2015 through banks. We’re hopeful that this schedule will be followed.
November 2014: In a statement, the Bangko Sentral ng Pilipinas (BSP) said the launch of the much-awaited PERA law will likely be held in January 2015 following the Monetary Board’s approval of the guidelines for the accreditation of administrators in the PERA market.
October 2013: The Philippine Stock Exchange, together with the Trust Officers Association of the Philippines, has been conducting seminars and awareness campaigns about PERA, in preparation for its full launch. The target date for implementation is still unknown.
November 2012: According 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 are now seeking the 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.