Have you heard about the PERA retirement program?
The Bangko Sentral ng Pilipinas (BSP) has encouraged Filipinos to take advantage of an “underutilized” law to fatten their pension programs. The statement was made after noting that Philippine citizens were among the most poorly prepared in the region in terms of the financial challenges of retirement.
During the online launch of the digital Personal Equity and Retirement Accounts (PERA) initiative last week, BSP Governor Benjamin Diokno said that the program has yet to achieve the critical mass investors that the authors have envisioned.
“Currently, PERA is underutilized,” he said, noting that only 1,586 Filipinos have availed the program with merely P137 million total contributions, as of the end of July 2020.
“Since its implementation in December 2016, the PERA industry has not gained significant momentum,” Diokno added.
Of the total contributors, 1,099 or 69 percent are locally employed, 273 or 17 percent are overseas Filipino workers, and 214 or 14 percent are self-employed. On average, OFWs have higher contributions at P110,000; locally employed workers at P82,000; and the self- employed at P76,000.
“These figures remain regrettably low,” he said.
Invest in your future
If you’re not familiar with PERA, it is a voluntary retirement saving plan that supplements the existing retirement benefits from the Social Security System (SSS), Government Service Insurance System (GSIS), and employers.
Under Republic Act 9505, PERA allows access to funds accredited by the BSP and is eligible for tax exemption from the Bureau of Internal Revenue (BIR).
Ideally, the retirement program would enable Filipinos to live more comfortably after retirement.
Retirement planning at an early age does not only assure Filipinos of financial security when they retire, but it would also enable them to make better choices for their career, families, and loved ones.
Unfortunately, only 20 percent of the 7.6 million elderly Filipinos (aged 60 years old and above) are covered by either SSS or GSIS, leaving 80 percent of senior citizens with no mandatory pension at all, according to the latest report of the Philippine Statistics Authority (PSA).
Moreover, retirees who are fortunate enough to be covered by state-sponsored retirement systems receive an average monthly pension of P5,123 for SSS and P18,525 for GSIS.
The central bank chief noted that the average monthly pension may still depend on the type of lifestyle of the senior. Chances are these pension may or may not be enough to meet all their needs, adding that survey has likewise shown that most Filipinos tend not to prepare for their own retirement.
“Specifically, Filipinos only set aside 3.6 months’ worth of income for retirement—way below the regional average of 2.9 years,” Diokno added.
“In terms of expectation, Filipinos believe that savings equivalent to 2.1 years’ worth of personal income would be enough for retirement. This is the lowest expectation in Asia compared with the regional average of 12 years.”
With the launching of digital PERA, it will allow Filipinos to create pension plan investments through their mobile phones. The digitalization process would also enable Pera-accredited banks and financial institutions to provide convenient and affordable retirement, saving products to more investors through more efficient channels.
Who is eligible to open a PERA?
According to BSP, any Filipino citizen with the capacity to contract and have a Tax Identification Number (TIN) can apply for the PERA program.
Aside from having to save and prepare for a comfortable retirement, PERA also offers tax incentives.
A contributor is entitled to a five percent income tax credit and can be used to pay income tax liabilities. Meanwhile, overseas Filipinos can claim the five percent tax credit against any internal revenue tax liabilities in the Philippines.
Likewise, all income earned from the investments and reinvestments within the allowed maximum amount will be exempted from taxes on investment income. PERA assets, however, shall not be considered as an asset for the purpose of insolvency and estate taxes.
Note that these incentives are limited to your actual PERA contribution not exceeding the annual maximum contribution.
The maximum aggregate annual PERA contribution is P100,000 except for Overseas Filipinos who can contribute up to P200,000 annually. For married individuals, each spouse can contribute up to P100,000 each.
Investment Products available for PERA includes:
- Unit of UITF
- Shares of stock of mutual funds
- Annuity contract
- Insurance pension product
- Pre-need pension plan
- Share of stock or other security listed and traded in a local exchange
- Exchange-traded bond
- Government securities
- Any other category of investment product or outlet which the concerned Regulatory Authority may allow for PERA purposes, provided that the product must be non-speculative, readily marketable, and with a track record of regular income payments to investors.
How to start investing?
To start investing, one must look for an Administrator who will open, administer, and oversee your account. You may have a maximum of five PERA funds, provided that you shall designate only one Administrator for all accounts and that each shall be confined to only one investment product category.
An administrator role is to oversee and provide regular updates on the status of your accounts. They can be a bank, stand-alone trust corporation, an insurance company, or a security broker. Once Administrator is appointed, you have the option to either select a third-party custodian or to be the custodian of your own PERA funds.
The choice of investment product is up to you. However, if you are unsure of which investment products to invest in, you may hire an Investment Manager.
Procedures on opening a PERA
Account opening process can be done online, wherein:
- You will be asked to identify your investment objectives and your risk tolerance through a Client Suitability Assessment (CSA);
- You will be provided with a Pre-Acceptance and General Risk Disclosure Statement that contains provisions on the general risks associated with each category of PERA Investment Product and cautionary statements on the risks mentioned above;
- You will be informed of the investment options/products according to their type and your risk profile classification.
PERA can also be opened by the spouse/child of a married overseas Filipino in case the contributor is not available.
Start investing now by visiting the website of Digital PERA Platform Provider and PERA Administrators to know the account opening requirements and other PERA related documents.
Digital Platform Providers
Note: The charges for your PERA are administration fees and custodial fees. Administration fees usually start at P1,000, while custodial fees are only applicable for third-party custodian management.
FAQ: When I am allowed to withdraw my PERA contribution?
PERA contribution can be withdrawn or distributed, and be exempted from income or estate taxes, if applicable, under the following circumstances:
- Upon reaching the age 55 and having made qualified contributions for at least five years (55 and 5 rule). This may be made either in a lump sum or monthly pension.
- Upon death, irrespective of age or contributions made.
You may withdraw your contributions prior to the 55 and 5 rule, but subject to early withdrawal penalties. This means all taxes waived in the Contributor’s favour shall be repaid to the BIR.
- No withdrawal penalties shall be imposed under any of the following circumstances:
- Accident or illness-related hospitalization of more than 30 days
- Permanent total disability
- Immediate transfer of proceeds to another PERA investment product and/or another Administrator within 15 calendar days from withdrawal.
(Source: Bangko Sentral ng Pilipinas)