BSP-PERA: Personal Equity and Retirement Account

The Personal Equity and Retirement Account (PERA) is a voluntary retirement savings program in the Philippines designed to encourage individuals to save for their retirement while enjoying significant tax benefits.

Targeted towards all Filipinos, including employees, self-employed individuals, and overseas Filipino workers (OFWs), PERA offers a flexible and attractive option for retirement planning.

One immediate benefit is the 5% tax credit on annual contributions, allowing you to save up to PHP 5,000 if you contribute PHP 100,000 in a year.

By participating in PERA, contributors can benefit from these tax credits, choose from a variety of investment options, so that their savings grow securely.

PERA
Credits: BSP / Facebook

What is PERA?

PERA stands for Personal Equity and Retirement Account

It is a voluntary retirement savings program designed to encourage individuals to save for their retirement while enjoying tax benefits. 

Similar to the 401(k) in the United States, PERA offers unique advantages that make it an attractive option for Filipinos.

PERA: A National Program for Retirement Savings

The Personal Equity and Retirement Account (PERA) is a national program in the Philippines, established to encourage individuals to save for their retirement. 

This is supported by a strong legal framework and offers various benefits to contributors. 

Here’s how PERA is structured as a national program:

Republic Act No. 9505: The PERA Act of 2008

The foundation of PERA lies in Republic Act No. 9505, also known as the PERA Act of 2008. 

This act provides the legal framework for the program, outlining its purpose, structure, and benefits.

Purpose

The PERA Act was enacted to promote retirement savings among individuals, especially those without access to traditional pension plans. 

It aims to provide a flexible and tax-advantaged savings vehicle to help Filipinos prepare for retirement.

Voluntary Contributions

PERA allows individuals to make voluntary contributions to their retirement accounts. 

The annual contribution limits are set at PHP 100,000 for local workers and PHP 200,000 for Overseas Filipino Workers (OFWs). 

This flexibility enables contributors to save at their own pace, according to their financial capacity.

Investment Options

The law specifies various eligible investment products that can be included in PERA accounts. 

These options include mutual funds, unit investment trust funds (UITFs), annuities, and other securities approved by regulatory authorities. 

This wide range of choices allows contributors to tailor their investments based on their risk tolerance and financial goals.

Tax Incentives

One of the main attractions of PERA is the significant tax benefits it offers. These include:

  • 5% Tax Credit on Contributions: Contributors receive a 5% tax credit on their total annual contributions. For example, if you contribute PHP 100,000, you get a PHP 5,000 tax credit, which reduces your income tax liability.
  • Tax Exemptions on Investment Earnings: Income earned from PERA investments is exempt from various taxes, such as the 20% withholding tax on bank deposits and the 10% tax on dividends. This maintains that your investment growth is not diminished by taxes.
  • Tax-Free Withdrawals: Under certain conditions, such as reaching the age of 55 and having contributed for at least five years, withdrawals from PERA accounts are tax-free. This makes PERA an attractive long-term savings option.

Implementing Rules and Regulations

The Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) are responsible for implementing the provisions of the PERA Act. 

They establish guidelines for the administration of PERA accounts and determine the eligibility of investment products. 

These regulations see to it that the program operates smoothly and protects the interests of contributors.

Regulatory Oversight

The Bangko Sentral ng Pilipinas (BSP) oversees the financial institutions that manage PERA accounts. 

This regulatory oversight makes sure that these institutions comply with the law and maintain the integrity of the program. 

By monitoring these entities, the BSP helps safeguard the savings of contributors.

Amendments and Updates

The PERA framework is designed to be adaptable. 

It can be amended or updated through new legislation or regulations to enhance its features or respond to changing economic conditions. 

This flexibility allows the program to remain relevant and effective in helping Filipinos save for retirement.

Key Benefits of PERA

Control Over Investments

With PERA, you have the freedom to choose where to invest your money. 

You can select from various investment products such as Unit Investment Trust Funds (UITFs), mutual funds, government securities, and more. 

This flexibility allows you to tailor your investments to match your risk appetite and financial goals.

Multiple Accounts

You can open up to five PERA accounts under one administrator. 

Each account can be dedicated to a different investment product, allowing for diversified investment strategies.

Employer Contributions

Employers can contribute to their employees’ PERA accounts, up to the maximum allowed amount. 

This feature provides an additional incentive for employees to participate in the program.

Exemption from Estate Tax

PERA funds are not subject to estate taxes. 

In the event of the contributor’s death, the funds can be transferred to heirs without incurring estate taxes. 

This makes PERA a valuable tool for estate planning.

Protection from Insolvency

In cases of bankruptcy, PERA funds are protected and cannot be claimed by creditors. 

This ascertains that your retirement savings remain secure even in financial distress.

Who Can Benefit from PERA?

Employees

Employees can supplement their mandatory SSS or GSIS contributions with PERA to boost their retirement savings. 

The additional tax benefits make it a smart choice for long-term financial planning.

Self-Employed Individuals

Self-employed individuals, who may not have employer-sponsored retirement plans, can significantly benefit from PERA. 

It provides a structured way to save for retirement while enjoying tax incentives.

Overseas Filipino Workers (OFWs)

OFWs can contribute up to PHP 200,000 annually, doubling the standard limit. 

This higher contribution cap allows them to save more and take full advantage of the tax benefits.

Steps to Open a PERA Account

  1. Choose an Administrator: Select an accredited bank or financial institution to manage your PERA account. As of now, major banks like BDO and BPI are accredited administrators.
  2. Complete Requirements: Provide necessary documents such as a valid ID, TIN, and proof of income. Attend a required seminar or complete an online orientation to understand PERA better.
  3. Open the Account: You can open your PERA account online through the bank’s digital platform or by visiting a branch. Fill out the required forms and submit your documents.
  4. Fund Your Account: Start by making an initial contribution. The minimum amount varies depending on the bank, but it is generally around PHP 1,000.
  5. Select Investment Products: Choose from a range of eligible investment products based on your risk profile and financial goals. Regularly review and adjust your investments as needed.

Investment Options

PERA offers a variety of investment products to suit different preferences and risk levels:

Unit Investment Trust Funds (UITFs)

UITFs are pooled funds managed by banks or trust companies. They allow investors to participate in a diversified portfolio of assets, including stocks, bonds, and other securities.

Mutual Funds

Mutual funds collect money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. 

They are managed by professional fund managers aiming to achieve specific investment goals.

Government Securities

These are low-risk investments issued by the Philippine government. 

They include treasury bills, bonds, and other debt instruments that offer stable returns.

Annuity Contracts

Annuity contracts are insurance products that provide regular payments to the investor, typically starting at retirement. 

They offer a steady income stream over a specified period or for life.

Insurance Pension Products

These products combine insurance coverage with a savings component for retirement. 

They provide both protection and a means to grow your retirement savings.

Pre-Need Pension Plans

Pre-need pension plans are designed to provide pension benefits at a future date. 

They are funded through regular contributions and aim to offer financial security during retirement.

Shares of Stocks Listed on the Philippine Stock Exchange

Investing in shares of stocks allows contributors to own a portion of publicly listed companies. 

These investments can offer significant returns, though they come with higher risk due to market volatility.

Exchange-Traded Bonds

Exchange-traded bonds are bonds that are traded on the stock exchange. 

They provide liquidity and offer a fixed income through interest payments, with lower risk compared to stocks.

This wide range of options allows you to diversify your portfolio and maximize your returns.

Important Considerations

Investment Risks

Like any investment, PERA involves risks. The level of risk depends on the investment products you choose. 

For instance, investing in equities carries higher risks but also offers higher potential returns. 

It is essential to assess your risk tolerance and investment horizon before making decisions.

Penalties for Early Withdrawals

You can only withdraw your PERA funds without penalties if you are at least 55 years old and have contributed for at least five years. 

Early withdrawals are allowed but will incur penalties, including the repayment of tax incentives.

Fees

Investing in PERA comes with fees, such as administrator fees, trust fees, and possibly custodian fees. 

To minimize these costs, consider making lump-sum contributions instead of monthly payments.

Tips for Maximizing Your PERA Investments

  1. Understand the Contribution Limits
    • PHP 100,000 for local workers
    • PHP 200,000 for OFWs
  2. Choose the Right Investment Products
    • UITFs, mutual funds, annuity contracts, insurance pension products, government securities, shares of stock
  3. Start Early
    • Benefit from compounding over time
  4. Diversify Your Investments
    • Spread contributions across different products
  5. Monitor Your Investments Regularly
    • Track performance and adjust strategy as needed
  6. Utilize the Tax Benefits
    • 5% tax credit on contributions
    • Tax-free earnings
    • Tax-free withdrawals after 55 and five years of contributions
  7. Consult with Financial Advisors
    • Seek professional advice for tailored insights
  8. Stay Informed About Regulatory Changes
    • Adapt your strategy to any new laws or regulations
  9. Plan for Withdrawals
    • Follow the 55/5 rule for tax-free withdrawals
  10. Make Contributions Regularly
    • Set up automatic contributions to stay disciplined

Recent Updates

BSP Promotes Wider Use of PERA Program
The Bangko Sentral ng Pilipinas (BSP) emphasizes the importance of expanding the use of Personal Equity and Retirement Accounts (PERA) to boost government savings and support economic growth. Despite slow adoption, the BSP is actively promoting PERA through digitalization and exploring open finance integration. (Business World)

Personal Equity and Retirement Account (PERA) Forum “Investing for your Retirement: Advancing Financial Security through PERA”

Discover how to enhance financial security by investing in your retirement through insights shared at the Personal Equity and Retirement Account (PERA) Forum. Gain valuable knowledge on utilizing PERA for a stable financial future.

 

Video: Ang Personal Equity and Retirement Account o PERA

Learn about the Personal Equity and Retirement Account (PERA) for voluntary retirement savings to enhance financial security during retirement. PERA can supplement pensions from the Social Security System (SSS) and Government Service Insurance System (GSIS). Explore the video for more information on PERA.

 

Conclusion

The Personal Equity and Retirement Account (PERA) is an excellent tool for Filipinos to secure their financial future. 

With its tax benefits, investment flexibility, and additional features like employer contributions and estate tax exemptions, PERA stands out as a robust retirement savings option. 

By starting early and making informed investment choices, you can build a substantial retirement fund and enjoy a comfortable and worry-free retirement.

Take the first step today and explore how PERA can help you achieve your retirement goals.

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