Finally, six years after the Personal Equity and Retirement Account (PERA) law was approved, the BSP has identified a launch date for its implementation. According to the BSP, we can start applying for a PERA account in February 2015.
Thank goodness, the Filipino will now have his/her own version of the Americans’ ROTH IRA or 401k retirement plans. After all, we know we cannot just rely on our Social Security System (SSS) retirement pension for our twilight years.
I have a strong interest in the PERA scheme if only for the tax incentives it offers. It is indeed more attractive when compared to investing the “regular way” in mutual funds, stocks or bonds.
For starters, the BSP approved in November 2014 the following as its initial list of PERA-eligible instruments: bank deposits, long-term negotiable certificates of time deposits, unsecured subordinated debts, unit investment trust funds, government securities and related debt instruments. I supposed this list of investment vehicles would later on be expanded to include mutual funds, stock, etc.
My 8List on PERA
- PERA can supplement one’s retirement pension from SSS.
- PERA caps the annual contribution at P100,000 for individuals and P200,000 for married couples. It is however higher if you are an OFW: If you work overseas, you can contribute up to P200,000 per year (or P400,000 for married couples).
- A contributor can have a 5-percent tax credit of the annual contribution and deduct that from his or her income tax payable to the government.
- If your employer is generous, it is allowed to contribute to your PERA account up to the maximum allowable amount.
- All income you earn from PERA investments is tax exempt.
- Once you reach the age of 55 years and have made at least five years of contributions, such contributions become tax-exempt.
- Your PERA contributions cannot be seized by your creditors.
- Should you die, your contributions go to your heirs and are exempted from estate taxes.
Unlike contributions to the SSS, the PERA is a voluntary pension program. It really is up to you. All it requires is that you be at least 18 years old, and have a Bureau of Internal Revenue (BIR) ID number.
This was a long wait for me. In 2012, I had inquired about the PERA scheme from a bank after reading about it in its list of products. Such was my frustration after being told that this was not yet effective as there were some operational issues being resolved by the government back then.
Your PERA Administrator Can Help
It seems those operational issues are now cleared up. In November 2014, BSP finally released the guidelines for so-called administrators that will be handling the operations of PERA accounts on behalf of the clients (“clients” being us). These administrators could be banks, insurance companies, investment company advisers, securities brokers—all of which must be BSP accredited.
Under the guidelines, each contributor or client must have an administrator. You can have up to five PERA accounts but should only have one administrator for all.
Like any investment vehicle, this program comes with risks. Meaning, the value of your investment can rise but it can also fall. You will need to know how much you are willing to risk without having sleepless nights. And that’s where your administrator comes in. He or she should be telling you what risk you are getting into for each type of PERA investment product (government bonds or exchange-traded bond? Mutual fund or unit investment trust fund? Etc). This is a must specially if you are putting in all your money into this investment (I would not put all my eggs in one basket, though, and instead set aside some ready cash in case of emergencies. But that is just me.)
I would suggest, grill your administrator on each type of product. Ask for information sheets. Ask if there is something you do not understand. Look at investing like it is a business. You cannot just get into it with your eyes closed.
In hindsight, I cannot help compare this with my SSS future pension. Assuming for example that I am giving a maximum of P1,760 monthly, that’s P21,120 a year of contributions. My problem with my SSS is that I really do not have any idea how much pension I will get once I retire. (Yes, I did try to ask an SSS customer helpdesk person about my estimated pension. The answer: “It all depends.” Right. Great answer [wink, wink]).
At least with PERA, there are many historical data shared by investment institutions on their products that more or less give some inkling on what I may be able to earn.