What Does BSP’s Digital PERA Mean For Us Filipinos?6 min read
On September 8, 2020, the Bangko Sentral ng Pilipinas (BSP) officially launched the digitized version of the Personal Equity and Retirement Account Law or Digital PERA.
PERA is an initiative of the central bank to help Filipinos plan for retirement through voluntary contributions on top of the deductions given to SSS or GSIS. Think of it as similar to the 401k or IRA in the US.
This is in response to the fact that Filipinos are among the most underprepared retirees in the region. “Specifically, Filipinos only set aside 3.6 months’ worth of income for retirement––way below the regional average of 2.9 years,” BSP Governor Benjamin Diokno explained during Digital PERA’s online launch on Facebook Live.
The stark reality is: The PERA law has been around for more than a decade now, since 2008. However, the provisions it offers to augment current pension programs have been grossly underutilized.
Only 1,586 Filipinos have contributed to the scheme since its implementation last December 2016––an underwhelming figure given the profound benefits it can provide in return.
With a program this good and beneficial, especially to pensioners who have broken their proverbial backs through years of labor and hard work, how come only less than a handful are able to take advantage of this?
Moreover, could we become part of this? Should we even consider BSP’s Digital PERA as a viable option to build our retirement fund?
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PERA: Financial inclusion through digitalization
BSP has an all-encompassing mandate to promote a high quality of life for all Filipinos alongside the drive for financial inclusion and the widening of financial access to every Filipino. Within this framework is RA 9505 or the Personal Equity and Retirement Account (PERA) Act of 2008.
According to its legal declaration: “It is declared the policy of the State to promote capital market development and savings mobilization by establishing a legal and regulatory framework of retirement plans for persons, comprised of voluntary personal savings and investments. The State recognizes the potential contribution of PERA to long-term fiscal sustainability through the provision of long-term financing and reduction of social pension benefits.”
This means that PERA is not just a key contributor to building the economy; it also enables Filipinos to start saving and growing their wealth in preparation for retirement.
However, given the fact that it’s a voluntary contribution that wasn’t promoted as much as similar investment products like Unit Investment Trust Funds (UITF), PERA didn’t gain traction within the public. And quite honestly, the rate of financial literacy and education in the country remains to be low.
In response to this, BSP pushed for the digitalization of PERA to enable PERA-accredited partners and banks to provide the service conveniently.
Diokno stated: “The digital PERA will allow Filipinos to invest in PERA investment products anytime, anywhere using only their mobile phones and other devices. This is firmly in line with the BSP’s thrust to foster digitalization in the financial system and to bring the BSP closer to the people.”
For non-tech savvy individuals, PERA is still available as a traditional investment scheme.
What are the benefits of having a BSP Digital PERA account?
Aside from supplementing your current pension program, there are a few exclusive benefits you can enjoy for having and maintaining a digital PERA account.
1. Tax credit
Your contributions within a calendar year are entitled to a 5% tax credit that you may use against your income tax liabilities. If you are an OFW, you can use this against any national internal revenue tax liability.
2. Tax exemptions
Income earned from PERA investments in the maximum amount will enjoy the following tax exemptions on your PERA account:
- Final withholding tax on interest
- Capital gains tax
- 10% tax on dividends
- Regular income tax
- Income tax from withdrawals upon reaching 55 years old and five yearly contributions
3. Tax incentives
Upon the unfortunate death of the contributor, beneficiaries or heirs will be excluded from estate tax
How to open a PERA account
If you’re interested in opening up your own PERA investment account here are the steps you need to take.
Opening a PERA account is simple and easy—it’s like opening a savings account at any bank. But at the moment, only three financial institutions have been accredited by BSP to handle PERA accounts:
- Banco De Oro (BDO)
- Bank of the Philippines Islands (BPI)
- Land Bank of the Philippines (LANDBANK)
To be eligible for a PERA account, you need to meet the following criteria:
- At least 18 years old
- With a source of income
- Have a Tax Identification Number (TIN)
- Have an existing account with the respective bank
- With valid government IDs
- Have the latest income tax return (ITR)
- IDs of beneficiaries (optional)
For OFWs, the requirements are still the same but with the addition of an Overseas Employment Certificate issued by POEA. A personal appearance is necessary for opening an account, but not required.
You can elect a representative on your behalf, preferably a spouse or your child of legal age. Just add the following requirements:
- For spouses: Marriage certificate
- For children: Certified True Copy of a Birth certificate from NSO
- Certificate of authorization
Once you have these requirements, just visit any branch of the bank you’ve chosen and they will connect you to the proper PERA administrators and custodians. They will explain to you the ins and outs of having a BSP digital PERA account and the various funds you can invest in.
An individual can open up to five multiple PERA accounts at a time.
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How much is the initial investment?
The minimum investment for a PERA account is ₱1,000, exclusive of service fees. The maximum contribution is ₱100,000 for locally employed individuals and ₱200,000 for OFWs.
Investing more than those amounts are allowed. However, any amount in excess is ineligible for tax relief.
You can also negotiate with your employer to contribute towards your PERA account as a part of a retirement package. They can match the maximum contribution of ₱100,000 for locally employed individuals and ₱200,000 for OFWs.
Which digital PERA funds can you invest in?
Like what was said earlier, you can open PERA accounts with BDO, BPI, or Landbank. They have various PERA custodians that offer specific funds you can invest in exclusively or in combination.
The level of risk indicates means how often and how much the value of the fund increases and decreases. They are assessed from Conservative being the safest to Aggressive being the most volatile.
Bank of the Philippine Islands (Level of risk)
- BPI PERA Money Market Fund (Conservative)
- BPI PERA Equity Fund (Aggressive)
- BPI PERA Government Bond Fund (Moderate)
- BPI PERA Corporate Income Fund (Aggressive)
Banco de Oro
- BDO PERA Short Term Fund (Conservative)
- BDO PERA Bond Index Fund (Moderate)
- BDO PERA Equity Index Fund (Aggressive)
Landbank of the Philippines
- Landbank PERA Money Market Fund (Conservative)
- Landbank PERA Bond Fund (Moderate)
- Landbank PERA Global $ Fund (Moderate)
When can I withdraw the income from my BSP PERA account?
The PERA investment matures once you reach 55 years of age and have a minimum of five years’ contribution. By then you can withdraw from your funds without penalties and tax. Early withdrawal is allowed but penalties and fees will be incurred.
Thinking about the time we are in has made us consider or reconsider how well we are prepared in the event of a crisis. Preparation and prioritization are more important now more than ever. With the opportunities afforded to us by the advancements in technology and wealth creation, it is simply unwise to not take advantage of this.
As Diokno mentioned in the launch: “We hope to encourage more Filipinos to plan and save for the future amid these challenging times… Preparation is key when thinking about retirement and there is no better way to prepare when you’re still able and working,”
Sources: PIA, BPI Asset Management, BDO, LANDBANK