Most Filipinos live in a vicious cycle where parents, upon retirement, become dependent on their children.
It may seem perfectly normal, but this kind of mindset only reinforces the idea that the best way to secure your retirement is to spawn as many children as you can.
Having children, however, is not a valid retirement plan. So why not focus your time and resources on something that will make your sunset years more comfortable?
This year, the government happily announced that the Peso Equity and Retirement Account (PERA) is now available to the public. The new investment vehicle is set to make Filipinos more mindful of their retirement plans.
Almost a decade in the making
In 2008, former President Gloria Macapagal-Arroyo formally signed Republic Act 9505, or more commonly known as the PERA Act, into law.
The law, which was authored by former senator Edgardo Angara, seeks to provide a more lucrative retirement plan for Filipinos, especially OFWs.
After eight years of laying out the requirements to make it operational, PERA is now available to Filipinos.
“PERA is a voluntary savings and investment account similar to the the Roth IRA and 401(k) of the United States,” explains financial guru Fitz Villafuerte on his website. “It is primarily a financial tool meant for retirement.”
With the help of this type of account, Filipinos can put their money in a new investment vehicle that is more lucrative and can offer better yields than the social pension offered by the Social Security System.
What makes PERA different from your usual SSS account?
For starters, the former is voluntary; only those who want to put money in this special type of account will be able to avail of the benefits it has to offer in the future. Second, the money you will receive through your investments in PERA will come from investments. More of that later.
Finally, PERA is a practical solution devised by the government to make the sacrifices done by overseas workers worth it. To entice them into investing, the government made a maximum contribution amount for OFWs double than the usual accounts.
In a nutshell, PERA will give Filipinos a better financial security during their retirement years, which is something Americans already enjoy through the Roth IRA and 401(k) retirement accounts.
How does it work?
Opening a PERA account is easy: As long as you have a tax identification number (TIN) and a verifiable income, you can start putting your money in there. This means whether you’re employed or self-employed, a local or overseas worker, you can open a PERA account in authorized financial institutions.
To begin your journey toward a more financially secure future with PERA, you must choose an administrator of your account, which is a financial entity approved by the Bureau of Internal Revenue (BIR). Currently, only BPI and BDO are the only accredited institutions allowed to offer it to the public.
Once you’ve opened an account and made your initial deposit, choose a custodian who will be receiving all funds, and be in charge of original securities, evidence of deposits, or other evidence of investment. The custodian will oversee your investment and make sure you know everything happening with your money.
Finally, you have to choose a PERA investment product. The BSP Circular 860, series of 2014 provided the implementing rules and regulations for the said financial instrument.
According to the circular, the eligible investment products are unit investment trust funds (UITFs), mutual funds, entity contracts, insurance pension products, pre-need pension plans, shares of stock and other securities listed and traded in a local exchange, and exchange-traded bonds. Contributors can put up to P100,000 (P200,000 for OFWs) in their PERA.
In a nutshell, a person can do the following steps:
- Select bank A as the administrator of your PERA and open an account.
- Pick investment officer B as your custodian.
- Choose UITF C as your investment product.
- When you’ve reached your investment limit, you can wait for another year to put money in other investment products, which can only be up to five types of products.
Harder, better, faster, stronger
So what makes PERA a better retirement investment plan than others?
- PERA offers a wide range of financial instruments that will allow your money to grow. These include stocks, trust funds, and bonds.
- The more money you put in your account, the faster your money will grow. This is better than letting your funds sleep in your savings account.
- PERA offers something that no other financial instrument can offer: tax rebate. You can avail of the five-percent tax rebate as an income tax credit. For overseas workers, they can use the tax credit to pay for real estate tax and other payables under the National Internal Revenue Code.
- The amount you’ll get from your PERA is tax-free, provided that you collect your distributions upon reaching the age of 55. The total amount will either be awarded in lumpsum or pension.
- In case you badly need the money and your only choice is to withdraw your account prior to its maturity, you may do so. Mind, however, that it comes with a penalty set by the Secretary of Finance. However, hospitalization of more than 30 days or sudden disability will impose no penalties to the contributor.