PERA: How to Invest in Personal Equity & Retirement Account

Last Updated on – May 11, 2020 @ 7:48 pm

If you think your SSS pension would be enough to sustain you when you retire, you’re waaaay off the realistic estimate.

Here’s the average monthly SSS pension received by retired Filipinos in the last few years:

2010: P3,524
2011: P3,520
2012: P3,707
2013: P3,577
2014: P3,792
2015: P3,780
2016: P3,658

Source: ABS-CBN News

There’s simply no way you can survive monthly with that amount.

GSIS pensioners have it better, in general, though most will say it still isn’t enough for living and medical expenses.

In the US, they have the 401k and IRA—both were created to allow Americans to save easier for retirement. It helps them grow their money with better interest (versus banks) and provides plenty of tax advantages to give their money even more potential to build up.

But did you know that the Philippines have our own version of IRA and 401k? Yes, we do!

Enter: The Personal Equity and Retirement Account (PERA).

PERA is one of the most under-utilized investment/savings/retirement fund-building vehicle that few Pinoys know about.

In this article, we’ll take a look at what it’s all about and shed some light on some of the most important questions surrounding it.  

What is PERA?

The Personal Equity and Retirement Account (PERA) was officially launched by the BSP in December 2016 as a means for helping Filipinos 18 years old and above to save for retirement.

How does it help you save for retirement, exactly?

Two words: Tax benefits.

Mainly, the income earned by your PERA savings is tax-free. Also, when you reach 55 years old and ready to withdraw your money, it will also be free from tax.  

It also provides Pinoys with another way to invest their money into something that’s considered to have better interest rates than banks.

Recommended: 11 Best Investments under P100K in the Philippines

When was PERA established/signed into law?

Republic Act 9505 or “PERA law” was created in 2008 with the purpose of giving tax benefits to Pinoys when saving for their retirement.

But it took several years before it became operational as the BSP had to set up the necessary framework with other government agencies and market players (banks).

Finally in 2016, the BSP unveiled a fully-operational PERA system that currently works with two of the country’s top banks: BPI and BDO.

Who can open a PERA account?

Any Filipino with a Philippine Tax Identification Number (TIN) can sign up and open a PERA account. Whether you’re employed, self-employed, or have other verifiable means of income, based locally or abroad (OFW) you are allowed to open a PERA account as long as you have a TIN.

Requirements for opening a BDO PERA account:

Requirements for opening a BPI PERA account:

  • BPI savings or checking account to serve as a settlement account
  • Valid government ID
  • Tax Identification Number (TIN)
  • TIN ID or copy of the Income Tax Return or any document that can validate the TIN
  • 1,000 Pesos – Initial Amount of Investment and exclusive of Fees

Related: How to Open a Checking Account in the Philippines

Requirements for opening a PERA account if you are an OFW (to be set up by your spouse or child on your behalf):

  • Marriage certificate (spouse)
  • Birth certificate (child)
  • Sworn certification showing proof that spouse/child is opening a PERA account on behalf of the contributor
  • Overseas Employment Certificate
  • Official documents showing proof of income of OFW from the country he/she is working

Benefits of PERA

So what advantages does PERA have over, say, keeping my retirement funds in a bank?

For starters, you can choose where to invest your PERA funds. This opens up potential for your money to earn and grow faster versus keeping it in banks which are known to have an abysmal interest rate.

Money allocated in a PERA account is invested into other popular forms of investment vehicles like stocks, mutual funds, UITF, government securities, and others. This gives you plenty of options for diversifying your investments. Since you’re allowed to open up to 5 PERA per administrator, you can spread out your monies based on your risk-appetite.

Lastly, the tax benefits gained for the money you save in a PERA account is substantial and gives your retirement money that additional boost you’ll need for future expenses:

  • Contributor is entitled to 5% tax credit
  • Employer contributions are allowed and are TAX-EXEMPT
  • Earnings on investment are free from tax
  • Withdrawals and distributions are tax-free (distributions to beneficiaries are free from estate tax as well)
  • PERA assets are protected from the contributor’s creditors

Also Read: Retirement Planning: 5 Ways to Build a Retirement Fund in the Philippines

How much can you contribute to your PERA account?

Eligible Filipinos living in the country may contribute up to Php 100,000 annually. OFWs and Pinoys living abroad can contribute double the amount at Php 200,000.

How to open a PERA account

Before anything else, let’s give a quick introduction of the main parties involved in the investment and maintenance of your PERA account:

  • Investor – That would be YOU. The person who wishes to invest his or her monies in a PERA account.
  • PERA Administrator – An entity which has been accredited by the BIR and pre-qualified by a regulatory authority. The SEC, Insurance Commission, and the Bangko Sentral ng Pilipinas are examples).

Currently, there are only two banks accredited to act as PERA administrators: Banco de Oro (BDO) and Bank of the Philippine Islands (BPI).

  • Custodian – Can be identified as either Cash Custodian or Securities Custodian. They’re essentially a separate entity from the bank (PERA admin) whose role is to take custody of funds and assets invested in a PERA account.
  • Product Provider – An institution/entity which provides and sells PERA investment products
  • Investment Manager – Entity (also regulated) who makes the investment decisions and strategies of the investor’s PERA funds.

Step 1. To open a PERA account, you need to visit your administrator of choice (BDO or BPI).

Step 2. You’ll be asked to complete all required documents and provide any necessary information.

Step 3. Once all requirements are submitted, your PERA account will be activated. Instructions for funding, withdrawing, accessing and other information may vary between BDO and BPI so best to ask them directly (or visit their website) for any questions.

Can you open multiple PERA investment accounts?

Yes. You can open up to 5 multiple PERA accounts (but only under one administrator).

What are the available PERA investment products to choose from?

PERA assets may be invested into one or more of the following:

  • Locally traded stocks and other securities
  • Unit investment trust fund (UITF) (balanced funds, equity funds, etc.,)
  • Mutual funds
  • Annuity contracts
  • Insurance products
  • Pre-need pension plan
  • Exchange traded bonds
  • And more (check out the PERA Act of 2008 Implementing Rules and Regulations for a full list of investment options).

Each PERA administrator’s offerings will vary but will mainly revolve around the above offerings.

BDOBPI
BDO PERA Short Term FundBPI PERA Money Market Fund
BDO PERA Bond Index FundBPI PERA Equity Fund
BDO PERA Equity Index FundBPI PERA Corporate Income Fund
BPI PERA Government Fund

Please check BDO and BPI’s official websites for the latest information on their PERA products.

Related: Best Index Funds to Invest in the Philippines

More Frequently Asked Questions on PERA

Why was PERA created?

The government wanted to set up a legal and regulatory framework for voluntary personal retirement plans as a means to promote savings mobilization and capital market development, to contribute to long-term fiscal sustainability through the provision of long-term financing and to reduce the need for social pension benefits.

Does PERA work like the 401k and IRA in the US?

In concept, yes, it is similar. Mainly on the tax advantages that you’ll get for saving your money for retirement.

Why is it a good idea to open a PERA account?

It’s a great way of saving money for retirement. You have plenty of options offered in various risk levels under the two current PERA admins (BPI and BDO) for investing your money.

The tax advantages alone are worth it and will prove super useful in avoiding negative growth on your assets. Check out the benefits section above for a list of reasons why PERA is worth looking into.

I’m already 55 years old (or older), can I still open a PERA account?

Absolutely. Note though that you have to have been contributing for at least 5 years in order to take advantage of the tax benefits.

How much can I contribute to PERA?

Up to 100,000 pesos if you’re residing in the Philippines. Pinoys living or working abroad can contribute up to 200,000 pesos per year.

Can I contribute more than the maximum annual limit?

Yes, you can. However, the amount in excess of the annual maximum PERA contribution limit will no longer enjoy the 5% tax credit.

Who can open a PERA?

Any local or overseas Filipino aged 18 years old and above who has a TIN.

I’m below eighteen (18) years old, can I still open my own PERA?

Yes, you may still open a PERA account even if you’re below 18 years old. Just open an account through a guardian.

How to start investing in a PERA?

Visit your preferred bank (BPI or BDO) for a list of their PERA offerings. Check out our “How to open a PERA account” section above for more details.

What PERA investments products can I choose from?

Locally traded stocks and other securities

  • Unit investment trust fund (UITF) (balanced funds, equity funds, etc.,)
  • Mutual funds
  • Annuity contracts
  • Insurance products
  • Pre-need pension plan
  • Exchange traded bonds

How many investment products will I be allowed to invest in?

You are allowed to open up to 5 PERA accounts under one administrator (BDO or BPI).

When will I be allowed to withdraw my PERA contributions?

Distributions (withdrawals) from your PERA account may begin after you reach 55 years old.

You have the option to withdraw funds prior to reaching 55 but you will incur penalties for the early withdrawal. Check with your administrator (bank) for more details.

Are there any risks to investing in PERA?

As with other investment options, yes there are risks.

Investors should always match their goals with the risk they can manage, as invested monies are subject to highs and lows of the market. As such, here are the general risks to be expected from investing in PERA:

  • Reinvestment risk
  • Credit/Default risk
  • Business risk
  • Country risk
  • Foreign exchange risk
  • Market/Price risk
  • Inflation risk
  • Liquidity risk
  • Interest rate ris

How will I receive my PERA funds?

You will be given the option to receive it in lump sum or through a fixed payment schedule (like a pension).

What will happen to my PERA if I (knock on wood) die before maturity (55 years old)?

Funds in your PERA will be distributed to your declared beneficiaries.

Are employers required to contribute to my PERA?

No, but they have the option to do so. If the company offers it as one of its benefits.

Is PERA transferable?

No, it isn’t.

Final thoughts on PERA

They say the hardest part about saving money for the future is having the discipline to not spend it.

PERA’s charm lies in its incentives that reward the individual with tax advantages if they hold off on spending their hard-earned cash. The diversification options are plenty, allowing contributors to pick their preferred combination of investments based on their risk-appetite.

If you’re someone who wants to look beyond the typical strategy of merely stashing your money in the bank, PERA provides a strong alternative. It’s also another way for growing your money if you’re already investing in stocks, mutual funds, UITFs, and other popular investment vehicles.


About Amiel Pineda

Amiel is the lead business & finance columnist of Grit PH. He escaped from the shackles of BPO life and now pursues his dream of writing full time. He shares his best tips and insights for aspiring homebased workers and freelancers on his site: Homebased Pinoy

Reader Interactions

Comments

  1. CC says

    Hi, Amiel! Is it advisable to pay PERA in fixed payment, e.g. P10k/ month (cost-averaging) or lump sump (to save on management fees, i.e. P50 per transaction)? For PERA, is it also advisable to get a different product, e.g. bonds, if I’m investing in another type of product, i.e. equity index fund. Thanks!

  2. Jack says

    My complements to the writer for putting together all of this valuable information in one place. After reading the article, I immediately contacted the two banks authorized to offer these plans. My thinking was that my beautiful bride could enjoy some of the benefits I do with my US based IRA and ROTH accounts and do so locally while invested in Philippine stocks. Unfortunately I learned that this program is still, after a decade, in it’s infantancy.
    “Unit investment trust fund (UITF) (balanced funds, equity funds, etc.,)
    Mutual funds
    Annuity contracts
    Insurance products
    Pre-need pension plan
    Exchange traded bonds ”
    Of the products listed above that are approved investment vehicles, the banks only offer a very few (3 at one bank, 4 funds at the other) UITF funds. They ARE NOT good investments compared to owing stocks or trading ETFs because the management fees are generally WAY TOO HIGH. You add more and more of your hard earned cash and the fund managers generate fees. Without the ability to trade option contacts to control risk or use inverse funds in bear markets, you are extremely limited in what you can do. I hope Filipinos will storm their banks and demand the full range of approved products be made available to them, especially the ability to trade individual stocks. I disagree with the bank people, ordinary folks are NOT too stupid to learn the skill of trading. My original plan was to help my wife swing trade stocks, going long on a buy signal and moving to cash on a sell signal. I am an active trader of many years. I work from my home in central Luzon trading stocks, ETFs and option contracts at night in the Philippines when US markets are open on the other side of the pond. I will also share that a number of college age kids have easily caught on to the basics of what I do and how I do it during casual discussions. The country is very blessed to have a large number of hardworking, smart young people who, even from some rough circumstances rise above all problems and become educated. I KNOW they can do this thing called trading to build wealth and build the country. This is simply opinion of an old observer.

  3. Toni says

    In your article, it states that the Contributor can make a payment over 100K. However, as explained to me by BDO when I opened my account, they do not allow contributions beyond the 100K limit. Can you confirm that?

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