The Thrifty Pinay
How to Invest in PERA: Personal Equity & Retirement Account
Updated: Oct 28, 2021
What is PERA?
A Personal Equity and Retirement Account (PERA), is a long-term voluntary retirement account that encourages individuals to save and plan for their retirement while enjoying the tax incentives both from:
the amount contributed to the PERA and;
the income from PERA investments.
What got me excited with PERA is that it has tax incentives because come on! There are not a lot of investment and retirement options out there that offer tax incentives the way PERA does.
But these tax benefits are just the icing on the cake! PERA has a lot more benefits that makes it stand out.
How is PERA different from SSS and GSIS?
PERA, SSS and GSIS are all Retirement Savings Programs. The difference is that SSS and GSIS are mandatory programs by the government for all salaried employees. PERA, on the other hand, is purely voluntary.
Another major difference is that PERA investors are entitled to tax incentives, a benefit not available in SSS or GSIS (more on that later).
How to invest in PERA and why you should get one now
Compared to regular savings accounts and time deposits, PERA :
yields higher returns because it provides tax exemptions on investment income.
So if you’re parking your retirement money in a bank account that yields 0.25% p.a (may tax pa diyan) then better invest it with PERA.
allows you to choose investment products that fit your needs and risk appetite. In other words, you can customize or change the composition of your retirement account,tax-free.
your retirement money will also be protected from future changes in the tax law
How to invest in PERA (Personal Equity & Retirement Account)
Benefits of PERA account
So what are the advantages of PERA account that makes it stand out from the other retirement plans?
Control over where to invest your retirement funds
You can open multiple accounts
Safe from estate tax and insolvency
Let’s Break Down the benefits:
There are many tax benefits when you start a PERA account. Keep in mind that when there are tax benefits, you have a higher investment return. These tax benefits will give your investment that extra boost to cover your expenses come retirement age.
5% credit on your income taxes which can be used to pay for any income tax liabilities—Each year, you’ll get a 5% tax credit of your total PERA contributions. You can use this tax credit to pay your income tax liabilities. Let’s say your income tax is P150,000, and your total PERA contribution amounts to 100,000. Because you’re entitled to a 5% tax credit of P5,000, you’ll pay only P145,000 in income tax for the year.
tax exemption on 20% withholding tax on bank deposits, trust funds and deposit substitutes
tax exemption on 10% withholding tax on dividends
exempted on capital gains tax on any stocks.
exempted on regular income tax on PERA products
Note: PERA transactions are still subject to Stock transaction tax as indicated in the Revenue Memorandum Circular No. 99-2018
Now unlike normal UITF or Mutual Fund account, the money earned through your PERA assets is exempted from taxes. Isn’t that great?
PERA’s income tax exemption is what really caught my eye in trying out this scheme. If you invest here, your investment will be exempt from the above-mentioned taxes. The entire value of your investments can be kept all for yourself -except for the fees charged by your PERA administrator (to be explained later). Plus, your retirement money will also be protected from future changes in the tax law . Remember the TRAIN Law? You can never tell when our government will impose new tax measures that will have a direct impact on our investments.
2.Control over where to invest retirement funds:
One thing that I like about PERA is that you have control over where to invest your money as a PERA contributor which GSIS/SSS and Pag-IBIG contributions do not offer .
You can choose to grow your retirement savings in different PERA investment products that suit your risk profile -whether you are a conservative, moderate, or aggressive investor.
For example, if you are in your 20s or 30s, maximize your returns by putting your money in high-risk investment vehicles such as a PERA equity fund. Then perhaps when you are nearing your 50s and 60s, you can transfer them to PERA bond fund or PERA money market fund which are-in principle- much safer. You can do all these without paying taxes. Isn’t that great?
Another way PERA will allow you to have stronger control on your retirement investment is by letting contributors have a maximum of five PERA accounts with 1 administrator, and you can even transfer administrators.
The investment products to which contributions may be invested in are:
Unit investment trust funds (UITFs)
Insurance pension products
Pre-need pension plans
Shares of stocks listed and traded in the Philippine Stock Exchange
Other investment products authorized for PERA purposes
You are allowed to open up to 5 PERA accounts under one administrator (to be explained below). Each one of them is exclusive to only one investment product category.
As an added incentive, your employer may also contribute towards your retirement through the account. Their contribution is allowed up the maximum amount only.
5.Safe from estate tax and insolvency
PERA is not included in estate taxes, which is good when you’re giving inheritance to your family.
So in case you die (knock on wood), the money will be released to your heirs WITHOUT having to pay estate taxes and the need to go through the process of probate.
Another good reason for investing in PERA is that it will be helpful during the times when there is a need to declare bankruptcy as debtors cannot touch any portion from PERA account.
A quick reminder…
These incentives are limited only to your actual PERA contribution not exceeding the annual maximum contribution and its fruits. So to remind you again that the maximum aggregate annual contribution is ₱100,000, except for Overseas Filipinos who can contribute ₱200,000.
You have the option to contribute more than the maximum amount but the excess shall no longer be exempt from tax.
What are the Disadvantages of Investing in PERA?
Like any other investment investment vehicles, PERA comes with certain risks, depending on your chosen investment product.
Let’s say, you are investing in a PERA equity fund. Since the stock market is volatile, you are exposed to the usual risks of a stock investment such as fluctuating stock prices.
2.Penalties for Early Withdrawals
Because you’re investing for retirement through PERA, you can’t touch your funds until you’re 55 and you’ve contributed for five years or longer. Earlier than that, you can fully or partially withdraw your contributions, but you’ll no longer enjoy the tax incentives (more about this later)
3. Administrator Fee and Other Service Fees
Investing in it comes with additional costs. For every contribution, you’ll pay a 1% administrator’s fee plus 0.5% to 1.5% trust fees. Others may have custodian fees and external audit fees. If you are unsure of which investment products to invest in, you may hire an Investment Manager and pay the Investment manager fee.
To minimize these fees, I suggest to pay in lump sum each year instead of making monthly contributions.
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 means of income, based locally or abroad (OFW) you are allowed to open a PERA account as long as you have a TIN.
What PERA funds can you invest?
To date, three banks are offering investment PERA funds: BDO, BPI, and Land Bank.
I am hoping that banks and other investment institutions offer more PERA-qualified products in the future to cater to the different risk appetites and needs of investors who really want to know how to invest in PERA.
PERA products offered by BPI:
BPI PERA Money Market Fund
BPI PERA Equity Fund
BPI PERA Government Bond Fund
BPI PERA Corporate Income Fund
PERA products offered by BDO:
BDO PERA Short Term Fund
BDO PERA Bond Index Fund
BDO PERA Equity Index Fund
PERA products offered by Landbank:
LANDBANK PERA Money Market Fund
LANDBANK PERA Bond Fund
LANDBANK PERA Global $ Fund
How to Invest in a PERA?
To start your PERA investment, you need to open a PERA account through an administrator.
To date, BSP has accredited only two banks, BDO and BPI, as PERA institutional administrators.
An administrator, which can be any bank or institutions, are the ones who would do account management on your behalf such as opening the account, knowing your risk profile, reviewing investment options, checking on the terms, and other similar works.
How much earnings can you expect?
Earnings from the account varies depending on the investment category you’ve chosen. As you know, different products have different returns.
As mentioned in my post How to create an Investment Portfolio, risks and returns are DIRECTLY RELATED, meaning as the risk level of an investment increases, the potential return increases as well. If the risk level is low, the potential returns are low too. Furthermore, the greater the risk of loss, the higher the returns.
As soon as you open a PERA account, you can start making your contributions through your bank account with your chosen administrator or over-the-counter cash or check payments.
When Can You Withdraw PERA Investments?
You can withdraw your tax-exempt PERA contributions when you meet the 55 and 5 rule, meaning you’ve reached 55 years old and contributed for at least five years. The amount can be paid either in lump sum or monthly pensions for a lifetime or a certain period.
Can I withdraw my PERA investment before the age of 55?
Yes you can withdraw it before the age of 55 but there will be penalties.
If you wish to push through with the withdrawal, you will have to pay and reimburse the government all tax incentives used in your favor namely:
The five percent (5%) tax credit given to you for the entire period of the PERA;
A flat rate of twenty percent (20%) based on the total income earned by your PERA account from the time of its opening/creation up to the time of withdrawal.
Of course, for every rule there is an exemption. The following are cases wherein you will be allowed to withdraw your PERA account without penalties:
for payment of accident or illness-related hospitalization in excess of thirty (30) days (needs a duly notarized doctor’s certificate as proof);
if you are rendered permanently totally disabled as defined under the Employees Compensation Law or Social Security System Law (needs certification from pertinent government agency); and
immediate transfer of proceeds to another Qualified/Eligible PERA investment Product and/or another Administrator within 2 working days from the withdrawal
I’m already 55 years old (or older), can I still open a PERA account?
Yes you may, provided that you have been contributing for at least 5 years in order to take advantage of the tax benefits.
Is PERA transferable?
No, it isn’t.
Final Thoughts from The Thrifty Pinay
Time is our best ally. The tax benefits alone outweigh the risks, which you can minimize by being strategic with your PERA investments.
If you’re someone who wants to look beyond the typical strategy of merely parking your money in the bank, I think PERA is a better and stronger alternative. It’s also another way for growing your money and diversifying your portfolio if you’re already investing in stocks, mutual funds, UITFs, and other popular investment vehicles.
I hope you found this “How to Invest in PERA” guide informative. Please share this to your family and friends.