PERA Account Earnings

In an earlier article, I talked about how PERA account is a great investment option to prepare for retirement that comes with loads of tax-free benefits. As a voluntary savings program, it is the Philippines’ version of the US 401(k).

Employers may even choose to contribute towards it, and you may save up to the maximum limit, which is P200,000 for overseas Filipino workers (OFWs) and P100,000 for those earning an income in the country.

But how much does a PERA account earn? That’s the question I’d like to explore in this article.

PERA investment

While many of us are worried about getting old and losing the ability to work, there are only a few who are doing something about it.

The PERA account was established by law through the Bangko Sentral ng Pilipinas. Its primary financial goal is to give everyone an chance to retire with comfort later in life. This is done by saving as early as possible. Your savings are put into different options to invest to let your money grow over time.

The great thing about the account is that you are given the option on PERA investments. Here are your choices:

• mutual fund shares offered investment companies
• unit of participation offered by UITF (unit investment trust funds)
• company stocks that are traded in the stock exchange
• life insurance pension products
• government securities such as notes, bonds, and bills
• annuity contracts
• exchange-traded bond
• pre-need pension plan
• any regulated, marketable, non-speculative, investments with a reputable history of giving returns to investors as approved to be made available for PERA account

PERA potential earning

So this brings us to a very important realization: the potential earning of your account depends on the investment you choose.

Buying shares of companies like Jollibee may not have the same growth as, say, investing in government bonds. The former has higher past growth but is very volatile, the latter is relatively less risky and earns modest interest. In short, earnings vary and are not guaranteed.

That’s why when you open an account, the law requires that an administrator walks you through the process. This way, someone can help you make the decision.

Factors that would be considered in coming up with the appropriate investment would include your current financial status, the level of risks you’re willing to take, number years before retirement, etc.

Approved PERA investment funds

While there are many options that you see, I can only find 10 investment funds that are approved to be offered under the program. They are managed by Banco de Oro-Unibank, Bank of the Philippine Islands, and Landbank.

The funds fall under the following categories:

• Index funds
• Equities funds
• Bond funds
• Money market funds
• Balanced funds

BDO	BPI	LANDBANK
BDO PERA Short Term Fund	BPI PERA Money Market Fund	Landbank PERA Money Market Fund
BDO PERA Bond Index Fund	BPI PERA Equity Fund	Landbank PERA Bond Fund
BDO PERA Equity Index Fund	BPI PERA Corporate Income Fund	Landbank PERA Global $ Fund
	BPI PERA Government Fund

PERA equities fund

Index funds mirror the growth of the stock index, which is composed of the blue chips or Philippines’ top 30 companies whose shares are traded in the Philippine Stock Exchange. For more information, here’s a great guide about index funds.

According to BDO, this fund is not for short-term because of how it can be very volatile.

PERA bond funds

For bond funds, the BDO PERA Bond Index fund comes in next in terms of ROI with 5.60% return. It is designed to follow the returns of the Markit iBoxx ALBI Philippines 1-5 index. Among the assets it buys and sells are listed fixed income, government securities, or bank deposits.

PERA short-term fund

The third on the list is PERA short-term fund. Its goal is to offer people a way to preserve capital that is liquid and earns income by investing in money market securities.. It is primarily invested in fixed income securities such as special deposit accounts and bank deposits.

Effect of fees on PERA earnings

So the first projection that I’m going to make would be to assess the impact of fees on your return on investment (ROI). It is kind of hard to make a comparison for all funds, and so this example only shows BDO PERA Index Fund. I have also included a zero-fee fund, which does not exist in reality, as a benchmark. This is what we’re going to use as a means of comparison.

On overview of PERA, the management fee ranges between 0.20% and 1.50%. In the table, the following assumptions are used.

• These are projections. Actual results vary.
• Time horizon of 30 years.
• Rate of return is 10% per year.
• Deposit is assumed to be 10,000 pesos one-time and 1,000 pesos monthly.

YEAR	DEPOSIT	ZERO-FEE	0.20%	1%	1.50%
1	22,000	23,670	23,623	23,434	23,315
2	34,000	38,767	38,578	38,063	37,742
3	46,000	55,440	54,996	53,994	53,645
4	58,000	73,853	73,020	71,343	70,963
5	70,000	94,187	92,806	90,236	89,822
10	130,000	232,489	224,837	213,124	212,490
15	190,000	459,697	435,358	401,336	400,365
20	250,000	832,972	771,025	689,599	688,112
25	310,000	1,446,237	1,306,237	1,131,095	1,128,818
30	370,000	2,453,819	2,159,617	1,807,281	1,803,793

The above table just shows the impact of these fees if all funds have the same earnings. In reality, different funds have different forecast of earnings and different fees. For instance equities may be volatile with higher growth potential, while bond funds and money market funds may have lower risks but also moderate gains.

What’s clear from this table is that the choice of your PERA fund determines the amount of earnings that you’re going to get in the end. Fees are going to impact your gains in a significantly negative way. And if you add the tax credits worth 5% of the amount that you put into PERA each year, then the total benefits would actually be 72,610.77 pesos more which can be used to deduct from your annual income tax. (Tax credit is adjusted with inflation of 3% three decades into the future.)

However by saying that, please be aware that there is a reason that funds have cheaper management fee. Maybe there is relatively less resources involved in the operation of these funds, or that they’re profiled to have less potential for growth.

PERA earnings in various returns

Now, there really is no reliable way to measure the returns of your PERA investment. They’re all non-guaranteed and subject to market forces. That’s why in this forecast, instead of choosing just one rate of return just like the previous example, the returns are assumed to be 4%, 8% and 12%. The management fee is also no longer computed into the table, and that’s because it is assumed that the net-asset-value per unit (NAVPU) of the PERA fund already reflects this.

Again the assumption is that the investment is made for 30 years and an initial capital of 10,000 pesos and 1,000 pesos for monthly for additional investment. Of course, you may also add the tax credit of 72,610.77 pesos should you want to take advantage of it against your annual income tax.

YEAR	DEPOSIT	4%	8%	12%
1	22,000	22,663	23,333	24,009
2	34,000	35,833	37,732	39,700
3	46,000	49,529	53,284	57,273
4	58,000	63,774	70,080	76,955
5	70,000	78,588	88,219	98,999
10	130,000	162,036	203,148	255,846
15	190,000	263,563	372,017	532,264
20	250,000	387,086	620,141	1,019,406
25	310,000	537,371	984,716	1,877,918
30	370,000	720,215	1,520,397	3,390,909

Take-away

When choosing a PERA investment, going for a fund with the least fee makes your investment cost-efficient. Sadly, there are very funds available in the market to date that there aren’t that many options from which to choose. Also the fees in all of our funds in the country are way higher than the ones offered abroad.

References

• UITF. Accessed July 20, 2019
• BDO PERA Equity Index Fund. Accessed July 20, 2019
• BDO PERA Bond Index Fund. Accessed July 20, 2019
• BDO Short Term Fund. Accessed July 20, 2019