Investing in PERA account: How much can you earn?

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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
  • unit of participation offered by UITF (unit investment trust funds)
  • government securities such as notes, bonds, and bills
  • company stocks traded stock exchange
  • annuity contracts
  • exchange-traded bond
  • life insurance pension products
  • 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.

BDOBPILandbank
BDO PERA Short Term FundBPI PERA Money Market FundLandbank PERA Money Market Fund
BDO PERA Bond Index FundBPI PERA Equity FundLandbank PERA Bond Fund
BDO PERA Equity Index FundBPI PERA Corporate Income FundLandbank PERA Global $ Fund
BPI PERA Government Fund

Latest PERA account earnings

PERA Investment FundsTypeROI
BDO PERA Equity Index FundEquities9.25%
BDO PERA Bond Index FundBonds5.60%
BDO PERA Short Term FundFixed income3.93%

Out of the 10, only three funds have reports on earnings. All of them are from Banco de Oro-Unibank. The table above shows the type and the return on investment (ROI) for the past 1 year.

How much can you earn with PERA?

Now that we have the rate of return, it’s possible to make estimates. This is a way to answer the question on potential earnings. Let’s say that there are two accounts: one for P100,000 annual contribution and another for P200,000, which is the limit for OFWs to invest.

The computations you’ll see later on assume a 5-year time horizon. In fact, it’s actually not appropriate as our ROI is only taken for the past one year. The appropriate ROI to have been used is the compounded annual growth rate (CAGR) for the past 5 years.

Also, fees that are associated with the account are not included.

It’s important to bear in mind that the next talking points are only to be used to illustrate the growth of your savings over time. Past data does not guarantee future returns.

PERA equities fund

The BDO PERA Equity Index Fund has the highest return at 9.25%. The fund tries to mirror the growth of the stock index, which is composed of the top 30 companies whose shares are traded in the Philippine Stock Exchange.

According to BDO, this fund is not for short-term because of how it can be very volatile. See below projection for the next 5 years if you save P100K and P200K annually.


Year
SavingsTotalSavingsTotal
1100,000109,253200,000218,506
2200,000228,615400,000457,229
3300,000359,021600,000718,041
4400,000501,493800,0001,002,986
5500,000657,1481,000,0001,314,296

PERA 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.

YearSavingsTotalSavingsTotal
1100,000105,600200,000211,200
2200,000217,113400,000434,226
3300,000334,871600,000669,741
4400,000459,223800,000918,445
5500,000590,5381,000,0001,181,076

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. It is primarily invested in fixed income securities such as special deposit accounts and bank deposits.

YearSavingsTotalSavingsTotal
1100,000103,928200,000207,856
2200,000211,938400,000423,876
3300,000324,191600,000648,381
4400,000440,852800,000881,705
5500,000562,0971,000,0001,124,193

References