All of us will grow old some day. It is inevitable. And we all look forward to enjoying the latter years of our lives, spending our free time with our loved ones. But are we prepared? If we’re no longer working, who’s going to look after our financial needs?
Sadly, the Philippines have the lowest in the region on the length of time that the retirement savings are set aside, which is about three to four months versus the average of 2.9 years in the region.
This is where PERA account comes in.
What is PERA account?
PERA or Personal Equity and Retirement Account is a voluntary savings available to all Filipinos with the goal of preparing for retirement.
It is officially established by the Republic Act No. 9505 of 2008. Through the Bangko Sentral ng Pilipinas (BSP), it was launched on December 16, 2016 and created the framework where citizens and institutions can come up with a way to voluntarily save for the purpose of using the funds upon reaching the retirement age. The law makes it possible for everyone to be able to save as early as they can. As a voluntary program, it can be done any time at any participating institutions.
Many likened it to the 401K of the United States of America and superannuation funds of Australia.
PERA account investments
So how does your money grow? If you start saving up, in what ways will it earn? You are actually given the choice on the type of investments. The only condition is that whatever you pick, it has to be approved by the regulatory authorities such as Bangko Sentral ng Pilipinas, Securities and Exchange Commission, Insurance Commission, and other government agencies. Some of the selections you can make are the following:
- stocks of corporations that are listed on the Philippine Stock Exchange
- shares from mutual fund
- unit of participation offered by UITF (unit investment trust funds)
- life insurance pension products
- government bonds
- annuity contracts
- pre-need pension plan
- exchange-traded bond
- any regulated, non-speculative, liquid investments with a reputable history of giving returns to investors as approved to be made available for PERA account
For a general overview of what these accounts are, here’s a beginner’s guide to easy passive income in the Philippines.
How much earning can you expect from PERA account?
Earnings from the account varies depending on the choice of investments. As you know, different products have different returns. Also, take note that whenever you are investing into something that has potential for higher returns, there are usually higher risks involved. Similarly, modest risks usually means modest returns.
For example, government securities (debts that are incurred by the Philippine government) and bonds are relatively less risky compared to the volatile price movements of stocks of corporations like PLDT, Semirara, and Jollibee.
This also means that managed funds such as UITF or mutual fund follow the risk and return of the underlying assets it owns. So a UITF or mutual fund that holds government securities and bonds are less risky than the ones that hold stocks.
In other words, the earnings that you get from PERA account is non-guaranteed, and they change according to how and what assets the investments are allocated. You may open the following PERA investments offered in the market.
Who are eligible for PERA account?
- at least 18 years of old
- has source of income in the country or abroad
- has tax identification number (TIN)
- has a bank account
- valid identification cards
- latest income tax return (ITR)
If you are at least 18 years old, you are eligible to open a PERA account. Another condition is that you must be earning an income whether in or outside the country. Also, you must be a holder of tax identification number (TIN), which is fairly easy to acquire. Just drop by any branches of the Bureau of Internal Revenue or go online so it can be issued to you.
When can you get your money from PERA account?
How does it help you save up for your retirement? According to the rules, your money may only be released in the following scenarios.
- at age 55 years old with at least 5 years of contribution
- when the investor regardless of age or years of contribution is sick for more than 30 days, permanently disabled, or unexpected death
- when the funds are transferred to another PERA facility within 14 days since withdrawal
So the rules state that the only way for the assets to be disbursed is when you attain the age of 55 and after contributing for 5 years. Withdrawals are allowed within this period, but bear in mind that there will be charges that would lessen the amount that you’d end up receiving.
Also, when death occurs, then the account is going to be released no matter how old you are and the years that have been contributed.
In short, it is really designed to help you be financially ready at a stage in your life when you’re likely to be retired.
How much can you invest in PERA account?
- Maximum: ₱100,000 per year for non-OFWs
- Maximum: ₱200,000 per year for OFWs
According to the law, you can invest as much as ₱100,000 if you are employed locally. For overseas Filipino workers (OFW), their maximum contribution is twice that amount at ₱200,000.
You are allowed to invest more. However, any excess amount is not eligible for tax reliefs that the account provides to investors.
Benefits of PERA account
So what are the advantages of PERA account? There are three main benefits when opening a PERA account.
- Multiple accounts. You are allowed to open up to 5 PERA accounts under one administrator. Each one of them is exclusive to only one investment product.
- Tax credits. When you contribute (up to ₱200k for OFWs and ₱100k for locally employed within a calendar year), you are entitled for a tax credit of 5% which you can use against any “national internal revenue tax liability” for OFWs and income tax liabilities for non-OFWs, respectively.
- Other tax benefits. Tax exemption on 20% withholding tax on bank deposits, trust funds and deposit substitutes; tax exemption on 10% withholding tax on dividends; exempted on tax on any stocks; exempted on regular income tax on PERA products; tax-free withdrawals
- Optional employer contributions. Your employer may opt to also contribute towards your retirement through the account. Their contribution is allowed up the maximum amount.
- Excluded from asset or estate tax. This is very helpful during the times when there is a need to declare bankruptcy as debtors cannot claim any portion from PERA account. It is also not included from estate taxes, which is good when you’re giving inheritance to your family.
Disadvantages of PERA investment
One of the drawbacks of PERA is the fact that you’re going to be paying more fees. It is next to variable universal life products in terms of cost in investing. There are cheaper options such as exchange traded funds, mutual fund, or unit investment trust fund.
Secondly, it is appropriate for people who are in it for the long haul. Getting back your money is quite restrictive. You must reach a certain age, have saved for half a decade, satisfy any of the qualified medical conditions, or moving to another fund etc. before you can get your money back.
How can you open a PERA account?
There are a few steps when opening the account. For the sake of clear discussion, they are broken down into several talking points. The funds fall under the following categories index funds, equities funds, bond funds, money market funds, and balanced funds.
Who can open PERA account?
Anyone who’s at least 18 years old can open an account and earning an income. Prepare the following:
- tax identification number (TIN)
- proof of your TIN
- BPI account
- government-issued ID card
- 1,000 pesos initial deposit
If you don’t have any TIN, drop by the nearest Bureau of Internal Revenue (BIR) office. Bring your birth certificate and valid ID. For proof of your TIN, you can use the BIR TIN card, income tax return, or any BIR-issued documents that show your TIN.
Check with the bank on any of their savings accounts. Also, bring a government-issued ID card such as the one released by Social Security System (SSS), Professional Regulatory Commission (PRC), etc. Lastly, bring at least 1,000 pesos for account opening.
PERA account for OFWs
For OFWs, there are two ways to open: by yourself or through your family. Just make sure that you prepare the following documents:
- Overseas Employment Certificate (OEC) released by the Philippine Overseas Employment Administration (POEA)
- proof that you would earn income abroad on the year of contribution
If you are an overseas Filipino worker based in another country, your family can open it on your behalf. For instance, your spouse or child can be your representative to get the account started in the country while you’re working abroad.
Prepare the following additional requirements:
- marriage certificate (spouse)
- birth certificate
- sworn certification that authorize spouse/child opening the account on your behalf
Where can you open PERA account?
You need to have an administrator, which can be any bank or institutions. They 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.
For the moment, the Bank of the Philippine Islands (BPI) and Banco de Oro-Unibank (BDO) are the only companies that are PERA administrators.
Sadly, take-up of PERA have been quite tepid. BSP revealed that only 1,586 Filipinos have created their accounts since the availability of funds since 2016 and since the laws, rules and regulations have been established since 2008.
To make investing more convenient, BSP launched digital PERA via Seedbox.PH in September 2020. BSP describes it as “one-stop shop digital experience for investor education, client on-boarding, settlement of transactions, and monitoring of PERA investments.”
ATRAM is the administrator of the Digital PERA, and funds that you can choose from are from BDO and Metrobank. You can start for as low as ₱1,000 in BDO funds and at least ₱5,000 in Metrobank.
This new initiative by BSP brings convenience to anyone wanting to invest for the long haul. It is also timely especially that it is launched during the time of the coronavirus pandemic when public transportation is suspended and people are asked to stay at home to avoid getting infected by the coronavirus.
Here’s how you can get started in investing in PERA online or on your mobile phone.
- Go to PERA portal of Seedbox.PH.
- Create an account.
- Prepare government ID and TIN. Make sure that you’re at least 18 years old and able to enter into a contract.
- Fill out the assessment to determine your investment risk profile.
- Select the PERA fund.
- Use any of the available payment channel to settle the investment amount.
What PERA funds can you invest?
To date, four banks are offering investment funds: BDO, BPI, Land Bank, and Metrobank. As of September 2020, Landbank’s website still indicates that their funds are to be launched soon. Those from Metrobank on the other hand are available via Seedbox.
|BDO PERA Short Term Fund||BDO||Money market|
|BDO PERA Bond Index Fund||BDO||Bonds|
|BDO PERA Equity Index Fund||BDO||Index fund|
|BPI PERA Money Market Fund||BPI||Fixed income|
|BPI PERA Equity Fund||BPI||Equities|
|BPI PERA Corporate Income Fund||BPI||Fixed income|
|BPI PERA Government Fund||BPI||Fixed incom|
|Landbank PERA Money Market Fund||Landbank||Money market|
|Landbank PERA Bond Fund||Landbank||Bonds|
|Landbank PERA Global $ Fund||Landbank||Money market|
|Metrobank PERA Bond Fund||Metrobank||Bond|
|Metrobank PERA Equity Fund||Metrobank||Equity|
|Metrobank PERA Money Market Fund||Metrobank||Money Market|
How much can you earn from PERA funds?
You may check the article that makes a forecast on PERA earnings. That’s a forward-looking estimate. The table that you see below contains the performance of some of the funds. We’ve tried to check all of them, but only those from BPI and BDO have historical data.
The data that you see here are end-of-year returns. It’s like putting money at the start of the year into an account that grows (or lessens) by the corresponding percentage at the end of the year. So if in 2017 a fund grows by 5%, then your investment also grows by 5% when the year ended.
It is worth noting that the returns above are in the past. They do not guarantee future returns. NAVPU (net asset value per unit) is obtained at the earliest available date and the last trading date of the given year. The returns is the result of dividing the difference between these two NAVPUs over the starting value.
Since inception means the absolute gain from the start of the fund until the last trading day of 2020.
|BDO PERA Short Term Fund||10.60%||0.70%||2.13%||4.84%||2.5776%|
|BDO PERA Bond Index Fund||16.89%||0.43%||-1.21%||11.06%||6.0904%|
|BDO PERA Equity Index Fund||2.16%||3.25%||21.40%||-13.87%||3.31%||-8.4163%|
|BPI PERA Money Market Fund||12.00%||1.00%||1.98%||4.85%||3.7037%|
|BPI PERA Equity Fund||-2.02%||17.17%||-12.93%||4.95%||-8.4906%|
|BPI PERA Corporate Income Fund||9.09%||-2.02%||-3.09%||8.51%||5.8824%|
|BPI PERA Government Fund||26.00%||4.00%||-6.73%||16.49%||11.5044%|
|Landbank PERA Money Market Fund|
|Landbank PERA Bond Fund|
|Landbank PERA Global $ Fund|
|Metrobank PERA Bond Fund||0.70%||0.70%|
|Metrobank PERA Equity Fund||7.74%||7.74%|
|Metrobank PERA Money Market Fund||0.17%||0.17%|
Best PERA fund
So what are the top PERA in the market? According to the table, it is the BDO PERA Bond Index Fund that posted 26.00% since inception. It is followed by BDO PERA Bond Index Fund and BDO PERA Short Term Fund.
No data is available for all Landbank PERA funds.
What is a PERA custodian?
A custodian is a separate entity from the administrator. Its job is to hold all your assets, such as cash or securities, to be distributed to your chosen investment.
On account opening, your administrator will give you a list of custodian you can choose from.
What are PERA fees?
This is one of the drawbacks of the account. There are several companies that are involved. Because of this, there are administrator fee, custodian fee, and management fee. If you also hire an investment manager, they will also charge additional fee for their services.
All these actually add up and can lower your returns over the years.
The exit fee is charged when you fail to keep your money invested for at least 30 calendar days. All PERA products from BPI don’t have any holding period and therefore they don’t have this fee.
The management fee represents a portion of the total value of the PERA fund that goes into paying its operations. It ranges between 0.20% to as high as 1.50% per year.
The custodian fee is paid to the institution that takes care of the cash and securities assets of your investment. It must be a separate entity from the administrator.
The auditor fee is paid to the company that checks the fund’s finances.
Investment manager fee
You are given the option to get an investment manager. S/He can help you decide to what assets you’re best invested in, and this fee goes to paying her or his services.
As of this time, there are no details associated with the funds from Metrobank. This article will be updated as soon as information becomes available.
|Name||Initial||Add||Hold||Exit||Fee||Custodian fee||Auditor fee|
|BDO PERA Short Term Fund||1,000||1,000||30 calendar days||0.50%||0.50%||0.0431%|
|BDO PERA Bond Index Fund||1,000||1,000||30 calendar days||1%||1.00%||0.0861%|
|BDO PERA Equity Index Fund||1,000||1,000||30 calendar days||1%||1.00%||0.0857%|
|BPI PERA Money Market Fund||1,000||1,000||None||None||0.50%||2.0840%|
|BPI PERA Equity Fund||1,000||1,000||None||None||1.50%||0.07%||1.5900%|
|BPI PERA Corporate Income Fund||1,000||1,000||None||None||1.25%||1.2800%|
|BPI PERA Government Fund||1,000||1,000||None||None||1.000%||1.1428%|
|Landbank PERA Money Market Fund||5,000||1,000||30 calendar days||500 or 25% of earnings||0.20%|
|Landbank PERA Bond Fund||5,000||1,000||30 calendar days||500 or 25% of earnings||1.00%|
|Landbank PERA Global $ Fund||$200||$100||30 calendar days||$10 or 25% of earnings||1.00%|
|Metrobank PERA Bond Fund||5,000||5,000||30 days||50% of total income earned from the redeemed amount||0.75%|
|Metrobank PERA Equity Fund||5,000||5,000||30 days||50% of total income earned from the redeemed amount||1.00%|
|Metrobank PERA Money Market Fund||5,000||5,000||7 days||50% of total income earned from the redeemed amount||0.50%|