The term “investment” does not come as a default for most Filipinos. In fact, for most of us, the extra money goes by default to savings accounts or piggy banks. However, investing is an important idea to learn if one wishes to attain financial freedom.
That said, investment isn’t always an easy prospect. Thankfully there are easy entry points into it, one of which is the P.E.R.A. legislation signed last 2008 and finally implemented last December 2016.
At its heart, P.E.R.A is similar to any other investment account, albeit one that is specialized for retirement purposes. Think of it as something similar to SSS. The acronym stands for “Personal Equity Retirement Account”. It is a voluntary account that is similar to the US’ 401(k) or Roth IRA — both of which play important roles in financing Americans’ retirements.
How does P.E.R.A. work?
It’s straightforward, which is why it’s a great way to start off investing. First off, you will create a P.E.R.A account with either BPI or BDO — the two banks (“administrators”) who are currently licensed to take P.E.R.A contributions. Once you create the account and put in the money, the banks will invest your money and make it grow. As soon as you reach 55 years old, you will then be able to retrieve all of your contributions plus the amount by which it grew over the years. There is as of yet no concrete figure on how much the investment grows on an annual basis, but considering the caliber of the administrating banks, we can assume it is substantial enough for the purpose.
There are also options you can make when investing in P.E.R.A. There are various investment products, such as stocks, bonds, and more. If this is too much for you at the start, you can always ask for advice from the investment manager (“custodian”) who will receive your money and place it into any of the funds. Each person is allowed to have as many as 5 investment products, so you can always diversify.
Here are other pertinent details about the P.E.R.A investment process:
● Anyone with a Philippine-issued TIN (Tax Identification Number) can open an account. This means all working Filipinos — even OFWs — can open a P.E.R.A account.
● Each person can only contribute as much as Php 100,000 a year. OFWs can contribute as much as Php 200,000.
● Five percent of the P.E.R.A contributions will come as an income tax credit. That means if you contribute Php 100,000 in a year, you will receive a tax credit (a deduction to the annual taxes you pay) of Php 5,000. For many employees who are taxed per cutoff, this comes in the form of reimbursement.
● The money you invested can be withdrawn tax-free (along with its earnings) as soon as you reach the age of 55. If you withdraw earlier (“terminate” your account), you will pay a fee that is 20% of all your earnings. If you pass away before 55, your beneficiaries will still receive all the money tax-free.
The P.E.R.A system is very attractive for those looking for other means to secure their retirements aside from the pension SSS offers. This 2021, why not include it in your financial plan? Make your money grow while you still have time — it is the dearest resource you have on your side.
