How often do you see sari-sari stores funded by OFW money? I bet there are three in your street alone. And I would bet that your OFW neighbor who funded them continue to fund them, year after year, while there’s no improvement in profits. Those are hard-earned money down the drain, with no hopes of a return on investment. We have already covered investing for retirement, but there is something new. It’s a supplement to the government-mandated pension SSS, and it is a PERA account.
What is the PERA Law?
The PERA law or the Personal Equity and Retirement Act of 2008 is a Republic Act (RA No. 9505) signed by the then President Gloria Macapagal Arroyo. As per section two of the law – “It is declared the policy of the State to promote capital market development and savings mobilization by establishing a legal and regulatory framework of retirement plans for persons, comprised of voluntary personal savings and investments. The State recognizes the potential contribution of PERA to long-term fiscal sustainability through the, provision of long-term financing and reduction of social pension benefits.”
In plain English.
PERA Act of 2008 is a law created in order to promote retirement savings to Filipinos whether employed locally or abroad. It was established to encourage Filipinos to supplement their SSS/GSIS pension in the future.
What’s in it for me?
Filipinos usually are very limited in their knowledge of where to put their hard-earned savings. It’s either a savings account or that ubiquitous sari-sari store. With a PERA retirement plan, you take away the guesswork of managing your investment. It will be even better than you managing it because it will be managed by professionals. On top of that, you will have tax incentives! This is actually what I’m excited about since this is a better way of investing for retirement than putting your money in stocks.
What are the tax incentives for PERA Investments?
The income that you will get from a PERA plan will not be subject to income investment tax, withholding taxes, capital gains tax, as well as regular income tax. Aside from that, you will also get a tax credit of 5% of the amount you invested. This means you will pay less Annual Income Tax. This means your capital will remain intact. This is a clear advantage of PERA over saving accounts or playing the stock market. A PERA account can also be looked upon as an estate plan because it is also exempted from estate taxes upon the death of the contributor.
What are the disadvantages of PERA?
As it is geared for retirement, you can only get the full benefits once you reach the age of 55 and upon at least 5 years contribution to the plan. It does not need to be five consecutive years. You can withdraw the money early, but you would need to give back the tax credits and will be assessed a twenty percent tax based on the income accrued by the account.
How do I get it?
Presently, there are currently two Philippine Banks authorized by the Bangko Sentral ng Pilipinas (BSP). They are Bank of the Philippine Islands (BPI) and Banco de Oro (BDO). As this has just been introduced to the market this January 2017, there are no historical data for the investments as yet.
What does the PERA Law mean for an OFW?
All good things! This will make it easier for OFWs to save for retirement. This will also prevent you from the pitfalls of running out of money once you go back to the Philippines. And the earlier you invest, the longer your money will earn and the bigger your payout. Don’t wait anymore and invest!