PERA: A painless way to start and finance your retirement
MAKATI CITY, Philippines — With advances in medical science pushing life expectancy, with steady yet persistent inflation rates, and with more people advancing in age than ever before, how can Filipinos properly prepare for their retirement?
"In traditional Filipino culture, the family was to some extent the pension system," noted Mario T. Miranda, BPI Senior Vice President and Trust Officer of BPI Asset Management. Miranda led a talk on PERA, or the Personal Equity and Retirement Account, at the recently concluded 7th Corporate Treasury and CEO Summit sponsored by BPI.
"But with urbanization and the formation of smaller families, more and more people realize that their children leave the house and establish their own families, consequently breaking up this traditional support system."
Compared with what is happening in more developed nations, retirement planning sticks out as a major concern in the Philippines. Miranda noted that the country's pension system only covers a portion of the workforce, anywhere from 10 to 40 percent, whereas advanced countries boast of coverage up to 90 percent of the workforce.
"To be honest, retirement planning for me only started a few years ago, and now I'm three years away from retirement," said Carmen Sison, 61, a US-based Filipina working in the furniture industry. "I wish I started earlier, but nobody really talks about this stuff when you're younger."
Sison's sentiments echo a mindset that BPI's Miranda often sees: "HR departments usually ask me to give advice for employees that are nearing retirement, and I always tell them, 'it's too late."
Coupled with life expectancy that is projected to increase to 79 years of age in 2050, and a growing population of Filipinos that are entering retirement age, the social and financial burdens that retirement often times brings will significantly strain government and social services. This is where voluntary retirement contributions can play a crucial role in securing life after employment.
"My retirement funds consist of a little bit of pension, but mostly supplemented by my children," said Maria Manese, a 74-year-old retiree living in Manila. "If it weren't for my kids, I don't know how I would be able to live on the amount I receive."
"For the SSS and GISIS, one of the things that is staring us in the face is a depletion of the benefits around 2031 for SSS and 2055 for the GSIS," said Miranda of BPI.
"Now it's time to introduce PERA."
Enacted into law in 2008, Personal Equity and Retirement Account or PERA is a tax-exempt retirement planning instrument for Filipinos. PERA allows for maximum yearly contributions of PHP 100,000 (PHP 200,000 for overseas Filipinos). When the account holder reaches the age of 55 and after five yearly contributions, the account is then allowed to make tax-exempt qualified distributions.
PERA also includes features that make it attractive not just for individuals but also for corporations. Companies can contribute to employees' PERA accounts without affecting employee’s taxable income. Further, account holders are also able to count as tax deductions 5% of the total amount contributed to their PERA each year.
Designed as a complete retirement investment vehicle, PERA also enjoys exemptions from estate-tax for passing on assets to beneficiaries.
As the first financial institution pre-qualified by the Bangko Sentral ng Pilipinas to be the administrator of PERA, BPI aims to market the product to both individuals and corporations. A PERA account is available to anyone who has a Tax Identification Number. Because the PERA is ultimately invested in traditional investment products and securities, opening an account includes a risk assessment profile and consultations with investment advisors who have passed the accreditation for Individual PERA Administrators.
Given its numerous benefits, BPI envisions PERA as a way to address the prevailing challenges in retirement planning and hopes it can serve as a staple product for every working Filipino to diversify and complement their existing investment portfolios.
ABOUT BANK OF THE PHILIPPINE ISLANDS
BPI, the first bank in the Philippines and Southeast Asia, is a universal bank with an expanded banking license. Together with its subsidiaries, BPI offers a wide range of financial services from consumer banking and lending, asset management, securities brokerage and distribution, insurance, leasing, foreign exchange, and corporate and investment banking. BPI is a leader in Philippine banking, with its high market capitalization, strong Tier 1 capital adequacy ratio and healthy shareholder return, all promoted and supported by prudent management.