One of the inevitable truths we need to face is that we will get older. As each year comes by, you will notice changes in your movement, memory, and skills. This is why it is important to prepare for your later years, also known as retirement.
Have you started with your Retirement Fund? If not, then it’s not too late. There are several options that allow you to grow your money such as long-term Time Deposit, mutual fund, UITF, or even stocks.
If you prefer something safer with minimal risks, then consider PERA Investment.
What is PERA Investment?
Similar to US’ Individual Retirement Account, PERA’s aim is simple: to provide a voluntary retirement program for Filipinos.
PERA is a long-term and tax-free retirement program to encourage Filipinos to start saving for retirement. Your contribution of up to P200,000 every year will be invested in the following:
- Unit Investment Trust Fund
- Mutual Fund
- Stocks from PSE-listed companies
- Government securities
- Insurance pension products
- Annuity contracts
- Other investment products authorized for PERA purposes
Keep in mind that PERA will not replace SSS pension, rather will supplement the money you can get come retirement age.
How Much Can You Earn?
Earnings vary depending on where the money was invested. Since PERA contributions are invested in various investment channels, the returns are different.
For instance, UITF and mutual fund will give a higher return compared to time deposit. However, this is a safer option compared to stocks. When money is invested in stocks, the return is higher than UITF and mutual fund, although the risk involved is higher.
In other words, the higher the risk, the higher the return.
Why Should You Open A PERA Account?
- Income Tax Credit – Account holder is entitled to five percent Tax Credit of total PERA contributions.
- Tax-Free Investment Income – This means the investment is exempted from capital gains tax, final withholding tax, and regular income tax.
- Estate Tax Exemption – Upon death and when assets will be transferred to the heirs, an estate tax of six percent of net estate, which means all liabilities were deducted, will be imposed. PERA Investment is exempted from that and in fact, the money will be transferred directly to the heirs.
- Control PERA Investment Products – When you invest in PERA, you have the control on where you want to put your money, depending on your risk profile. There are variety of choices to choose from so make sure you check and study what product is more suitable for you.
When Can You Withdraw Your PERA Investment?
To withdraw, you need to remember the 55 and 5 Rule. This means you will be allowed to get your investment by the time you reach 55 years of age AND you contributed for the last 5 years.
You can either get it in lump sum or choose monthly pension for a certain period or within your lifetime.
Still, there is an exception. In case the investor or account holder is sick for more than 30 days, becomes permanently disabled, or has passed away, the investment can be withdrawn.
What Are The Drawbacks Of PERA Investment?
There are several. Just like any other investment options, PERA comes with risks, too. This form of investment is not exempted from price fluctuation, crash in the stock market, or lowered interest rates. This is why it is important to check every investment option first before you decide where to invest.
Another risk would be penalty for early withdrawals. Although there are early exemptions like serious illness, permanent disability, or death, you have to wait until you satisfy the 55 and 5 rule to enjoy your benefits.
What happens if you withdraw earlier? Then you won’t be able to enjoy the benefits, specifically the tax benefits.
Lastly would be the costs. Every time you make a contribution, you will pay one percent administrator’s fee plus trust and custodian fees of 0.5 percent to 1.5 percent.
To reduce the instances of paying these fees, it is best to contribute in lump sum instead of doing this every month.
PERA Goes Digital
BDO, BPI, Landbank, and Metrobank are the only banks authorized to offer PERA. This means you need to go directly to the bank to be able to apply.
Thankfully, Digital PERA was launched by the Bangko Sentral ng Pilipinas last September 2020 to entice more Filipinos to apply and prepare for their retirement.
Here’s how you can apply:
- Create an account though Seedbox Philippines. You can access the website here.
- Complete your profile by filling out all necessary information.
- Prepare required documents including government-issued ID and TIN.
- Answer the Risk Profiler. This is an assessment to determine what kind of investor are you. You will be categorized accordingly – Conservative, Moderate, and Aggressive.
- After determining your risk profile, choose the PERA Fund that you want to avail of. Several PERA products will be shown to you based on your risk profile.
- Start funding your PERA account. You can do this through various payment channels through BDO, BPI, or Metrobank.
Here comes the best part: you can start for as low as P1,000.
What are you waiting for? Give PERA a chance and start investing for your future. You’ll never know what will happen so it’s best to be prepared.