PERA is an investment instrument created by the BSP that encourages people to invest and save money for their later years. So what’s so special about it and how is it different from Unit Linked Investments, Mutual Funds, and other investments?
Benefits:
1. 5% of your contribution (up to the set maximum) = tax credits! OFW’s can contribute up to PHP 200K/year. Pinoys in the country can contribute up to PHP 100K/year. The tax credits are deducted from your total annual taxable income. So let’s say your taxable income for the year is 260K, if you contribute the maximum possible (say 100K), your total taxable income becomes 255K. Your tax rate is then applied to this lower value meaning you pay less taxes. You can give more in your PERA account but that money will still be considered as part of your taxable income.
2. Your company can match your contributions meaning your investment is more than what you put in. This match is then deductible from THEIR taxable income. I see this as becoming a standard part of job offers in the future in the interest of remaining competitive in the job market — certainly good for employees and no loss for the companies.
3. Earnings are 100% tax free. If I remember my capital taxes correctly, we pay up to 20% in capital gains tax for our earnings from investments. Earnings in PERA are exempt from these taxes!
4. It acts as insurance. You can cash-out without penalties if you have to pay for accident/illness-related hospitalization for more than 30 days or if you have been rendered permanently totally disabled as per law.
5. It’s relatively risk-free. Your money can only be invested in investment vehicles that are non-speculative, readily marketable, and with a track record of regular income payments to investors. (The investment has to be approved by a regulatory body.)
So how does it work?
1. You need an administrator such as a bank who will be managing your investment.
2. You choose in which PERA instruments you want to invest your money in (up to 5 instruments).
3. When you reach 55 years old, you withdraw your money! (You need to have been investing in PERA for at least 5 years.)
Where is it???
The BIR is finalizing PERA’s IRR — the Implementing Rules & Regulations. These rules detail what the administrators should be doing, the regulatory body that can authorize which investments can be included in PERA, and other details. Let’s hope the BIR finishes this soon because this is definitely a win for all Filipinos!
Remember:
These are investment vehicles. So there is a certain portion of risk (although very low) associated with them. Also, it may be impossible to project your earnings, especially for mutual funds — it’ll depend on the performance of it’s component stocks/money markets/etc.
My comments:
1. I see the higher limit for OFWs as a subtle incentive for working outside the country. It further encourages brain drain depleting the country of its talented people. Of course, this can also be seen as the country encouraging OFWs to invest back in the country but I believe that their talents will be put to better use in the country than their money.
2. This MAY mean that we have to give income reports to the BIR — reports that we will have to make ourselves. Our employers who used to create the tax forms for us will not have access to these other income streams so we will have to make it ourselves.
3. Nevertheless, there is nothing to lose with PERA. Aside from the tax breaks and the earnings from investments, the education that will be required from the administrators will lead to higher financial IQ for more Filipinos. Certainly good for the country.
Here is the link to the actual signed bill on senate.gov.ph: http://www.senate.gov.ph/republic_acts/ra%209505.pdf
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