Pera

Question: In the Philippines, is there an equivalent of the individual retirement account or IRA of the United States? Asked at “Ask a Friend, Ask Efren” free service at  www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook

Answer: Why, yes Juana, there is. It is called the Perso­nal Equity Retirement Account or Pera.

Pera is a law passed in 2008. Under Pera, Filipinos can now augment their retirement benefits through their own efforts. Please note that Pera does not replace the lump sum retirement benefits provided by law for private sector employees nor the state run pension plans under the Social Security System and the Government Service Insurance System.

Under Pera, a locally employed Filipino can set aside up to P100,000 a year in his Pera and enjoy the following benefits.

Tax credit – The yearly contributions will earn for the Pera investor a 5-percent tax credit that is applicable against the following year’s income tax liabilities. So, if you were to contribute P100,000 to your Pera, you will receive a P5,000 tax credit. Please note that if your spouse contributes P100,000 separately to her own Pera, she will also receive a P5,000 tax credit. But wait, there is more. Overseas Filipino workers get to invest up to P200,000 a year in their Pera.

Tax-free investing – Investments under Pera enjoy exemption from investment income taxes, namely: 1) the 20-percent final withholding tax on interest income; 2) the stock transaction tax, which is currently at 0.60 percent of the gross selling transaction amount; and 3) the capital gains tax, which is currently at 15 percent of the gain.

Tax-free withdrawals – If you follow the 55-5 rule, you will be able to withdraw from your Pera without any taxes. The rule means that the minimum age that you can withdraw without any taxes is at 55 provided you would have made at least five nonconsecutive years of contributions to your Pera. If you make a withdrawal without meeting the 55-5 rule, all of the taxes you were made exempt from will be charged back to you. Of course, withdrawal of Pera due to the death of the contributor will also be tax-exempt. In addition, there will be no early withdrawal taxes under the following conditions: 1) accident or illness-related hospitalization in excess of 30 days; 2) permanent total disability; and 3) immediate transfer of proceeds to another Pera investment product and/or another Administrator within 15 calendar days from the date of withdrawal.

Portable – Should an employer be generous enough to shell out part of the yearly contributions of its employees up to a total maximum of P100,000 a year for each employee, and the employees eventually transfer to another employer, such employees get to bring along the contributions for them of their former employer.

Now the term administrator was mentioned under the tax-free withdrawal benefits. Administrators perform the functions of creating the Pera for the contributor, updating the contributor’s transactions, generating and submitting all necessary reports, requesting the tax credit certificate for the contributor through the Bureau of Internal Revenue’s ePera, and presenting all available Pera products in the market while determining if the contributor’s investment choices are consistent with his risk profile.

Currently, there are three authorized Pera administrators. To know more about the account opening requirements and other Pera related matters, simply visit the Pera Digital Platform at https://pera.seedbox.ph.

Stay safe and healthy. INQ

Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines. Join our YAMAN Coach FREE Webinar series. For details, email [email protected]. To learn more about personal financial planning, attend the 87th RFP Program this January 2021. To inquire, e-mail [email protected] or text at 0917-.6248110