In the Philippines, retirement planning remains a challenge for many, with only about 20% of Filipinos aged 60 and above benefiting from government pension schemes like SSS and GSIS. To bridge this gap, Genesis Kelly Lontoc, a Registered Financial Planner, believes the Personal Equity and Retirement Account (PERA) can play a crucial role in securing a comfortable retirement for Filipinos.
“PERA is a voluntary retirement saving program,” Lontoc told Financial Adviser PH. This program is designed to complement existing pension schemes and assist Filipinos in saving for retirement. Established under Republic Act 9505, PERA aims to help individuals build a larger retirement fund with various tax advantages.
Despite its potential, the response to PERA has been relatively low. “The public response has been lukewarm,” says Lontoc. “Only a small number of Filipinos have enrolled, mostly those who are locally employed.” However, recent developments in the promotion of PERA could potentially reverse this trend. Lontoc highlights that PERA can be a valuable option for Overseas Filipino Workers (OFWs), entrepreneurs, and even locally employed individuals without retirement benefits from their companies.
A major advantage of PERA is the tax benefits it offers. Contributions to PERA are eligible for a 5% income tax credit, while investment income is tax-exempt. This provides a clear advantage over other investment vehicles where gains are taxed. Additionally, amounts in PERA are not subject to estate tax, offering another level of benefit in terms of estate planning.
However, Lontoc cautions that PERA is not suitable for those seeking immediate liquidity. To make the most out of PERA, it is recommended to hold onto the funds until reaching 55 years of age and ensuring at least five years of contributions. Withdrawals before this time incur penalties.
The takeaway:
PERA can significantly improve retirement conditions for Filipinos, especially when used wisely. Genesis Kelly Lontoc emphasizes that PERA is an essential tool in a larger retirement strategy, providing tax advantages and flexibility for the future.
