OFW Guide: Opening Your PERA Retirement Account

Thinking about your future after years of working abroad? A Personal Equity and Retirement Account (PERA) is a great way for Overseas Filipino Workers (OFWs) to save for retirement while enjoying some tax benefits. This guide will walk you through everything you need to know about opening and managing your very own PERA account so you can secure your financial future back home in the Philippines.

What Exactly is PERA?

PERA stands for Personal Equity and Retirement Account. Think of it as your own personalized retirement fund, designed to help you save and invest for your golden years. It’s a voluntary retirement savings program created by the Philippine government through Republic Act No. 9505, also known as the PERA Act of 2008. It encourages Filipinos, especially OFWs like you, to proactively plan for your retirement. Unlike mandatory contributions to SSS or GSIS, PERA is entirely your choice, giving you more control over your retirement savings.

Why Should OFWs Consider PERA?

Being an OFW means making sacrifices and working hard for your family. But what about you? PERA is your chance to prioritize your future self. Here’s why it’s a smart move for OFWs:

• Tax Benefits: This is a big one! You can enjoy tax credits equivalent to 5% of your PERA contribution, up to a certain limit. This means you get a little money back from the government just for saving for your retirement. For OFWs, the maximum allowable contribution each year is PHP 200,000.
• Control and Flexibility: You get to choose where your money is invested – stocks, bonds, mutual funds, or other approved PERA investment products. You also decide how much you contribute and when. This puts you in the driver’s seat of your retirement planning.
• Portability: You can have your PERA account with different PERA Administrators (think of them as the institutions managing your account). This offers flexibility, especially as financial products and services evolve over time
• Protection: Your PERA investments are protected. The PERA Act provides safeguards to ensure your money is managed responsibly.
• Peace of Mind: Knowing you have a dedicated retirement fund can give you peace of mind. It allows you to focus on enjoying your work and life, knowing you’re taking care of your future back home.

Am I Eligible to Open a PERA Account?

Good news! Eligibility for PERA is pretty straightforward. As an OFW, you’re likely eligible if you meet these simple requirements:

• You are a Filipino citizen.
• You have an Individual Taxpayer Identification Number (TIN). You’ll need this to avail of the tax credits.
• You are at least 18 years old.
• You have the capacity to contract (meaning you’re legally able to enter into financial agreements).

If you meet these, you’re good to go! There’s no income requirement, so even if you’re just starting out, you can still open a PERA account and start saving.

How to Open Your PERA Account: A Step-by-Step Guide

Opening a PERA account is simpler than you might think. Here’s a step-by-step guide to get you started:

1. Choose a PERA Administrator: This is the financial institution that will manage your PERA account. Banks, trust companies, investment houses, and insurance companies can be PERA Administrators. Do your research and compare the different options. Consider factors like their investment options, fees, track record, and customer service. The PERA website maintains a list of accredited administrators.
2. Prepare Your Documents: You’ll typically need the following documents:

   • Valid government-issued ID (e.g., passport, driver’s license, OFW ID)
   • Proof of TIN (Tax Identification Number)
   • Proof of address (a utility bill or bank statement will do)
   • Initial deposit (the amount varies depending on the PERA Administrator)

3. Fill Out the Application Form: The PERA Administrator will provide you with an application form. Fill it out completely and accurately. Make sure you understand all the terms and conditions.
4. Fund Your Account: You can fund your PERA account through various methods, such as bank transfer, over-the-counter deposit, or online payment. Most PERA Administrators now have online platforms for easier contribution.
5. Choose Your Investments: This is where you decide where your money will be invested. Most PERA Administrators offer a range of investment products to choose from, categorized by risk tolerance. If you’re comfortable with risk, you might consider investing in stocks. If you’re more conservative, bonds or money market funds might be a better fit.
6. Monitor Your Account: Regularly check your PERA account statement to see how your investments are performing. This will help you make informed decisions about your investment strategy.

Choosing the Right PERA Administrator: What to Consider

Selecting the right PERA Administrator is a crucial step. Here’s what to keep in mind when making your decision:

• Investment Options: Does the administrator offer a variety of investment options that align with your risk tolerance and investment goals? Look for a mix of stocks, bonds, and other asset classes.
• Fees: PERA Administrators charge fees for managing your account. Understand the fee structure and compare it with other administrators. Common fees include management fees, transaction fees, and custodial fees.
• Track Record: How has the administrator performed in the past? While past performance is not a guarantee of future results, it can give you an idea of their investment management capabilities.
• Customer Service: Is the administrator responsive and helpful? Do they have a dedicated customer service team that can answer your questions and address your concerns?
• Accessibility: Is it easy to access your account and make contributions? Do they offer online platforms and mobile apps for convenient account management?

Follow us on LinkedIn!



• Education and Support: Does the administrator provide educational resources and support to help you make informed investment decisions? Look for administrators that offer seminars, webinars, and online articles.

For example, BDO offers a PERA account and has a wide network of branches, which can be useful if you prefer in-person transactions. ATRAM offers PERA investments focused on different risk appetites. Make sure you compare these options and choose the one that best fits your needs.

Understanding PERA Investment Options

PERA allows you to invest in a variety of financial instruments, each with its own level of risk and potential return. Here’s a breakdown of some common PERA investment options:

• Stocks: Stocks represent ownership in a company. They offer the potential for high returns, but also come with higher risk. If you’re comfortable with market fluctuations and have a long-term investment horizon, stocks can be a good option.
• Bonds: Bonds are debt securities issued by governments or corporations. They are generally less risky than stocks and offer a more stable income stream. Bonds are a good option if you’re looking for a more conservative investment.
• Mutual Funds: Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer instant diversification and are managed by professional fund managers.
• Unit Investment Trust Funds (UITFs): UITFs are similar to mutual funds, but they are offered by banks and trust companies.
• Government Securities: These are bonds issued by the Philippine government, considered a safe and low-risk investment.
• Insurance Products with Investment Components: Some insurance companies package life insurance with investment.

It’s crucial to understand the risks and rewards of each investment option before making a decision. Don’t be afraid to ask your PERA Administrator for advice.

Maximizing Your PERA Benefits: Tips for OFWs

Here are some practical tips to help you make the most of your PERA account:

• Start Early: The earlier you start saving for retirement, the more time your money has to grow. Even small contributions can make a big difference over the long term.
• Contribute Regularly: Set up a regular contribution schedule to ensure you’re consistently saving for retirement. Treat your PERA contributions like a bill you need to pay each month.
• Take Advantage of the Tax Credit: Don’t forget to claim your 5% tax credit on your PERA contributions. This is free money from the government! Make sure you keep accurate records of your contributions and file the necessary paperwork with the Bureau of Internal Revenue (BIR).
• Diversify Your Investments: Don’t put all your eggs in one basket. Diversify your investments across different asset classes to reduce risk.
• Rebalance Your Portfolio: Periodically review your portfolio and rebalance it to maintain your desired asset allocation. This means selling some of your winning investments and buying more of your losing investments to bring your portfolio back into balance.
• Stay Informed: Keep up-to-date on market trends and economic news. This will help you make informed investment decisions.
• Seek Professional Advice: If you’re not sure where to start, consider seeking advice from a financial advisor. They can help you assess your risk tolerance, set investment goals, and develop a personalized investment strategy.

Accessing Your PERA Funds: When and How

You can start withdrawing from your PERA account once you reach the age of 55 and have contributed to the account for at least five years. This is to ensure that PERA is used for its intended purpose—retirement. There are penalties for early withdrawals unless you meet certain conditions, such as permanent disability or death.

You have several options for accessing your PERA funds:

• Lump Sum: You can withdraw your entire PERA balance in one lump sum.
• Regular Installments: You can receive your PERA funds in regular installments, such as monthly or quarterly payments.
• Annuity: You can purchase an annuity, which provides a guaranteed stream of income for the rest of your life.

Consult with your PERA Administrator to determine the best withdrawal option for your needs.

What Happens to My PERA if I Die?

In the unfortunate event of your death, your PERA funds will be transferred to your designated beneficiaries. Your beneficiaries will be able to access the funds without incurring any penalties. Make sure you designate your beneficiaries when you open your PERA account and keep your beneficiary designations up-to-date.

Common Mistakes to Avoid with PERA

Here are some common pitfalls to watch out for when managing your PERA account:

• Not Contributing Enough: Don’t just contribute the minimum amount. Aim to contribute the maximum allowable amount each year to take full advantage of the tax credit.
• Investing Too Conservatively: If you have a long-term investment horizon, don’t be afraid to invest in growth-oriented assets like stocks. While they’re riskier, they also offer the potential for higher returns.
• Making Emotional Investment Decisions: Don’t let your emotions drive your investment decisions. Stick to your investment strategy and avoid making impulsive trades based on market fluctuations.
• Ignoring Your Account: Don’t just set it and forget it. Regularly monitor your account and rebalance your portfolio as needed.
• Withdrawing Early: Avoid withdrawing from your PERA account before retirement unless absolutely necessary. Early withdrawals are subject to penalties.

PERA vs. Other Retirement Savings Options

PERA is just one of many retirement savings options available to OFWs. Other options include the Social Security System (SSS), private retirement plans, and real estate investments. Here’s a brief comparison:

• SSS: SSS is a mandatory government-sponsored retirement program for employed individuals. While it provides a basic level of retirement benefits, it may not be sufficient to meet your retirement needs.
• Private Retirement Plans: These are offered by insurance companies and investment firms. They typically offer a wider range of investment options than SSS, but may also come with higher fees.
• Real Estate Investments: Investing in real estate can be a good way to generate rental income and build wealth over time. However, it also requires a significant initial investment and ongoing management.

PERA offers a unique combination of tax benefits, control, and flexibility that can make it a valuable addition to your retirement savings strategy. It can complement your SSS contributions and other retirement savings plans.

The Future of PERA

The Philippine government is committed to promoting PERA as a key tool for retirement planning. There are ongoing efforts to expand access to PERA and improve its features. For example, there are discussions about increasing the contribution limits and expanding the range of investment options. As more Filipinos, especially OFWs, embrace PERA, it’s poised to become an even more important part of the retirement landscape.

FAQ Section

Here are some frequently asked questions about PERA:

What is the difference between a PERA Administrator and a PERA Custodian?

A PERA Administrator is the entity responsible for managing your PERA account, including offering investment options and processing transactions. A PERA Custodian, on the other hand, is the entity responsible for safekeeping your PERA assets. In many cases, the PERA Administrator and PERA Custodian are the same entity, but they can also be separate. It is important to understand the roles of each entity to ensure your PERA account is properly managed and protected. For example, Security Bank acts as PERA Custodian for other organizations.

Can I have multiple PERA accounts?

Yes, you can have up to five PERA accounts, but only a maximum of two can be invested in mutual funds. This allows you to diversify your investments across different asset classes and PERA Administrators. However, the total amount you can contribute each year is still capped at PHP 200,000 for OFWs, and PHP 100,000 for other Filipinos. Even if you split your contributions across several accounts, they should not cumulatively go beyond the maximum. It’s important to track your contributions to maximize benefits.

How is the 5% tax credit calculated?

The 5% tax credit is calculated based on your total PERA contributions for the year, up to the maximum allowable contribution of PHP 200,000 for OFWs. For example, if you contribute PHP 100,000 to your PERA account in a year, your tax credit would be PHP 5,000 (5% of PHP 100,000). The tax credit can be availed when you file your Annual Income Tax Return.

What happens if I withdraw my PERA funds before age 55?

Withdrawing your PERA funds before age 55 is subject to penalties, including the refund of the 5% tax credits you previously enjoyed, plus a penalty tax. However, there are exceptions for certain circumstances, such as permanent disability or death. It’s best to avoid early withdrawals to maximize the benefits of PERA and secure your retirement savings.

Is PERA better than investing in real estate?

That depends! PERA is good for retirement planning with tax advantages. Real estate can be a good investment too, but it requires more capital and management. They serve different purposes and both can co-exist as part of your overall financial plan. Think again: PERA offers liquidity and can be started for small amounts, while real estate investment can be big at the beginning, not easy to liquidate, but provides returns.

References

1. Republic Act No. 9505, Personal Equity and Retirement Account (PERA) Act of 2008
2. PERA Website: pera.com.ph
3. Bureau of Internal Revenue (BIR) regulations on PERA

Ready to take control of your retirement and secure your financial future? Opening a PERA account is a smart move that can provide you with tax benefits, control over your investments, and peace of mind. Don’t wait – start planning for your retirement today! Reach out to one of the accredited PERA Administrators and take the first step towards a brighter, more secure future back home in the Philippines.