Equity and Retirement Accounts: An Approach to Building a Long-Term Retirement Plan
Written by Michole A. Moral, Special Features and Content Writer, BusinessWorld
For some Filipinos, retirement holds the promise of stability, where daily needs no longer depend on paychecks. Yet for others, the same period brings uncertainty, as savings stretch against rising costs and the absence of steady income.
Such differences go back to how early and deliberate one prepares. According to financial experts, systematic saving is a great way to build stability over time. In that sense, the Personal Equity and Retirement Account, or PERA, is a government-backed retirement program that encourages Filipinos to treat retirement as a long-term goal.
Under Republic Act No. 9505, PERA acts as a voluntary tax-advantaged retirement savings account. It is not an investment product itself, but a framework that allows people to invest in approved investment instruments.
The account can hold a variety of investment products approved by regulators, including unit investment trust funds, mutual funds, annuities, insurance pension products, and government securities.
In addition, donors retain ownership of their funds and benefits, while regulators oversee compliance and reporting.
“PERA is best seen as a personal retirement account that complements SSS, GSIS, employer retirement plans, and personal savings. It offers Filipinos a dedicated and tax-advantaged way to save and invest for retirement,” said Raymond Benedict C. Zalamea, President and Chief Executive Officer of EM Zalamea Actuarial Services.
Realizing long-term value
PERA’s appeal lies in its tax administration. Donors receive a 5% income tax credit on annual contributions, subject to statutory limits. Investment income earned within the account is tax-free, and qualified withdrawals in retirement are also tax-free.
“[PERA] it encourages people to treat retirement as a real financial goal that requires long-term planning and discipline,” noted Mr. Zalamea.
The account also has legal features associated with long-term planning. Under the law, PERA assets are kept separate from other assets and are not treated as part of the donor’s estate for certain purposes, which may support estate planning.
However, Mr. Zalamea said PERA is designed for long-term use, which may have limited spending.
“They have to consider liquidity needs, time horizons, and risk tolerance,” he explained. “If the money is for long-term retirement, PERA should be considered.”
Withdrawals before age 55 and before completing at least five years of contributions may result in penalties, including the return of tax credits. Exceptions apply to conditions such as long-term hospitalization or permanent disability.
These rules, while restrictive, can help donors stay focused on retirement goals by reducing the temptation to withdraw funds early.
Opening and managing a PERA account
Opening a PERA account begins with defining one’s personal financial goals, savings potential and investment horizon. Authorized regulators guide donors through due diligence and match them with suitable investment products.
“The conservator must first understand his goals, financial volume, and time frame. A good director’s platform should guide one through the process, including assessing the suitability of the client, and help match investment options to the conservator’s risk profile and level of understanding,” said Mr. Zalamea.
Contributors can maintain up to five accounts but must work with one administrator. They may also appoint an investment manager to handle decisions on their behalf.
Mr. Zalamea added that consistency remains one of the most important factors in building retirement funds. Therefore, donors should treat PERA contributions as part of a consistent financial plan rather than a periodic decision.
“The best way is to treat PERA contributions as part of the general financial plan, not something that is funded only when there is extra money,” he explained. “Even modest but consistent contributions can grow meaningfully over time through compounding.”
He said this method helps people to maintain consistent contributions even in times of financial stress.
To increase awareness and reach
Although launched in 2008, adoption of PERA took time as financial institutions developed products and obtained approvals. Wider reach is only beginning to be seen with the release of digital platforms.
In 2020, the launch of PERA’s online services opened up the system to more retail investors by allowing the creation and management of accounts through digital channels. New entrants, including non-banking financial firms, have also started giving PERA access.
Mr. Zalamea said education and user experience must improve to reach more workers and investors.
“Better public education and better user experience are both important. PERA must be defined in an effective and coherent manner.”
He added that employers can help increase participation by promoting workplace financial wellness programs.
“Employers can also play a big role by promoting financial well-being and raising awareness about PERA,” he said.
As many Filipinos face the limitations of traditional pension plans and personal savings, Mr. Programs like PERA provide a platform that aligns long-term investments to clear financial goals.
“Over time,”[PERA] it can help promote a culture of ethics, long-term thinking, and personal responsibility for retirement readiness,” he concluded.
This article comes from BusinessWorld In-Depth’s recent special edition with the Trust Officers Association of the Philippines for Trust Awareness Week. To get your free copy, go to https://bworld-x.com/product/free-beyond-today-a-modern-strategy-for-retirement-planning/.
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