In a move that is expected to help spur Filipinos to invest in their retirement plans, the Bangko Sentral ng Pilipinas (BSP) has announced recently that it plans to boost the threshold for the maximum amount that members can contribute to their Personal Equity and Retirement Account (PERA).
The media advisory stated that the new contribution ceiling should effectively double the government’s voluntary retirement savings program and could immediately take effect starting this year.
According to the BSP, their proposal is to raise the ceiling for the PERA annual contributions of locally employed and self-employed individuals from the previous P100,000 to P200,000 annually. Overseas Filipino Workers (OFWs), meanwhile, can now contribute up to P400,000 or twice the amount of the previously-set P200,000.
“The move is meant to support the government’s broader thrusts of mobilizing individual savings for capital market development and generating funds for long-term projects,” BSP governor Felipe Medalla was quoted as saying in the media advisory.
PERA is a retirement savings program launched by the BSP in December 2016 to help Filipinos aged 18 years old and above to save for their retirement.
The voluntary retirement program acts as a supplement to existing pension programs in the country, such as the Government Service Insurance System (GSIS) and Social Security System (SSS).
BSP to also remove security deposit of PERA Administrator’s duties
The Philippine central bank will also be removing the security deposit of a PERA Administrator’s duties, which previously stood at 0.5% of the book value of PERA assets. The BSP said this would help lower the cost of administering PERA assets.
For its part, the Department of Finance (DOF) has approved the increase in allowable yearly contributions following recommendations from the PERA Inter-Agency board. The board is comprised of the BSP, as the lead agency, the Securities and Exchange Commission (SEC), the Bureau of Internal Revenue (BIR), and the Insurance Commission.
In September 2020, the BSP also launched ‘Digital PERA’ to attract more individuals to put their funds into these investment products. The investment program offers an online one-stop shop where investors can browse PERA products, transact, and monitor their investments.
As of September 8, 2022, digital PERA contributors grew to 4,892 from the 1,684 recorded two years prior. PERA contributions also rose by 106% in the same period in 2020 from P140.76 million to P289.82 million.
According to the BSP, contributors can benefit from perks, such as exemptions from final withholding tax, capital gains, as well as regular income taxes. They also get entitled to a 5% tax credit on contributions for the year, which can be used to pay or lower their annual income tax obligations.
The income generated from PERA contributions is tax-free (up to P100,000!) and may easily be reinvested unless withdrawn ahead of retirement.