The Personal Equity and Retirement Account (PERA) is a framework offering tax incentives to encourage Filipinos to save for retirement. Modeled after the US 401(k), it stems from the 2008 PERA Act. Despite existing for nearly two decades, PERA products and digital access continue to expand.
PERA, or the Personal Equity and Retirement Account, is not a new type of investment fund but a legal framework that sets rules and incentives for retirement savings. It is voluntary and not mandatory like SSS contributions. It can hold various qualified investments such as UITF units, mutual fund shares, and government securities, though in practice, it typically focuses on money market, bond, and equity funds.
Its core benefits revolve around three tax advantages: a 5% tax credit on contributions (up to P10,000 for the P200,000 annual limit for local workers and self-employed, and P20,000 for the P400,000 limit for overseas Filipinos), exemption from taxes on investment income, and tax-free withdrawals after age 55 with at least five years of contributions.
For example, contributing P100,000 yields a P5,000 tax credit usable within five years to offset income tax. Income from PERA investments is tax-exempt, allowing for better compounding over time. Additionally, PERA assets are protected from insolvency proceedings and estate taxes, providing security for long-term planning.
The first PERA products launched around 2016, such as the BPI PERA Money Market Fund on December 19, 2016. In September 2020, the country's first digital PERA platform was introduced to broaden access. Now, non-bank providers like DragonFi also offer PERA accounts.
To qualify for tax-free distributions, one must meet the '55 and 5' rule: reaching age 55 with five years of contributions. Early withdrawals incur penalties, except in cases of illness, disability, or transfers to another PERA product. This structure adds 'healthy friction' to encourage disciplined long-term saving.