“To enjoy a long, comfortable retirement, save more today.”
– Suze Orman, Personal Finance Expert and Best-selling Author
By Ernesto C. Perez II
We are months away from celebrating National Savings Consciousness Week. But a friendly chat I had with a senior lawyer, who is also a Professor in a law school several weeks ago rekindled a passion that had been forgotten as the obligations of fatherhood dominate my daily thoughts.
After an ocular inspection concerning the land subject of our litigation, he asked me a question, when the conversation turned to my father, who I said is also a senior lawyer like him. “Does your father have enough stocked away for his retirement?” I paused and told him, “not enough cash.”
I started to think about how I have forgotten about savings when I became a husband and father. “Pay yourself first” is a wise adage in personal finance. I used to practice this when I was still single.
As professionals, we often times forget to “save for a rainy day” due to all the pressing concerns facing us at the moment. We spend what we earn without paying ourselves first. I was deeply involved in retirement savings that I bought books and read numerous articles about it.
So last week I began looking into a law that I thought would encourage me to save once again. Republic Act No. 9505 or the Personal Equity and Retirement Account (PERA) Act was passed last August 22, 2008.
On October 29, 2009, the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission, together with other implementing agencies, promulgated the nontax rules and regulations to implement the law.
On Oct. 27, 2011, the Department of Finance and the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 17-2011 to implement the tax provisions of the law. This regulation, which took effect on January 1, 2012, completes the basic regulatory framework needed to finally put the PERA Act into operation.
Any natural person who is of legal age and has a tax identification number issued by the BIR may be a Contributor to a PERA account. The regulations issued provide stiff penalties for early withdrawal of PERA savings, subject only to very limited exceptions.
According to Atty. Francis Lim, “While contributors may withdraw their PERA upon reaching 55 years of age, the PERA Law gives them the option to keep their PERA beyond that age. In fact, the tax regulations provide that a person over 55 years may still establish PERA accounts.”
The former PSE President further states, ”A contributor may have up to five PERA accounts at any one time, with each PERA account confined to one category of investment product. However, the law allows only one BIR-accredited administrator (banks, securities brokers, investment houses, insurance companies and brokers, etc.), whose job is to administer and oversee all the contributor’s PERA accounts.”
The most important incentive that appeals to me is that the contributor shall be entitled to a 5% tax credit of his annual contribution. According to the regulations, the maximum annual contribution is P100,000 per person or P200,000 for married couples.
Another incentive is that all income earned from PERA investments is tax exempt – exempt from the (a) 20 percent final withholding tax from interest on bank deposits or deposit substitutes; (b) capital gains tax; (c) 10 percent dividend tax; and (d) regular income tax.
When you analyze and study the provision of the law, it seems so great. However, to this date, there are no PERA Investments products that are being offered by the major banks in the country. The Bank Managers that I spoke with are unaware of PERA investment products offered by their banks despite the fact that Primers on RA 9505 can be read in the website of these unibanks.
I guess we have to wait until they offer PERA investment products. If you know of a bank that offers PERA investment products, kindly share that information with us.
In the meantime, let’s start saving today. Don’t follow the advice of personal finance gurus about saving 10% of your income.
When you are at a point that you cannot afford to save 10%, my advice would be: give 10% of your income as tithing to your church and save whatever amount you can at the moment without sacrificing the basic needs of your family.
However, it is important to know that what you save should be unavailable to you. What do I mean? You should not have immediate access to your savings – especially funds for retirement – unless for extreme and dire emergencies.
Therefore, you should not put your savings in an ATM account where the temptation to withdraw funds is great because of its convenience. The same can be said of savings account with a passbook or even a current account – where you can write yourself a check to buy something that you think you “need.”
So where do you put your savings? Absent any eligible or qualified PERA Investment Product to date, I would suggest purchasing unit investment trust funds (UITF), mutual funds, PAG-IBIG Housing Bonds, Retail Treasury Bonds (or any other government securities), insurance pension products, and shares of stocks or other securities listed and traded in the Philippine stock exchange.
I have an account in an old-fashioned securities trader based in Makati. However, investing in the stock market via the internet has its distinct advantages. If you want to know more about investing in the Philippine stock exchange via ONLINE STOCK TRADING for as low as P5,000.00 in initial investment, check out this post.
I hope that this prods you to consider carefully saving for your retirement. If you have other ideas regarding this topic, leave us a comment.