Have you ever wondered how your life would be when you are retired? Not quite comfortable for millions of Filipinos if we look at the figures. As of June 2006, the monthly SSS pension of retirees ranged from P1,000 to P14,970. Since most SSS pensioners are at the lower end, the average monthly pension was a measly P2,546.00. For a sickly senior citizen this pitiful amount is probably just enough to buy medicine. If this is not bad enough, some studies say that SSS funds will only last until 2015; for GSIS it’s 2042.

It’s not hard to imagine that many retirees will be living in poverty in their old age without the support of their children. And for the really unlucky ones whose children are as poor as their parents, the only option left is to continue working until their old creaky bones give way; their golden years awfully tarnished.

And we are only talking here of SSS pensioners. What about the 8 million Filipinos who are not members of either SSS or GSIS? Add to this, the millions of OFWs who are not covered by the state-sponsored pension program. Living conditions during retirement for these people will most likely be more miserable because they don’t have sufficient savings to look forward to.

The online survey conducted by Citibank last year revealed that the average Filipino’s savings will only last a little over two months. There’s not much retiring you can do with that amount; I’ve always thought of retirement as living hassle-free for years or decades, not months. The same survey revealed that only about 1 in 10 has a retirement plan and has enough savings to cover their needs.

One thing is obvious, if you want to live comfortably after you hang up your working clothes, you should make it your responsibility to build the funds you will need during your retirement years. You simply cannot leave it all up to the government or to your children to provide you old-age support; they have their own problems to worry about.

Enter PERA or the Personal Equity and Retirement Account, a voluntary personal savings plan which supplements SSS and GSIS pension schemes and provides an alternative pension fund for those who are non-members, especially the OFWs. The landmark PERA bill, co-authored by Senators Ed Angara, Mar Roxas & Migz Zubiri in the Upper House is awaiting the signature of the President and once it becomes a law it is expected to encourage people in the public and private sectors to save up for their retirement.

Among the features of the PERA bill and what these mean to ordinary citizens like you and I are:

1. Any taxpaying individual, referred to in the bill as the contributor, may create and maintain a maximum of 5 PERA. The provision for multiple PERAs will allow the contributor to explore and select different investment products or channels to best grow his or her retirement funds.

2. A contributor may make a maximum contribution of P100,000 or P200,000 for both spouses. For an OFW and his or her spouse, the limit is P400,000. If you make the maximum contribution of P100,000 every year and assuming your fund grows at an average annual rate of 8% (actual rate can be lower or higher), you will have more than P7.3M after 25 years. For a married couple, the fund can reach over P14.6M. With this amount you can really enjoy your retirement and embrace old age with open arms and a sweet smile. I encourage everyone to make the maximum contributions once the PERA bill becomes a law and the implementing rules & regulations established.

3. A private employer may contribute to it’s employees PERA and such contribution is deductible from the employer’s gross income. Isn’t this great? If you’re working for a generous company you could get “free” money to add to your retirement fund; all the more reason you should open a PERA.

4. PERA investment products must be pre-qualified by the regulatory authorities (i.e. BSP, SEC and the Insurance commission). These products include unit investment trust funds (UITFs), mutual funds, annuity contracts, insurance pension products, pre-need pension plans, shares of stocks listed in exchange and exchange-traded bonds or any other investment product or outlet allowed by the regulatory authorities. You now have the option to invest in products which have much higher potential rates of return compared to low-interest deposit accounts. The range of investment products available for PERA will suit almost all kinds of investment risk appetites.

5. Contributors get a tax credit equivalent to 5% of his/her contribution; all income earned by a PERA is tax exempt and funds are distributed without any tax deductions. Taxes eat up a considerable chunk of your investment funds; with these generous tax incentives you should be the first in line to open a PERA.

6. PERA funds can only be distributed when the contributor reaches the age of 55; early withdrawals will be subject to penalties. This provision ensures that the savings of the contributor will be held long-term, which is beneficial to both the contributor (it makes certain than he/she has sufficient funds upon retirement) and the economy (it makes funds available for the capital market).

7. A PERA should be under an administrator (e.g. bank, mutual fund or insurance company). Since administrators are regulated by the BSP, SEC or IC, the contributor is assured that his/her funds are invested in accordance with strict & prudent guidelines. Administrators are also mandated to educate the contributor. Since lack of financial literacy is one of the major reasons why Filipinos have such low savings rate, this provision will allow PERA owners to make wiser investment decisions.

To make PERA effectively serve its purpose, a massive information campaign should be undertaken not only to educate the public about its many benefits but also to persuade people to change their spending habits and become regular savers. PERA investment products have been around for many years and only a well-informed & savings-conscious general public will start tapping these instruments through the PERA. With PERA available for your retirement, I see no reason why any hard-working Filipino should live in poverty after his working days are over.

Posted: June 30, 2008
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