Finally! Some good news!
I was one of the thousands of people who watched the Bangko Sentral ng Pilipinas (BSP) Facebook Live Event launching the Digital PERA (Personal Equity and Retirement Account) last September 9. Like many Filipinos, I’m looking forward to developments in the implementation of PERA, especially on the application of the tax exemptions and the ability to change PERA administrators.
One of the highlights, at least for me, of the event, was the speech of BSP Governor Diokno. I learned so many things, many of them horrifying, about retiring in the Philippines.
First off, if you’ve been involved in personal finance/investing conversations online, you would think that there are already hundreds of thousands of people who have invested in PERA, what with the hordes of people offering their advice and opinions to the masses.
Guess how many Filipinos actually have PERA accounts so far?
A grand total of 1,586 people (as of July 29, 2020)!
As you can see, retirement planning is not a priority in the Philippines. This can also mean that even those who are actively preparing for retirement do not use PERA yet.
Based on Governor Diokno’s speech (I took a lot of notes and screenshots) the majority of current PERA account holders consist of the locally employed (1,099). The rest are OFWs at 17 percent and the rest are self-employed at 14 percent.
Another horrifying thing I learned:
According to the data gathered by the PSA, we have around 7.6 million people aged 60 and above. Only 20 percent, or 1.5 million, are covered by SSS or GSIS. But don’t think that people who receive mandatory pension are rolling in pesos. SSS retirees receive an average of Php 5,123 a month while GSIS retirees receive an average of Php 18,525 a month.
Obviously, having a little money is better than having zero money. But we have to admit that SSS and GSIS pensions are not enough, especially when we factor in health and hospitalization expenses. Never mind expenses to elevate the retiree’s quality of life, such as entertainment and travel.
I actually wrote about this issue in-depth in my post What Retirement Looks Like for the Regular Filipino Professional.
If you want to read Governor Diokno’s speech, here’s the link.
Launch of Digital PERA and what it means for us, the investors
Thankfully, there seems to be a way out of destitution in our old age. The BSP, together with other agencies including the BIR and the SEC, are working together with partners in the private sector to fully implement PERA and make it more investor-friendly.
The launching event introduced PERASys, an online platform that connects the BSP with PERA administrators. Among its uses is for administrators to check if you already have an existing PERA account with another administrator during your application.
They also mentioned the ePERA system, which connects the BIR and the BSP to facilitate the issuance of the much-awaited electronic Tax Credit Certificate (eTCC), so that we can finally take advantage of the 5 percent tax credit that the PERA Act promised. Many people are holding off investing in PERA pending the implementation of the issuance of the TCCs. Hopefully, this development will convince the fence-sitters to open their own PERA accounts this year.
Lastly, I’m not sure if this is part of the official digital PERA ecosystem but the event also introduced ATRAM’s online PERA platform PERA by Seedbox. I tried to open an account with PERA by Seedbox and I will write about the experience in my next blog post (stay tuned).
All of these new online platforms are designed to be interoperable and connect market participants for efficiency. For investors like us, the digital PERA will make opening an account and investing for retirement more convenient. Since everything is online, we should be able to do everything in the comfort of our homes without visiting a bank branch and talking to (oftentimes) clueless bank personnel who will likely upsell us VULs.
Having opened an account way back in the first months of PERA’s implementation, I can attest that the old way was a pain in the ass, confusing, and at times rage-inducing. It felt like opening a PERA account was a quest to weed out the unworthy. Oh, you’re giving up? Well, enjoy poverty in your old age. Ha.Ha.Ha.
How will the electronic Tax Credit Certificate (eTCC) system work?
We’ve been waiting for the implementation of the issuance of the TCC for PERA account holders since 2017 and I’m happy to find out that the BSP and BIR have been working on this all along.
Those of you who don’t understand why the lack of TCC is a deal-breaker for many investors, this is where I direct you to read my post, What is PERA and Why You Need One Right Now.
A TL;DR version is, PERA investors are eligible to receive a tax credit equivalent to 5 percent of total annual investments. For example, if you invested a total of Php 100,000 in a year, you’re eligible to receive Php 5,000 in tax credits. The tax credit can be applied against taxes you owe such as income tax (if you’re Philippine-based) or any tax that you owe the government (if you’re an OFW).
It’s a way to further sweeten PERA for investors. Instead of waiting until we’re 55 or older to receive something tangible from our investments, we get an incentive right away.
The eTCCs are generated by the BIR to qualified PERA investors. With the ePERA system, the BIR and the BSP can ensure that only genuine eTCCs are submitted to your employer.
The eTCC and the eCOE (I think they mean electronic Certificate of Employment) will serve as the authority for the employer to adjust the the PERA investor’s withholding tax. You can watch the recorded video of the launching event and fast forward to 32 minutes in to listen to the discussion on tax credit.
I don’t know yet how the BIR will operationalize this process with employers, so we should probably expect some kinks in implementation, especially in the first few years. But, these problems shouldn’t be taken as a reason not to invest in PERA or an excuse to delay putting money away for retirement.
Opening a PERA account online
The existing PERA administrators were given time to introduce their products to the viewers during the launch. Among the administrators, ATRAM is the newest one, since BDO and BPI already launched their PERA offerings a couple of years back.
New PERA clients can open an account completely online with ATRAM’s PERA by Seedbox. ATRAM’s advantage over BDO and BPI is that it joined the market when the environment is now mostly digital and almost everyone is expecting to find everything online. So their platform is designed for ease of use even for the most technologically-challenged.
I think there was some confusion about the Seedbox platform because people (including myself) thought that it is a one-stop-shop where we can sign up for a PERA account AND THEN choose a PERA administrator after opening an account. People also assume that those who already have an existing PERA account with another administrator can sign up with Seedbox to top-up their investments.
Unfortunately, at least as of this article’s writing (September 17, 2020) this is not yet the case.
Those who will sign up through the Seedbox platform are signing up to have ATRAM as their PERA administrator. If you already have a PERA account with either BPI or BDO, your application will be denied (ATRAM will check PERASys for this).
Of course, with the benefit of hindsight, we should have expected this. After all, Seedbox is owned by ATRAM.
ATRAM claims that its platform’s goal is to be a marketplace and that it will connect PERA investors with different fund partners and other banks. I sent an email to ATRAM asking for information about their PERA investment offerings around the third week of September. I haven’t received an answer yet.
I also sent an email to BSP via their email address firstname.lastname@example.org (the launch event encouraged viewers to email them for questions). But I also haven’t heard back.
To recap, the Seedbox platform is for new PERA applicants who want to sign up and elect ATRAM as their PERA administrator. If you already have existing PERA accounts with either BPI or BDO, you have to continue topping up your account with these banks.
For BPI, here’s my blog post on the 3 Ways to Top Up Your BPI PERA Account.
For BDO-PERA, it’s actually so much easier because BDO’s PERA has been online for years now. As long as you have a BDO account and have BDO online credentials, you can open and top-up your account online through the BDO online banking website.
The BSP’s target is to have 5 million PERA members in 5 years. I think that’s an ambitious but commendable goal. The government should encourage more Filipinos, including young professionals as well as blue-collar workers, to open their own PERA accounts for retirement.
Here are some of my observations about what could be incorporated into plans to popularize PERA:
- PERA administrators should brief their personnel about PERA in general and their bank’s PERA offerings in particular. I’m not the only person who felt frustrated after visiting both BPI and BDO with the view of opening a PERA account and ending up being the one to explain to the personnel what PERA is and that their bank actually offers PERA products.
- Making sure that the tax credit system is implemented this year with as little glitch as possible. I know many investors are holding off investing in PERA until the tax credit system is implemented seamlessly.
- PERA investors should be able to change their administrators. The current system is too rigid and doesn’t allow for changes or flexibility. It’s like getting married in the Philippines; that is, no possibility of divorce. ‘Til death do we part. With the current system, my relationship with my PERA administrator will be literally longer than my marriage (that I don’t have, to be fair). This paralyzes people from opening a PERA account. What if they change their minds? What if they find an investment with another administrator that fits their goals more?
- There’s the unfairness of OFWs being able to invest up to Php 200,000 a year compared to Philippine-based investors who can only contribute up to Php 100,000 a year. I’m sure that I’m not the only one who noticed that the government is allocating more resources and benefits to OFWs. Even the speeches of Governor Diokno and Secretary Domingo during the launch had many references to the sacrifices of OFWs and their contributions to the Philippine economy and development. Meanwhile, Philippine-based workers were, sad to say, an afterthought. Although I agree that OFWs are a massive help to our economy and development, discriminating against Philippine-based workers is not right. If the country really wants to help Filipinos have a more comfortable retirement, the investment limit for ALL PERA investors should be increased with no differentiation between those who chose to stay in the country and those who chose to work overseas.
I hope this post will encourage those of you who are still on the fence about opening a PERA account. The implementation of the PERA Law was a long time coming and many of us are lucky enough that this system was introduced while we still have time to prepare for our retirement. Our parents and their generation were not so lucky. Now that the government is making moves to streamline the system and PERA administrators are stepping up their game, I can’t think of any reason why a fiscally-responsible adult would not put money aside to invest in PERA.
Please let me know your thoughts about the new developments. Do you already have a PERA account? If yes, kindly share your thoughts and experiences with us. If no, what’s holding you back? What do you think the government can do to encourage more Filipinos to put money aside for retirement through PERA?
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