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Digitalising PERA to leapfrog its growth in the Philippines

The Bangko Sentral ng Pilipinas (BSP) is eyeing to set up an online marketplace for the Personal Equity and Retirement Account (PERA), in a bid to attract more investments for the two-year old savings scheme.

According to a recent report, the Bank has received proposals to create a digital space in order to popularise the investment tool among the public.

Going digital is one way of leapfrogging the growth of the PERA market in the country. On this note, the central bank recently received proposals to provide digital solutions across the PERA ecosystem.

PERA, which was launched in 2016, stands to complement mandatory contributions for workers through the Government Service Insurance System (GSIS) for state employees and the Social Security System (SSS) for those in the private sector.

Signing up for the PERA is voluntary, unlike both GSIS and SSS, against the automatic salary deductions for premium payments to the state-run pension firms.

Republic Act 9505, also known as the Personal Equity and Retirement Account (PERA) Act of 2008, was passed with the goal of encouraging Filipinos to save up for their retirement through a new investment product.

Implementation, however, has been delayed as issues on taxation and regulation took a while to resolve.

The interest for PERA has been low since it was rolled out in December 2016. Some of the issues that needed addressing included limited accessibility, volume of on-boarding requirements, fee structure, and tax regulatory concerns.

Bringing the investment toll online will allow more Filipinos to contribute to the fund.

An adult aged 18 or older is allowed a maximum contribution of US$ 1838.55 (PHP 100,000) per year under the PERA platform.

On the other hand, overseas Filipino workers (OFWs) have a bigger maximum as they can contribute as much as US$ 3677.10 (PHP 200,000) yearly.

A qualified contributor may place money in five PERA accounts all at once, across five recognised investment products.

In doing so, the individual can enjoy a 5% tax credit that can be deducted in their annual tax liabilities to encourage saving up for the future.

PERA will also aid in deepening the local debt market of the country, as it would convert savings into investable funds that can be tapped by Philippine corporates for capital.

Moreover, PERA can also ride on the National Retail Payment System (NRPS) pioneered by the central bank “to reduce transaction costs”.

Allowing this would also provide easier access to retail clients and even overseas Filipino workers.

Income generated from PERA contributions would be tax-free of up to US$ 1838.55 (PHP 100,000) and may be reinvested unless withdrawn ahead of retirement.

The contributions will then be invested in other products such as trust funds, mutual funds, insurance, pre-need, government bonds and listed equities so that the money will grow.

The proceeds of which may be claimed once a person reaches the age of 55 or has invested in the fund for at least five years.

The money may be claimed on a periodic or lump sum basis, and will be released on top of pensions from the SSS or GSIS.

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