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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 Social Security System (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. For a sickly senior
citizen, this pitiful amount is probably just enough to
buy medicines. If this is not bad enough, some studies
say that SSS funds will only last until 2015; for the
Government Service Insurance System (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 talking here only of SSS pensioners. What about the
8 million Filipinos who are not members of either SSS or
GSIS? Add to this the millions of overseas Filipino
workers (OFWs) who are not covered by the
state-sponsored pension program. Living conditions for
these people during retirement 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 would 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 one
in 10 has a retirement plan and has enough savings to
cover his/her 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 nonmembers, especially
OFWs.
The
landmark Pera bill, coauthored by Sens. Ed Angara, Mar
Roxas II and Migz Zubiri in the Senate, is awaiting the
signature of the President. 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 five Pera. The provision for multiple Pera
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 percent (actual rate can be lower or higher), you
will have more than P7.3 million after 25 years. For a
married couple, the fund can reach more than P14.6
million. 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 and regulations are established.
3. A
private employer may contribute to its employee’s 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 prequalified 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, preneed 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 with
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 percent 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 and prudent guidelines.
8. Administrators are also mandated to
educate the contributor. Since lack of financial
literacy is one of the major reasons 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 and
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.
*****Alvin T. Tabañag is a registered financial planner
(RFP) and a member of the RFP Institute and the
Association of RFPs in the Philippines. He is the
founder and training director of AdvantagePlus
Consulting and creator of www.PinoySmartSavers.com., a
web site dedicated to promoting a culture of savings
among Filipinos through practical financial education.
Comments and questions about the article and other
queries maybe e-mailed to alvintabz@yahoo.com. Join the
11th RFP Program (July 5 to August 23, 2008). Visit
www.rfp-philippines.com. or inquire at info@rfp-philippines.com./Tel.
No. 634-2204. |
