The State has long sought to establish a system that encourages and incentivizes Filipinos to save and invest for the long term, with a view to ensuring financial security in retirement. While it is true that the Philippines already has social insurance systems in place (i.e., GSIS, contributions for government employees; and SSS, contributions for private sector employees), these are compulsory schemes created by statute, with benefits paid according to schedules or conditions fixed by law and relevant regulations.

Thus, in 2008, Republic Act 9505 (the PERA Act) created the Personal Equity and Retirement Account (PERA), which is a voluntary retirement account established by and for the exclusive use and benefit of any person with a valid Philippine Tax Identification (TIN) number (the “Contributor”). The funds placed in a PERA (and the earnings thereof) are invested solely in PERA investment products, which include investment trust funds, mutual funds, unit investment trust fund contracts, insurance pension products, pre-need pension plans, shares of stock, and other securities listed and traded in a local exchange, or exchange-traded bonds.

The PERA Act has several key features and incentives that encourage participation, such as:

1.) Tax credits on PERA contributions

PERA contributions earn an income tax credit of up to five percent (5 percent) of the annual allowable contribution limit of P200,000 (IRR, Rule 7). This allows for a direct peso-for-peso reduction of income tax payable for the year.

2.) Tax-free growth of contributions

Any earnings made by investments in a contributor’s PERA (i.e., interest, dividends, and capital gains) are totally exempt from tax, unlike most sources of passive investment income, which are subject to a final withholding tax rate of 20 percent (Secs. 9 and 10).

3.) Distributions upon retirement and penalties on early withdrawal

The funds deposited into PERA (and any earnings thereof) are accessible only upon reaching the age of 55 and are conditioned on whether contributions were made for at least five years (Sec. 12). Any withdrawals made before this time will be subject to penalties equivalent to the tax incentives enjoyed by the Contributor throughout the entire period of the PERA (IRR, Rule 15).

While seemingly restrictive at first, this structure actually maximizes the long-term benefits of compounding interest and promotes financial security later in life. In this regard, PERA is set apart from other savings programs such as the Pag-IBIG MP2 Savings, which has a maturity date of only five years.

4.) mInclusivity and accessibility to OFWs

OFWs are allowed double the maximum amount of annual contribution, allowing them to invest up to P400,000 per year (IRR, Rule 7). This higher limit incentivizes OFWs to invest their savings in Philippine-based investment vehicles and facilitates smoother financial integration upon their eventual return to the country.

With the digitalization of PERA, OFWs can now open PERA accounts, fund their accounts through online banking platforms, and monitor their accounts remotely.

5.) Employer contributions allowed as deductible expense

Employers are permitted to contribute to their employees’ PERA accounts to the extent allowable annually (i.e., P200,000 or P400,000 for OFWs), provided that the SSS and retirement contributions mandated by the Labor Code are also complied with. These contributions are allowable deductions from an employer’s gross income (Sec. 6).

While the PERA Act was enacted in 2008 and initial modernization efforts began around 2020, it was not until late 2025 that updated regulations were issued that fully operationalized and implemented PERA through digital platforms. The launch of these digital platforms has provided Contributors with the ability to review available investment products, assess market conditions, access and fund their accounts electronically, and monitor the progress of their investments in real time.

These innovations have reduced barriers to entry for many Filipino citizens, particularly given the widespread integration of the internet into daily life. As of writing, there is still only one digital stock brokerage-dealer approved by the Bangko Sentral ng Pilipinas to act as a PERA administrator. It is hoped that the introduction of a unified digital platform will pave the way for the development of additional and even more accessible channels through which Filipinos can save through the PERA system and invest in their future retirement.

For more of Dean Nilo Divina’s legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cad@divinalaw.com.