For so many years, professionals working in the capital markets here in the Philippines have been complaining about the high costs of financial transactions due to taxes. Isn’t it  almost funny when you look at the running balance on your savings accounts? Seeing the measly interest on your deposits deducted by a 20% tax on interest income. What more when you’re talking of taxes on dividends, sales of shares of stocks, capital gains on sale of real estate! Whew.

Now, here’s the PERA Bill and it seems to be the solution everybody has been waiting for. Or is it?

Based on the March 4 version of the PERA Bill rules, your tax breaks under this new law are three-fold. There’s the 5% tax credit on your annual contribution, maximum of P100,000 for local residents and P200,000 if you’re working or living abroad. If you invest more than the maximum amount per year, then you get the tax break for the first P100,000 or P200,000 you invested, or you have to choose and inform your administrator which of your investments should enjoy the tax credit.
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The Philippine investing universe is not that big. The Philippine Stock Exchange has just started to talk about REITS and ETFs. Within the country, the options are not that many. So far, the investment instruments allowed for the PERA are the following:

1.    UITFs (unit investment trust funds)
2.    Share of stock of mutual funds
3.    Annuity contracts (contracts with insurance companies that guarantee retirement income)
4.    Insurance pension products
5.    Pre-need pension products
6.    Equities and other instruments traded in a local exchange
7.    Exchange-traded bonds
8.    Other products approved by the regulators for PERA, as long as they must be non-speculative, readily marketable, and with a track record of regular income payments to investors.

The PERA rules require the Administrator to make sure you understand the risks associated with each product and that you know whether these are classified as conservative, moderate and aggressive. I just find the word “non-speculative” in the rules questionable since equities, bonds and even funds that are mostly invested in these things are in certain ways “speculative.”
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Noet Ravalo sent me an email last night about PERA and gave his thoughts on what an administrator should be:

I think it would be good to re-think the common misnomer that administrators simply manage the investor’s records. Far from being simply a record-keeper, the administrator is essentially:
a) a teacher
b) a conscience
c) a manager
d) and yes, a bookkeeper

The investment manager (the advisor) is optional so the central figure for the investor IS the administrator.”

As always, Noet makes a very valid point. My take-away from what he is saying is that choosing an administrator that will look after your interest—really—and not just the business that you bring into the company is the first crucial step in setting up a winning PERA account.
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The other week, I gave my house help their annual raise in salary and told them I would advance the money for the entire year and open a bank account for each of them with it. (I wish I was the one who came up with this brilliant strategy, but it was Noet Ravalo who wrote about this in his column piece “Savings program for ‘kasam-bahays’”)

As I was asking whether they had any form of identification that we can use to open a bank account, I discovered that they had applied for SSS membership (something that I had suggested to them a year or so ago) but that it would take six months for them to get their ID.

Hmm. Should I encourage them to contribute to the SSS?
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I was in my doctor’s office last Saturday in one of the major hospitals in Metro Manila for a check-up, when she looked at me and asked if I appeared in The Sweet Life, Lucy Torres’ show on QTV11. Turns out that my dear doctor caught the tail end of the show, and looked at me with renewed interest.

“How come you know about personal finance?” she asked.

“I have been writing about it for almost 15 years,” I said.
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When you’re in your 20s, you’re probably just starting out in your first job and concerned with making a good impression. Even if you might still be living with your parents, buying a new wardrobe, going out to fit into your new environment, enjoying your independence will become paramount concerns, rightly or wrongly.

In your 30s, you are most likely raising a family, saving for your children’s education, taking out a home mortgage, paying for your first or second car, and some of you might be taking care of an aging parent.

If you are in the 40-something age group, you might have bigger salaries and bonuses, but will be dealing with health issues too and higher cost of living. At what point do you seriously start thinking about investing for retirement and how much do you set aside? With all these financial concerns at the back of your mind, it’s no surprise that retirement will be taking a backseat.

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Gotcha!

Here’s a snappy secret from publishers. Use words like “how to get rich in ten simple steps” or “secrets of wealthy people” in title and promotional materials. Never use “retirement.” Malayo sa bituka. (Far from the gut).

Like everyone else on this planet, Filipinos don’t like to think about the future. But think of this: it wasn’t too long ago when Bill Gates was a young upstart who started Microsoft in his garage at 17 years old. Yesterday, he clocked in his last full day of work at the office after 33 years of building that icon of technology.
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State-owned Landbank of the Philippines’s sweet deal for OFWs launched yesterday is described in this article.

An annual interest of 7.0% and a maturity of 5.5 years is not bad for anyone’s portfolio. Experts always tout diversification and to do that properly, the risky part should not overshadow the secure and boring part. How to cut the cake exactly depends on personal risk appetites, of course.

It is a fact of life that stocks are sexy and deposits and bonds are boring. ☺ Most of the times, boring is good.
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Johnny Noe Ravalo explains this in figures, already doing the math for us. hoping nobody gets him wrong.

To some extent, we can still play a catch-up game in planning for retirement, he says. But there’s a point where it becomes too late.

Read his article here. Below is an excerpt and the graphs he prepared. Click on them for a bigger, clearer version. Enjoy reading!

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(Photo from AFP)

Johnny Noe Ravalo continues his online bestseller last week on preparing for retirement in the Philippines. This made me wonder whether retirees are ready for rising medical and travel costs:

Food and utility bills will be the baseline but they will not figure prominently in the total cost scheme. What you need to be very realistic about is medical expenses. Maintenance medicine and periodic check ups are never cheap.

If diabetes runs in the family, for example, you will have to dish out over P5,000 in monthly medicines plus the annual check up which can run up to P10,000 if all the laboratory tests are included. That’s P70,000 per year — minimum — for an ailment that has no cure and has to be paid when you are no longer enjoying both a regular salary or your company’s medical plan. Complications also add to the expenses. Any hospitalization will set you back in the tens of thousands for as short as a day or two of confinement. You need to estimate a portion for monthly medical maintenance plus set aside a lump sum for the “just in case” part.

Some of MoneySmart’s regular readers are in their 30s but are already planning for their retirement. A lot of you are working and living abroad and are planning to come home for your golden years. It’s relatively easy to figure out the lifestyle part for me, personally, but medical cost is very much a puzzle. How do you know what medical problems you will have to prepare for, huh? (trying out a sultry, vampy voice) Can’t I just be young forevah?

Noet brings me back to earth. Okay, okay, the medical cost fund should be extra, extra fat. And since every Pinoy is a tireless “lakwatsera”, the travel fund should be, too. We’re all dreaming of visiting every beach in our 7,000 plus islands so we gotta raise the travel fund too what with the rising cost of oil and all. Sigh. There goes the upgrade to Macbook Air.