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Saving for Retirement and PERA in the Philippines: A Guide for Employers

When you hire employees abroad you enter a new social security and benefits system, that may look very different from your home country. A key part of those benefits is the opportunity for employees to save for retirement starting early in their career.

The Philippines has a pension element to their social security system with required contributions from employers and employees.  But there is also a voluntary retirement program called the Personal Equity and Retirement Account (PERA).  This is similar to the IRA program in the US, where an employee can supplement their pension with additional retirement contributions from income.

How can employees save for retirement?

With a PERA, Filipino employees can make monthly contributions in payrolls toward retirement.  Any Filipino worker over 18 who has the capacity to be employed and has a tax ID number is eligible for a PERA.  There is an annual maximum of PHP 100,000 (PHP 200,000 for offshore workers), and all contributions and investment gains or distributions are tax-free.

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Is contributing to PERA mandatory for employers?

Employers may contribute to an employee’s PERA as well, but only up to the employee maximum of PHP 100,000 per year.  Contributions are not mandatory for the employer, even if the employee is contributing.

Employer contributions are tax-deductible to the employer, and are one way to increase an employee’s compensation and benefits.  Even if an employer does contribute, that does not reduce or replace the social security requirement of monthly contributions.

Client Case: Income tax credit for PERA

A client of ours with employees in the Philippines wanted to know how employer contributions are handled with respect to employee withholding and tax.

We let them know that any employer contributions are not included as employee taxable income or benefits, so there would be no monthly withholding on the amounts.  This shows why PERA contributions are actually better than a wage increase, as the amounts will never be subject to income tax, resulting in higher net compensation.

Do you need more information about the Philippines?

Companies that are new to hiring in the Philippines might have other questions such as:

Is the PERA managed by the employer or a third-party bank/custodian?

Do PERA distributions for retirement begin at the same age as social security distributions?

Do employees have a choice of investment products for their PERA?

Our clients rely on our experience to answer questions like these regarding payroll, taxes, benefits and social security rules abroad.  We make international employment simple.

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The information in this article is subject to changes in local legislation.

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