I asked a friend who works in a reputable financial institution of what she thinks of PERA, the retirement account I told you about a few posts ago. To my surprise, she is not much interested in opening a PERA account. Well, I really shouldn’t be that surprised because my friend is also not a big believer of life insurances. Out of curiosity, I asked her why she’s not yet keen in opening a PERA account.
As for my friend, the 5% tax credit benefit PERA offers is too low, almost negligible. Second, the holding period of until you are 55 years old is too long. Well, PERA is SOLELY for retirement, that’s why. So, if you are looking for a middle-term investment, it’s not for you. If your liquid funds or savings and 5 to 10-year investments are still too low, it’s not for you. Lastly, if you are looking for capital preservation (a conservative investor, by choice or by financial status), PERA is not for you because it does not guarantee any profits nor the return of one’s capital. With PERA, capital preservation and profits depend on the investment products’ performance; investment products which you get to choose and are managed by investment managers you also choose. But, if you are still on the look-out for a good retirement fund, then consider opening a PERA account.
The good thing about my friend is that she gave me a better alternative for PERA considering my current financial portfolio. As per our assessment, I’m still at the Building Stage and therefore should concentrate on conservative to moderately risky investments since I already own a couple of stocks in the stock market. I still cannot afford to invest too much in high-risk products in terms of capital preservation other than what I already have. She then advised me to maximize my PAG-IBIG Fund membership instead.
How to maximize your PAG-IBIG membership?
There are a number of ways in which you can maximize your PAG-IBIG membership aside from availing of multi-purpose, short-term and calamity loans. Here are four ways.
PAG-IBIG Fund’s criteria for eligibility for a housing loan is lower than most banks require. PAG-IBIG also offers lower interest rates. At the time I applied for a housing loan, PAG-IBIG’s interest rate was at 7% while the bank’s offer was at 9%. PAG-IBIG housing loan is easier to reconstruct and easier to pay lump-sum if you have an extra cash as compared to bank loans. The disadvantage I guess would be the longer process of loan application and lower loanable amount. As for the loanable amount, the remedies are to increase your contributions or to look for a willing co-borrower (must be related, a husband, parents or siblings). Also, some properties are not open for PAG-IBIG financing. But for a starter-home, PAG-IBIG housing loan is your best shot.
Increase your monthly PAG-IBIG 1 contributions.
By increasing your monthly contributions, you would also enjoy higher profits from dividends. With higher profits which are tax-free and guaranteed by the government including your contributions (and your employer’s counterpart contributions, if any), it’s a good way to invest if you are willing to tie your money to the Fund for 20 years.
Get a PAG-IBIG Loyalty Card.
Having a PAG-IBIG loyalty card entitles you to various perks and discounts from various establishments. You may refer to their website for exciting deals and promos which are expanding year after year. Also, it’s an additional ID! You know what they say about IDs, you can never have too many of them! However, these are not yet recognized by big commercial banks.
ENROLL in Modified PAG-IBIG 2 Program.
I cannot believe this program started seven years ago (2010). I only learned this from my friend and I feel like I’ve missed a lot already. Anyhow, it’s not too late to start because the program is still up and running. Modified PAG-IBIG 2 or MP2 for short is open only to all PAG-IBIG 1 (mandatory when you have an employer) members. It is a voluntary savings program which offers dividend rates (per annum) which are higher than banks’ savings account and time deposit interest rates. You can pay for it yourself or if you have an employer, you can have it deducted from your salary. Other salient features of MP2 are:
- Minimum contribution of Php 500.00 per month
- Term of 5 years, renewable (early withdrawal available only for total disability or insanity, unemployment due to health reasons, death) Don’t forget to renew after maturity if it’s your intention to renew because after maturity — 5 years, it would still earn dividend for two years but based on PAG-IBIG 1 rate, the lower rate and after that, no more dividends!
- Flexible dividend rates but always higher than Pag-IBIG I (for 2015, the rate was 5.33% and for 2014, it was 4.68%)
- Contributions and earnings are TAX-FREE
- Contributions and earnings are government-guaranteed (capital preservation)
- (UPDATE) Mode of Payment: G-CASH, Pag-Ibig Fund Branches and Salary Deduction if you are employed. Do not, I repeat, do not pay through other channels like payment centers including the ones found in mall and do not pay online using your credit card. Your payments will be reflected as PAG-IBIG 1 / mandatory contributions. And, it will be a tedious task to request for a transfer based on other people’s experiences!
- Sample computation (based on 5% dividend rate):
|Monthly Contributions||5 Years||10 Years|
Personally, I think this is a great way to save and invest at the same time. For most employees like me, it is easier to save money through salary deduction. The best thing is that the money is not only saved but also invested in a bank-time-deposit-like scheme but with higher interest/dividend rates and guaranteed return of investment. Another thing to love about MP2 is that its profits are tax-free! As of this writing, I have enrolled in MP2 through salary deduction.
Do you know about this PAG-IBIG program? How was your experience? Will you consider opening an MP2 account?