The Supplementary Retirement Scheme (SRS) was introduced by the Singapore government in 2001 to help Singaporeans save more for their old age. Participation in the SRS is voluntary – you must be at least 18 years old and not an undischarged bankrupt, and you can contribute varying amounts that are subjected to a cap at your own discretion.
SRS members benefit from the attractive tax benefits offered, and contributions to SRS are eligible for tax relief. At POSB, you can choose from a wide range of SRS-approved instruments to invest in to give your savings a boost.
If you want to save more money for retirement but have already reached the contribution limit on your Central Provident Fund (CPF) account, the SRS is worth considering.
Members can utilise the SRS as a planning tool – there is a dollar-for-dollar tax relief on your SRS contributions, effectively reducing the chargeable income and hence final text payable. When you reach the age of 62 and begin withdrawing from your SRS account, you pay taxes on just 50% of your withdrawals for the next ten years.
You can contribute funds into your SRS account as many times a year as you like, subject to the SRS contribution cap (currently S$15,300 for Singaporean citizens/PRs, S$35,700 for foreigners). And you can make your SRS monies work for you by investing in a wide range of SRS-approved instruments such as annuities and insurance products, SGX-listed shares, fixed deposits, bonds and unit trusts. You can also invest in other financial instruments not offered by your SRS operator, such as stock options listed by your company, as long as the SRS operators do not object.
An illustration of how SRS helps you save
|Less: Personal Reliefs (Earned Income, CPF, Qualifying Child, Parent etc)||S$31,500|
|Without SRS||With SRS|
|Potential tax savings*||S$1,071
Computation table is for illustration purpose only.
* Income tax savings based on the assumption that a married male Singapore Citizen has an annual income of S$102,000 in 2015 and enjoys total personal tax relief of S$31,500 (Earned Income Relief of S$1,000, CPF Relief of S$17,000, NSman Self Relief of S$5,000, Qualifying Child Relief of S$4,000 and Parent Relief of S$4,500) and SRS relief of S$15,300 for the Year of Assessment 2016.
The interest rate on balances in the SRS Account which are not invested is currently at 0.050% p.a. as of October 2012.
Beyond tax savings, another benefit of the SRS is that it allows you to invest your SRS monies in SRS-approved financial instruments like ETFs, annuities and insurance, unit trusts and shares. This reduces tax liability and you potentially enjoy higher returns. Furthermore, the returns on the investments are credited directly to your SRS account and your gains can steadily grow, tax-free.
Consider three individuals, John, Peter and Shaun, who contribute S$15,300 annually to their SRS accounts.
After 30 years, each of them would have contributed the same amount of S$459,000 to their SRS accounts.
However, Peter and Shaun, who have both made their SRS funds work harder with SRS-eligible investment and insurance assets, would have accumulated more for their retirement.
John is content to let his funds lie un-invested. This earns him an interest of 0.05% per annum (SRS deposit rate).
Peter invests his funds in financial assets that earn him a return of 3% per annum.
Shaun is slightly more aggressive when investing and he earns a return of 5% per annum.
Understandably, some people would not want to withdraw all their SRS funds at one go. That is why the government allows us 10 years to do so. There is a good strategy to make the most of tax rebates, since only 50% of the withdrawals in this period are taxable.
Based on a 10-year withdrawal period, the optimal amount of money to keep in your SRS account at retirement is S$400,000. The optimal annual withdrawal is S$40,000, since 50% of the withdrawal is exempted, leaving the remaining S$20,000 subject to tax. However, the first S$20,000 chargeable income is exempted from tax in Singapore, hence you effectively avoid tax while having a sizeable income stream over a period of 10 years. To reach this amount, you should aim to deposit an annual amount of S$5,000 (or S$416 per month) into your SRS account for 30 years, assuming an annual return of 6%.
With effective planning and a good strategy, Singapore's Supplementary Retirement Scheme can certainly help you increase your retirement funds. If you would like advice on what investment options are best for you and how to optimise the SRS to achieve a secure retirement, speak to an SRS operator at POSB today.
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