How SRS helps you save for your family
As working Singaporeans, we use the money in our Central Provident Fund (CPF) to pay for a number of things. Couples use it for housing when they get married and families use it to help finance their children’s tertiary education. Others even transfer some of their CPF money to their parents’ Special Account or Retirement Account.
However, even if you continue working, these financial commitments can deplete your CPF savings over time. How can you save more? This is where having a Supplementary Retirement Scheme (SRS) account can help.
What is the SRS?
The Supplementary Retirement Scheme (SRS) was introduced by the Singapore government in 2001 to help us save more for our retirement years, beyond our CPF savings. Participation in the SRS is voluntary. In addition, you must be at least 18 years old and not an undischarged bankrupt, and you can contribute varying amounts to the SRS account, subject to a cap.
Is the SRS Account Good for Your Family? Features of the Supplementary Retirement Scheme to take note
You’ve already got your CPF monies that give you interest of 2.5% to 5%. What value does an SRS account have, since it pays you a nominal interest rate of 0.05% per annum if all you do is top-up the account?
The biggest benefit for you as an SRS member is the substantial tax relief that comes simply by contributing to the account, and this article will show you how. You can even invest your SRS funds and choose from a wide range of SRS-approved instruments at POSB to give your SRS savings a boost.
How an SRS Account Works to Get Tax Savings
Beyond your CPF savings, the SRS is worth considering if you’ve reached the contribution limit on your Central Provident Fund (CPF) account.
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 tax payable. The reduced tax gives you more savings which means you will have more cash on hand for family dinners and holidays, day-to-day expenses, investments for your kids or even for your rainy day fund.
And when you reach the age of 62 and begin withdrawing from your SRS account, you pay taxes on just 50% of your SRS account withdrawals for the next 10 years; this is a substantial tax savings benefit.
You can contribute funds to your SRS account as many times a year as you like, subject to a maximum of S$15,300 for Singaporean citizens/PRs, and 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 wealth planning manager, such as stock options listed by your company, as long as it is approved.
How SRS helps you save
Here’s an example of how the SRS tax reliefs work:
Computation table is for illustration purpose only.
SRS Funds Investment: How to maximise your SRS contributions through selected SRS-approved instruments
Beyond tax savings, another benefit of the SRS is that it allows you to invest your SRS monies in SRS-approved financial instruments like Exchange-Traded Funds (ETFs), annuities and insurance, unit trusts and shares. 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, they take different approaches to their SRS savings.
John is content to let his funds lie un-invested. This earns him an interest of 0.05% per annum (SRS deposit rate).
Peter, saving for his family’s future, invests his fund in financial assets that earns him a return of 3% per annum.
Shaun wants his family of three kids to be worry-free when he retires and is slightly more aggressive when investing and he earns a return of 5% per annum.
SRS Account withdrawal – A 10-Year strategy to consider
Understandably, you may not want to withdraw all your 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.
Assume you withdraw your retirement funds only when you reach the official retirement age of 62, and do so over a 10-year period.
Based on a 10-year withdrawal period, the optimal amount of money to keep in your SRS account at retirement is S$400,000, and the optimal annual withdrawal is S$40,000.
Out of this, 50% of the withdrawal is exempted, leaving only the remaining S$20,000 subject to tax. As the first S$20,000 chargeable income is exempted from tax in Singapore, you effectively avoid tax while having a sizeable income stream over a period of 10 years which you can put to good use in your children’s education, your family’s medical expenses, your own retirement, and making sure that your own parents are comfortable in their golden years.
To reach the ideal amount of S$400,000, 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%.
Let your SRS account secure your retirement
Saving for you and your family’s future is of the utmost importance. So if you’re wondering how to take steps in the right direction, with effective planning and a good strategy, the SRS can certainly help you increase your retirement funds. To learn what investment options are best for you and how to optimise the SRS to achieve a secure retirement, speak to your wealth planning manager.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
* 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.