You might have heard of the government’s Supplementary Retirement Scheme (SRS). In short, this scheme flourishes your nest egg by providing significant tax relief and investment options. Here’s why you should start an SRS account.
What is SRS?
Meant to let you enjoy additional tax relief, the SRS is a voluntary scheme aimed at encouraging people to add to their retirement fund, on top of the Central Provident Fund (CPF) scheme.
Singapore Citizens, Singapore Permanent Residents (SPRs) and foreigners with any form of income are eligible to make SRS contributions in the current year. Additionally, your employer can also use part of your remuneration to contribute to your SRS account. Since this amount is your remuneration, it is still taxable but you will be granted a tax relief as a result of your employer’s SRS contribution made on your behalf.
Benefits of SRS
Your SRS account offers much more than just a sweet retirement.
The minimum age to receive monthly payouts from CPF being raised to 65 in 2018 (which is still subject to change).
You can make a withdrawal from your SRS account on or after the statutory retirement age 63 starting 1 July 2022, and for those who already have an SRS account funded with at least $1 will still be able to withdraw their funds at age 62.
So if you prefer the option to withdraw your SRS monies at 62, you should make a minimum contribution of $1 to your SRS account before 1 July 2022.
But perhaps the real draw of SRS contributions is the tax relief.
For example, your taxable income for the year 2020 is $80,000. However, you decided to contribute $10,400 to your SRS account. As such, your taxable income decreases to $69,600.
Let’s take a look at a quick comparison of your gross tax payable, if you didn’t make an SRS contribution. According to the IRAS income tax rates, this would be the amount you have to pay in taxes:
|Chargeable income before SRS contribution ($80,000)||Gross tax payable|
If you have contributed to your SRS account, this is the amount you can save:
|Chargeable income after SRS contribution ($69,600)||Gross tax payable|
| First $40,000|
Total savings: $3,350 – $2,622 = $728
Simply by contributing to your SRS account could result in significant tax savings of $728 — enough to fund a short trip within Asia or the new gadget that you’ve been eyeing.
How to grow your SRS funds
However, if you’re looking to grow your retirement funds further, you can consider deploying these tax savings to your existing investments—and you should. Leaving this amount idle simply means the value of your money will drop with inflation.
Fret not, with a myriad of investment products available, you can grow your funds with the following options:
If you’re more conservative, this option is the safest bet. Although fixed deposits are notorious for its low interest rate, placing your funds in one to earn an average of 1% per annum still beats the interest rate of your SRS funds at 0.05% per annum in your SRS account.
SRS funds can be used to invest in several bonds that are listed on the SGX.
Unit trusts/ mutual funds/ Exchange Traded Funds (ETFs)
To diversify your investments, consider unit trusts, mutual funds or ETFs. Bear in mind that all investments carry a certain risk, so stay prudent about your investments or seek professional advice
Single-premium insurance plans (both annuity and non-annuity plans)
You can choose from short-term endowments or longer-term endowments that offer returns that are higher than your default interest rate on SRS funds. There are even certain policies that provide the flexibility for you to make an annual withdrawal.
Robo-advisors are digital platforms that automate your investment portfolios through the use of algorithms instead of active human management, with generally lower fees than actively managed funds. Park your SRS funds into less risky cash management accounts and diversify your portfolio at a low cost with robo-advisors including Syfe, StashAway and Endowus.
When can I withdraw funds from my SRS account?
You can make withdrawals at any time! However, if you withdraw your funds before the statutory retirement age of 62 years old at the time of your first SRS contribution, 100% of the withdrawn sum will have tax imposed and a penalty of 5% applies. You can also make a withdrawal on medical grounds (i.e. if you require money for an operation), or as a result of bankruptcy.
For foreigners, your SRS balance can be fully withdrawn if the following conditions are met:
Your SRS account has been maintained for 10 years or more from the date of your first SRS contribution
You are not a Singapore Citizen or SPR on the withdrawal date and for 10 consecutive years prior to the date of your withdrawal
You make a one-time full withdrawal of your SRS funds
How to set up an SRS account with DBS/OCBC/UOB
You can conveniently start your SRS account at local banks OCBC, DBS or UOB. You can either apply in person at the bank with your passport or NRIC, or do it online:
In essence, the SRS comes with benefits of encouraging you to save for retirement and perks of tax relief. Since the SRS is meant for the long run, many may procrastinate since the scheme does not offer an immediate advantage.
The SRS is meant for the long run
While you may not reap the harvest instantly, a seizable tangible benefit through your tax relief in the following year of assessment provides an extra incentive for you to get started right now.
Pro-tip: Lock in your retirement age of 63 by depositing $1 to your SRS account now, before there are any possible changes to the age requirement!
Have more questions regarding the SRS? Fret not, we’re here to help! Drop us an email at email@example.com and we’d be more than happy to chat!