Is the Supplementary Retirement Scheme (SRS) Worth Your While?
You know how we Singaporeans love to complain about our CPF? How we don’t believe that we’ll ever see our money again? If you’re someone who thinks CPF is really just one giant scam… this article isn’t for you. This is for people who are genuinely looking for a way to maximise their savings and prepare for retirement, through the Supplementary Retirement Scheme (SRS).
What is the Supplementary Retirement Scheme?
It’s a voluntary savings scheme that encourages you to save for retirement. You can choose to contribute to Supplementary Retirement Scheme every year and get tax relief. The entire Supplementary Retirement Scheme (or SRS) contribution is tax-deductible in the following year.
For example, if you contribute any amount to your SRS account up to your SRS contribution cap by 31 Dec 2017, you will enjoy tax relief in Year of Assessment 2018.
How much can you contribute to SRS?
Currently, the maximum you can contribute each year is $15,300 for Singapore Citizens and PRs and $35,700 for foreigners.
What are the benefits of SRS?
Mainly, it’s to enjoy tax-relief. You can also use your SRS funds to invest in several options including shares, REITs, ETFs, insurance and unit trusts. Similar to investing your CPF funds, however, the returns on your investments funded by your SRS will return to your SRS account.
The good news is, your investment gains will accumulate tax-free. When you withdraw your savings once you reach the prescribed retirement age (currently set at 62 years), you will only be taxed 50% of the withdrawal amount as taxable income.
That means, if you have no other taxable income (say, from employment or rental), you can withdraw up to $40,000 a year from your SRS account without paying any tax. Why? Because only 50% or $20,000 will be considered taxable income, and there is no tax on annual incomes $20,000 and below.
So, what’s the catch?
Because it’s a voluntary savings scheme, you can withdraw funds from your SRS account at any time. However, if you withdraw any amount before the prescribed retirement age, 100% of withdrawn amount will be taxed.
Furthermore, you will be charged a 5% penalty, just to drive home the message that you shouldn’t touch your SRS account until retirement.
Is SRS worth your time?
Well, it all depends on your income. The first $40,000 you earn each year will incur gross tax payable of up to $550. The next $40,000 you earn, you will be taxed 7% or up to an additional of gross tax payable of $2,800.
Hence, your total tax payable could total up to be S$3,350 (i.e. S$550 for the first $40,000 + S$2,800 for the next S$40,000) if you have an annual income of S$80,000 and do not have any other tax relief.
Your tax rate on any income above $80,000 is anything from 11.5% to 22%.
So let’s say you’re a Singaporean Citizen or PR earning between $40,000 and $80,000 a year. If you contribute the maximum of $15,300 to SRS, that could save you between $456 and $1,071 in tax relief each year. That’s pretty substantial.
Of course, you don’t have to contribute the maximum amount. Ideally, you should just set aside enough to drop you to a lower tax bracket.
So, who benefits the most from SRS?
Not surprisingly, more than half of SRS account holders in 2014 were between the ages of 36 and 55.
There are two reasons for this.
Firstly, these are the people who probably have started earning at least $40,000 a year, so any amount of tax relief will be significant.
Secondly, it is also around this age that most people start seriously planning for their retirement, once they’ve settled their housing needs.
If you’re already planning to invest a portion of your income for retirement purposes, then consider putting it into an SRS account.
Not only will it help you save some money through tax relief for your initial contributions, your investment returns will also not be taxed until they are withdrawn from your SRS account. Of course, like most other investments, there is no guaranteed rate of return on investments made with your SRS funds.
How do we sign up for SRS?
You can open an SRS account with any SRS Operator, such as UOB. Opening a UOB-SRS Account gives you access to a wide variety of investment instruments such as unit trusts, bonds, single premium insurance plans, shares and ETFs.
Start early by opening a SRS account or invest your SRS funds with UOB and receive complimentary buffet dining at Singapore Marriott Tang Plaza Hotel. You can enjoy this benefit even if your SRS account is with another bank, as long as you invest in an SRS-approved unit trust or insurance with UOB. (Don’t worry, your investment is insured for up to $50,000 thanks to the Singapore Deposit Insurance Corporation.)
The cost to you is minimal, with some transaction charges as low as $2 per transaction. That said, do check with your banker or financial advisor for other product-related costs such as sales charges, brokerage fees or commissions.
Is the Supplementary Retirement Scheme something you would consider? We want to hear from you.
This article is brought to you in collaboration with UOB.