What’s The Supplementary Retirement Scheme And How Should I Use It?
Planning for retirement involves gathering information about the various ways to invest, and then picking the ones that are most suitable for your retirement plan.
The Supplementary Retirement Scheme (SRS) is one such potential tool which you should consider adding to your retirement portfolio.
What is the SRS and do I have it?
The SRS is a voluntary scheme offered by the Singapore government that is designed to help individuals save for retirement. If you are a Singaporean, Permanent Resident or foreigner aged 18 and above and derive any form of income, you are eligible to use the scheme.
All you need to do is open an SRS account with DBS, OCBC or UOB, and then transfer retirement savings into that account. Singapore citizens and PRs can contribute a maximum of $15,300 per year to their SRS accounts, while foreigners can contribute up to $35,700.
Be cautioned however that once you transfer money into your SRS account, you cannot withdraw it without incurring a hefty 5% penalty until you hit the current statutory retirement age of 62, except in exceptional circumstances such as terminal illness, medical grounds or bankruptcy.
When you open an SRS account, the age at which you can withdraw your SRS savings gets locked in according to the current retirement age. Given that the statutory retirement age is expected to rise to 65 by 2030, it may be wise to open an SRS account as soon as possible.
Tips on how to maximise my SRS for my retirement
a) Enjoy tax reliefs by depositing into your SRS
The main advantage of transferring money into an SRS account is that any contributions you make will entitle you to SRS tax relief – any amount you deposit into your SRS will be subtracted from your taxable income.
Let’s say you are earning $90,000 a year, which puts you into the $80,000 to $120,000 tax bracket. You will have to pay $3,350 worth of taxes on your first $80,000 and $1,150 on the remaining $10,000. By depositing $10,000 into your SRS account, you lower your taxable income to $80,000, which pushes you down into the $40,000 to $80,000 tax bracket. This enables you to save $1,150 in taxes that could go towards your retirement instead.
Note: The maximum personal income tax relief you can enjoy from SRS and other tax relief categories is capped at $80,000.
b) Grow your wealth for retirement by investing your SRS savings
You are allowed to use your SRS savings to make certain types of investments, including certain types of investment-linked plans (ILPs), annuities, Singapore Savings Bonds, unit trusts, blue chip shares, index funds and fixed deposits. Any investment returns earned this way are tax-free before withdrawal.
It is smart to take full advantage of this benefit and invest all of the money you’ve put into your SRS account. As SRS accounts generally offer low interest rates that pale in comparison to your CPF Special or Retirement Account or high interest savings accounts, not investing your SRS savings will lead to their value being eroded by inflation.
For instance, if you sign up for an ILP like Income’s GrowthLink, you can use the money in your SRS account to pay for the plan’s premiums. What’s more, the capital gains on these policies will not be taxable unless withdrawals are made.
c) Minimise taxes in retirement by withdrawing your SRS savings gradually
One great perk of the SRS is that, once you’ve reached the statutory retirement age, you can withdraw your savings knowing that only 50% of the withdrawals will be taxable!
Unless you do need the money urgently, you can minimize the taxes you pay on your SRS withdrawals by limiting the amounts withdrawn.
For instance, an income of $20,000 and below is taxed at 0%. If you withdraw $40,000 from your SRS account, and have no other form of taxable income, you essentially won’t be taxed, since only $20,000 of your $40,000 (50% of your withdrawal) will be assessed for taxation purposes. This amounts to a total of $400,000 that is not subject to tax during an individual’s lifetime.
This helps you stretch your dollar, saving on taxes and freeing up more money for retirement.
So, should you sign up for the SRS?
The SRS is ideal for those who are able to benefit from the tax relief, in particular, above-average and high income earners. Once you have deposited money into your SRS, it is a good idea to find ways to invest the funds as soon as possible so they can grow.
Consult an Income advisor to find out more about the available ILPs and savings plan that can be paid for with your SRS savings.
This article is meant purely for informational purposes and should not be relied upon as financial advice. The precise terms, conditions and exclusions of any Income products mentioned are specified in their respective policy contracts. For customised advice to suit your specific needs, consult an Income insurance advisor.
This advertisement has not been reviewed by the Monetary Authority of Singapore.