3 Key Questions On Supplementary Retirement Scheme (SRS)

As we are coming toward the end of the year, many of us are probably counting down to Christmas and Thanksgiving and looking forward to the New Year. One of the things we should not overlook in the midst of the celebrations is Supplementary Retirement Scheme (SRS).

Most of us living in Singapore are familiar with CPF - it’s where a large portion of our paycheck goes to every month. But we may not be as familiar with the SRS. Unlike our CPF, which is a mandatory social security savings scheme, participation in the SRS is voluntary. It was designed to complement our CPF savings, which are meant for housing, medical and basic income needs in retirement.

We have till the end of the year to do a voluntary top-up to our SRS account. For those who are still on the fence on SRS, here are the 3 key questions you can ask yourself, to determine whether is SRS for you.

Does It Make A Significant Difference?

One of the main reasons why Singaporeans choose to open an SRS account is for tax relief. Singaporeans and PRs can contribute up to $15,300 in their SRS accounts each year, and the amount contributed is tax-exempt. Also, it is important to note that SRS tax benefits are on top of your CPF top-up tax relief.

An office worker, who earned $40,000, would have paid $550 in income tax. With the maximum contribution to SRS, the total tax payable would be reduced to $94. The amount he would have saved is $456.

A c-level executive, who earned $100,000, would have paid $5,650 in income tax. With the maximum contribution to SRS, the total tax payable would be reduced to $3,891. The amount he would have saved is $1,760.

There is a perception that the SRS is only useful for high income earners. To some extent, this is true since high income earners pay the most tax and hence, are able to save the most on their income tax when they contribute to their SRS. However, we should not ignore the fact that it can also be useful for those of us who are earning a salary which is closer to the median income range in Singapore.

You can calculate your tax savings here or book an appointment with me to learn more about tax savings.

Do You Have Emergency Fund In Place?

In exchange for the tax advantages, the government expects Singaporeans and PRs to keep their money in our SRS account until at least age 62.

Foreigners can withdraw before the retirement age without early withdrawal penalties, as long as they have had the SRS account open for at least 10 years and they withdraw the entire SRS amount in one lump sum.

We can only withdraw penalty-free if we are withdrawing at the statutory retirement age set when you make your first contribution. If we withdraw before then, we will pay a 5% penalty on the withdrawn amount and taxes on 100% of the withdrawal.

We can withdraw without paying the penalty only if we plan to use the money for medical reasons, if we declare bankruptcy, or if we pass away. In the case that we pass away, our SRS funds will go to our estate.

When we open an SRS account, just make sure we have our emergency funds in place and are confident enough with our financial well-being that we will not need to withdraw the funds early.

Do You Intend To Invest Your SRS?

SRS accounts have very low interest rates. The rates are fixed at just 0.05%.

If we want to enjoy higher returns, or at least beat inflation, we should strive to invest the funds in our SRS. If we do not intend to invest the funds in our SRS, we will be in better shape to keep the money in cash and avoid tying them up for decades.

So, if you open an SRS account, just make sure you invest it. If you contribute $15,000 every year and you keep it in cash, you will have $300,000 after 20 years. But if you instead invest the savings at 6% returns per annum, you will have more than $550,000 after the same 20 years.

We have the option for you to put your SRS funds in our savings plan, our investment program, or our retirement scheme, depends on your preference.

SRS may not be for everyone. But if you are keen to know more about SRS and tax relief, feel free to speak to me.