The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement. Unlike the Central Provident Fund (CPF), it is not compulsory to participate in the SRS scheme. A key benefit of SRS is that members can enjoy dollar for dollar tax relief, capped at $15,300 per annum for Singaporeans while saving towards their retirement goals. As a tax deferral scheme, when you subsequently withdraw from your SRS after the statutory retirement age, only 50% of the amounts withdrawn will be subject to tax. Individuals who would like to open an SRS account can do so with either DBS, UOB or OCBC bank.
Don’t leave your funds in SRS un-utilised
After transferring funds into your SRS account, don’t leave it un-utilised! According to Ministry of Finance (2019), over 28% of SRS contributions sit idle as cash balances, earning a low interest rate return of only 0.05% p.a.
There are many ways that you can utilitse your SRS contributions to grow your retirement funds, such as investing in unit trusts, ETFs, stocks, bonds (including Singapore Saving Bonds and Singapore Government Securities) and single premium insurance. A particular affordable and convenient way is to invest your SRS funds with MoneyOwl to boost your future retirement fund. Here’s why you should do so.
Invest your SRS with MoneyOwl
Investing your SRS funds with MoneyOwl starts from as little as S$50/month or $100 as a lump sum. This means that it is possible to start early without waiting for your SRS funds to accumulate to a substantial level. Besides, there is no platform fee so that more wealth is generated for the you in the long run. With MoneyOwl, you gain access to a globally diversified portfolio of companies with good growth potential at value prices.
This promotion is only valid from 9 November to 31 December 2020.
This promotion is only open to the first 500 people who successfully invest their SRS funds with MoneyOwl.
Promotion is valid for one-time top ups using SRS funds only. Regular savings plans/ monthly SRS investments are not eligible.
Promotion is not valid for cash investments and investments in WiseSaver portfolio.
You need to stay invested and not withdraw your funds for at least 2 months after the promotion period is over (i.e. till end-February 2021). Vouchers will be sent to you in March 2021.
Only new MoneyOwl clients are eligible for S$50 voucher redemptions.
Both existing and new MoneyOwl clients are eligible for the $100 or $200 voucher redemption.
MoneyOwl reserves the right to change these terms and conditions from time to time.
About MoneyOwl
MoneyOwl empowers and fulfils lives by helping people make wise decisions to achieve their financial goals. With one of the lowest fees in the market, invest your SRS funds with MoneyOwl today to boost your future retirement income.
Prudent individuals go through great lengths in order to build retirement fund. Many Singaporeans completely rely on the government-mandated Central Provident Fund (CPF). It is a savings plan to fund important expense categories such as retirement, housing, and healthcare. Unbeknownst to some, there is a scheme that is meant to complement the strength of CPF. I am talking about the Supplementary Retirement Scheme (SRS). SRS flourishes your retirement savings by providing tax relief and investment options. Unlike CPF, SRS is a voluntary scheme. SRS members are free to contribute varying amounts which are subjected to a specific limit.
Make the most out of your SRS account by employing these tips:
MAXIMIZING YOUR TAX REDUCTIONS
While helping you cultivate your future, SRS simultaneously reduces your tax expenses at the present moment.
There are different types of tax relief that you can claim, such as the Earned Income Relief, Qualifying Child Relief, NSman Self Relief, and Parent Relief. The first one refers to the deduction of taxable income for every dollar deposited into the SRS account. Furthermore, you can reap tax-free investment gains made through your SRS account (i.e., not applicable to Singapore dividends).
SCHEDULING YOUR WITHDRAWALS
Let us be honest! You can withdraw funds from your SRS account even before you retire. Unfortunate instances such as medical emergencies and bankruptcy are among the significant reasons why this happens. Withdrawals can be completed in the form of cash or investments.
You must strategize your withdrawals to receive the most profitable scenario. You see, there is a chance that you will end up paying more tax if you withdraw the entirety of the SRS account upon retirement. By “more”, I am referring to the comparison between the “withdrawal tax” and the income tax savings. Consider scheduling your withdrawals spanning the period of 10 years.
GROWING YOUR INVESTMENTS
SRS is more than just a scheme to reduce your tax as it is an efficient tool for growing your retirement funds. It is meant to supplement your retirement money by embracing investment options. An increasing number of Singaporeans had been making contributions to their SRS accounts. For instance, the contributions made until December 2015 reached more than S$4 billion.
Why are people drawn to investing their SRS funds? For starters, gains are non-taxable. Furthermore, the long-term returns are higher when invested as compared to leaving your SRS fund in idle. From the retirement age and beyond, only 50% of your withdrawals will be taxable. It goes without saying that your bigger risk appetite is subject to the volatility of the stock market.
Image Credits: pixabay.com
A local institution that allows using SRS funds for unit trusts, index funds, unit trusts, or blue chip shares is OCBC.
Supplementary Retirement Scheme (SRS), as the name suggests, is a plan designed to help fund your retirement besides the CPF. It forms one of the multi-pronged approach by the government to help tackle the problem of a silver tsunami that Singapore is facing.
SRS is a voluntary scheme which offers tax benefits in the form of a tax relief for every dollar you contribute up to a maximum of $12,750 per year. There is no minimum amount and you are free to contribute any amount to your account with any of the SRS operators: DBS, OCBC & UOB.
You can also invest the amount in SRS in a variety of instruments such as stocks, bonds, unit trusts, fixed deposits, insurance and many more. You also have the option to keep them as cash which give you a meagre return of 0.05% per year.
One thing to take note is once you have decided to fund your SRS, any premature withdrawal before the statutory retirement age (currently at 62), there is a 5% penalty fee and 100% of the amount withdrawn is taxable.
If you have the discipline to keep it till the statutory retirement age, good news is only 50% of the withdrawals from SRS are taxable or what they call it as a 50% tax concession. And you can spread the withdrawal over a period of 10 years.
In other words, if you have manage to accumulate $400,000 in your SRS at retirement, you can strategically withdraw it over 10 years, i.e $40,000 a year – to pay zero tax. (Since only 50% of the $40,000 is taxable and the first $20,000 is not taxable.
In the cumulative SRS statistics published by MOF, less than half of the account holders are aged between 21 – 45 in December 2013. Only 11% of those those aged between 21 – 35. While it is understandable that these group of people are financially strapped due to family commitments, it would be wise to apportion at least part of their income to SRS to enjoy tax benefits.
While some may argue that the tax benefits are merely deferred and locking your cash up till the statutory retirement age of 62 is not attractive, a closer look into the numbers may prove otherwise.
Let’s take a look into a few scenarios, making certain assumptions.
1. 32 years old earning $50,000 a year
For someone who is taking home $50,000 a year, the tax payable is $1,250 ($550 for the first $40,00 + 7% of the next $10,000)
If he/she decide to fund the maximum SRS amount of $12,750, the taxable income would be reduced to $37,250 and the tax payable is therefore $453.75 ($200 + 3.5%*$7,250). The amount of tax saving amounts to $796.25.
a. If he/she decide to contribute all the way to 62 (30 years)
Assuming a growth of 8%, the SRS account would be sitting at a value of $1,444,360.94. There are many different way on how the withdrawal can be made. For now, let’s take it as an equal drawdown over 10 years, or $144,436 per year. Half of this amount is taxable which is $72,218. With a tax rate of $550 for the first $40,000 and 7% for the next $32,218, we get $2,805.26 of tax.
You might think that’s a huge amount ($28,052.60) considering that you have to pay it over 10 years and it is something which you could avoid should you not contribute to SRS as capital gain on shares are not taxable.
But let’s not forget that you also save $796.25 of tax per year for 30 years (assuming same income and tax rate), and should you have been more responsible with your finance to grow these extra savings at a modest rate of 4%, these savings would miraculously amounts to $44,657.63. That’s not too bad isn’t it?
The only drawback is you cannot withdraw from your SRS before the statutory retirement age without incurring any penalty fee.
b. If he/she only made a one time contribution of $12,750
Again, let’s assume growth is at 8%, $12,750 of contribution will grow to $128,298 in 30 years. This amount by itself will not be taxed if you are wise enough to spread the withdrawal over 10 years. (or 4 years)
Don’t touch it for 30 years? For a humble amount of $12,750, i will take it. Tax savings? $796.25. Opportunity cost saved? $8,021 at 8%, or $2,583 at 4%.
2. 32 years old earning $150,000 a year
For income earner in the higher tax bracket, the tax benefit are more evident than those in the lower bracket.
Tax payable without SRS: $7,950 for the first $120,000 + 15% of $30,000 = $12,450
Tax payable, contributing $12,750 to SRS: $7,950 for the first $120,000 + 15% of $17,250 = $10,537.50
Tax saving: $12,450 – $10,537.50 = $1,912.50
a. If he/she decide to contribute all the way to 62 (30 years)
Same as (1), you will be taxed at $2,805.26 per year for 10 years.
Which will you choose? Save $1,912.50 per year for 30 years or $2,805.26 per year for 10 years?
It’s a no brainer.
b. If he/she only made a one time contribution of $12,750
Do i even need to calculate this?
So is SRS a sure win?
The thing to note in both examples is if you have other income sources at your retirement and say it adds up to $150,000. This would have cost you $12,450 of tax. If you add your SRS’s taxable amount of $72,218, you may end up in the higher bracket with $222,218 of chargeable income. Doing the maths, your tax payable end up to be $24,749.24. ($12,300 of additional tax per year for 10 years) More than what you would have saved from the tax.
In addition, your children will not be able to claim for ‘Parent relief’ since your income is definitely more than $4,000 a year. (But look, i can’t fathom the idea of someone retiring with less than $4,000 of income in a year anyway)
Some may also argue that you can make a cash top-up to your CPF and enjoy a risk-free rate of 4% in your Special or Retirement Account. (Currently with a $7,000 cap for yourself and $7,000 for your family members)
There are many other scenarios which may throw SRS out.
But the trick here is to keep the value of your SRS within the lower tax bracket while maximising the tax benefits on the other hand. (A yardstick of $440,000 will not cost you any tax since you can spread $400,000 over 10 years and the remaining $40,000 is not taxable once it is reduced by 50%)
I am also assuming you will not be letting your money sleep in your SRS account. You need to make it work harder than the 0.05% that the banks currently offer while managing the exposure to your risk and age profile.
An option is to consider using your SRS to buy into the STI ETF.
