Recently I opened a Supplementary Retirement Scheme (SRS) account with OCBC bank, at this moment no intention to contribute any amount into that account. But when close to year end period I may work out my estimated annual income in order to determine whether is worth to put some money into my SRS account or not.
SRS explained:
What is it?
SRS was established on 1st April 2001 to encourage individuals to save for their retirement by offering tax incentives. The SRS is open to all Singaporeans, Singapore Permanent Residents (PRs) and foreigners who are at least 21 years of age.
Benefits
Other than the benefit of having a larger pool of savings upon retirement, members can also claim tax relief for contributions made to the SRS. Investment gains in the SRS are tax free with the exception ofSingapore
How does it work?
All SRS contributions are to be made in cash at any time before 31st December each year.
To make a contribution, an SRS account must first be opened. The amount of contribution is subject to a cap. The SRS contribution cap is no longer based on the individual’s actual earned income but on a common absolute cap of $76,500 i.e. 17 months of the prevailing CPF salary ceiling of $4,500. This amount is 15% of $76,500 or $11,475 for Singaporeans and Permanent Residents, and 35% of $76,500 or $26,775 for foreigners.
SRS was established on 1st April 2001 to encourage individuals to save for their retirement by offering tax incentives. The SRS is open to all Singaporeans, Singapore Permanent Residents (PRs) and foreigners who are at least 21 years of age.
Benefits
Other than the benefit of having a larger pool of savings upon retirement, members can also claim tax relief for contributions made to the SRS. Investment gains in the SRS are tax free with the exception of
How does it work?
All SRS contributions are to be made in cash at any time before 31st December each year.
To make a contribution, an SRS account must first be opened. The amount of contribution is subject to a cap. The SRS contribution cap is no longer based on the individual’s actual earned income but on a common absolute cap of $76,500 i.e. 17 months of the prevailing CPF salary ceiling of $4,500. This amount is 15% of $76,500 or $11,475 for Singaporeans and Permanent Residents, and 35% of $76,500 or $26,775 for foreigners.
Early withdrawals from SRS Account
Withdrawals can be made in any amounts, at any time. However, if the withdrawal is made before the statutory retirement age, 100% of the sum withdrawn will be subjected to the individual's marginal tax rate. On top of that, a 5% penalty will be imposed.
Withdrawals can be made in any amounts, at any time. However, if the withdrawal is made before the statutory retirement age, 100% of the sum withdrawn will be subjected to the individual's marginal tax rate. On top of that, a 5% penalty will be imposed.
What type of investments can I invest my SRS funds in?
Funds in the SRS account may be invested in a range of financial products. This includes fixed deposits, insurance products and unit trusts. Investments in direct property are not allowed. As for life insurance products, only single premiums with life cover of not more than three times the single premium will be allowed. Critical illness, healthcare and long term care products are excluded from this scheme. All proceeds from the realization of SRS investments must be returned to the SRS account.
Funds in the SRS account may be invested in a range of financial products. This includes fixed deposits, insurance products and unit trusts. Investments in direct property are not allowed. As for life insurance products, only single premiums with life cover of not more than three times the single premium will be allowed. Critical illness, healthcare and long term care products are excluded from this scheme. All proceeds from the realization of SRS investments must be returned to the SRS account.
How to get the best deal?
Before start saving under the SRS scheme, it is advisable to do a simple cost-benefit analysis to review the potential tax benefits as well as earnings from investing your SRS funds. This should be weighed against the opportunity cost of tying down your funds till retirement age. There is a chance that if SRS savings are withdrawn in its entirety on retirement, you will end up paying more income tax on the withdrawals than what was gained in tax savings. However this may be mitigated by staggering withdrawals over a period of 10 years.
Before start saving under the SRS scheme, it is advisable to do a simple cost-benefit analysis to review the potential tax benefits as well as earnings from investing your SRS funds. This should be weighed against the opportunity cost of tying down your funds till retirement age. There is a chance that if SRS savings are withdrawn in its entirety on retirement, you will end up paying more income tax on the withdrawals than what was gained in tax savings. However this may be mitigated by staggering withdrawals over a period of 10 years.
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