Government’s way to get you saving

Supplementary Retirement Scheme (SRS): Government’s way to get you saving

The Supplementary Retirement Scheme, or SRS, is a program set forth by Singapore’s Ministry of Finance to encourage not only their citizens but also foreigners to save more for retirement. This encouragement comes in the form of highly attractive tax incentives to those who wish to take part in the program. 

But we already have the CPF, how is the SRS any different?

The CPF is a compulsory comprehensive savings and pension plan designed by the government to help their citizens grow a fund to support their retirement, housing, and healthcare. 

The CPF LIFE Scheme provides for retirement through the mechanism whereby at Age 55 your monies from CPFOA and SA will be combined into Retirement Account, which will start to pay out from Age 65. Most Singaporeans use their CPF monies to buy and upgrade their homes, with most of their wealth locked-in the property where they live in. Whatever’s left in the CPF usually is not sufficient for a comfortable and worthwhile retirement.

Thankfully, the government came up with the Supplementary Retirement Scheme (SRS) which allows us to voluntarily set aside monies for retirement. With the monies in the SRS account, you could choose to invest or purchase a single premium retirement plan.

SRS Tax benefits

To incentivize Singaporeans to set aside monies for retirement, the SRS program offers tax benefits to its participants by reducing your final tax payable through dollar-for-dollar tax relief which ultimately reduces your chargeable income. 

Depending on your personal income tax, if your income bracket is at 7%, and your contribution is based on a maximum contribution cap of $15,300; that will mean a reduced tax amount of $1,071 (since your chargeable income is reduced by the amount contributed to your SRS account). 

As you accumulate in your SRS account over the 20 years leading to your retirement, you could save $21,420 on tax (and even more) as your tax bracket increases. $21,420 tax savings that go directly to funding your retirement would definitely be a more attractive value proposition as compared to leaving them in our nation’s vaults. 

The best way to make use of your SRS savings is to invest them and have them accumulate throughout the years. This way, you’ll have even more to spend when you finally get to retire and live your golden years. 

Any Caveats?

Whilst you can withdraw from your SRS funds anytime, withdrawing monies prematurely or before the statutory retirement age of 62-years-old, will be subject to a 5% penalty. 50% of withdrawals are subject to tax and have to be withdrawn within 10 years (from first withdrawal). 

As such, to reap the most tax benefits, we use a “10-year strategy” by withdrawing evenly over 10 years. For example, accumulating around $400,000 SGD in your SRS account will give you the ability to withdraw $40,000 every year for 10 years when you retire. Due to 50% tax concession, only $20,000 is subject to tax, which on a personal income tax table, is $0 tax. This will allow you to make most of the tax benefits that the SRS has to offer. 

Start your SRS journey now

Your golden years are an important period in your life. It is the time when you finally get to relax and enjoy your retirement years. Integrating SRS into your Retirement plan can enhance your retirement lifestyle.

The best way to make use of your SRS savings is to invest them and have them accumulate throughout the years. This way, you’ll have even more to spend when you finally get to retire and live your golden years.