The Supplementary Retirement Scheme (SRS) is not a widely known scheme among Singaporeans, PRs and foreigners working in Singapore. Yet, the scheme provides many benefits and should form an integral part of one’s financial planning.
What is the SRS?
The SRS in Singapore is a voluntary savings scheme to help individuals save for their old age. It is designed to complement the mandatory Central Provident Fund (CPF).
Individuals can make voluntary contributions to their SRS accounts. These contributions are on top of their CPF contributions and are flexible, allowing individuals to contribute varying amounts annually based on their financial capabilities.
At the time of publishing this article, the annual SRS contribution cap is $15,300 for Singapore Citizens and Permanent Residents, and $35,700 for foreigners.
There are five main benefits to the SRS.
1. Tax Relief
Contributions to the SRS are eligible for tax relief. This means that individuals can enjoy tax savings by deducting their SRS contributions from their taxable income, subject to certain limits.
2. Tax-Deferred Withdrawals
While contributions to the SRS enjoy tax relief, eventual withdrawals from the SRS are subject to tax.
Tax deferral is a financial strategy that allows individuals to delay paying taxes on income until a later date. The advantage is it allows their money to potentially grow without immediate tax implications. Individuals only pay taxes when accessing the funds at a later time.
3. Tax Concession
An added tax benefit is that SRS withdrawals are taxed at a more favorable rate than regular income. Only 50% of the withdrawals from SRS are taxable at retirement.
The combination of tax relief, tax deferral and 50% concession can result in significant tax savings, especially for many who will be in a lower income bracket in their retirement years.
4. Investment Options
SRS funds can be invested in a range of financial instruments, including stocks, bonds, unit trusts, and fixed deposits.
[MAD Partnership offers an investment option focused on global stocks for SRS account holders.]
The flexibility in investment choices allows account holders to potentially grow their savings over time.
5. Retirement Income
The SRS is designed to provide individuals with an additional source of income during retirement. Individuals can start making withdrawals from their SRS accounts once they reach retirement age. The withdrawals can be spread over a period to provide a steady stream of income during retirement.
Conclusion
The SRS offers a valuable avenue for individuals to save for their retirement. With multiple tax benefits and a range of investment options, the SRS should be an important part of one’s long term financial planning.
** Take note that most banks have a cut-off date to make SRS contributions before the last day in December.
More details can be found at the IRAS website https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/srs-contributions
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