The Supplementary Retirement Scheme (SRS) was established on 1st April 2001, to complement our Central Provident Fund (CPF) savings. While our CPF savings are often used for housing, education and medical payments, SRS is a tax-incentivised, voluntary form of savings strictly meant for retirement.
SRS is open to all Singaporeans, Singapore Permanent Residents (SPRs) and foreigners, who are at least 18 years of age, and not undischarged bankrupts or of unsound mind.
You can choose to stop the SRS contribution or make withdrawal from the SRS Account anytime. However, the intention of SRS is for long term savings and penalty is in place to discourage premature withdrawal from your SRS account. If you withdraw from your SRS account before the prevailing statutory retirement age, 100% of the withdrawal amount is taxable and there will be a penalty of 5%. However, if you withdraw from your SRS account on or after the prevailing statutory retirement age, only 50% of the amount drawn will be subject to tax. You may also spread your withdrawals over a period of up to 10 years, to meet your financial needs. Spreading out your withdrawals will generally result in greater tax savings.
An SRS account must first be opened with an approved bank. Every dollar that is voluntarily contributed in cash will result in the same amount of tax relief.
Yearly Maximum SRS Contribution by Singapore Citizens / SPRs
| Year | Absolute Income Base* | Yearly Maximum SRS Contribution |
|---|---|---|
| 2018 | (17 months x $6,000) = $102,000 | 15% of Absolute Income Base (15% x $102,000) = $15,300 |
Yearly Maximum SRS Contribution by Foreigners
| Year | Absolute Income Base* | Yearly Maximum SRS Contribution |
| 2018 | (17 months x $6,000) = $102,000 | 35% of Absolute Income base (35% x $102,000) = $35,700 |
*The Absolute Income Base is calculated on 17 months of the CPF monthly salary ceiling.
The amount must be contributed before December 31st for the Year of Assessment, in order to qualify for relief.
TAX BENEFIT ILLUSTRATION
Here’s a tax illustration of a Singaporean male, single, age 32, earning $5,000 a month and received 3 months bonus. He completed reservist training in the Year of Assessment 2018 and qualifies for the NS Man tax relief. In Scenario 1, he does not contribute to SRS.
In Scenario 2, it shows that he contributed $10,000 to his SRS account before 31st December 2018.
TYPES OF FINANCIAL INVESTMENTS
As dated end of December 2017, $8.15 billions had been contributed by a total of 140,695 SRS account holders. An SRS account holder can leave the money in his SRS in either a Singapore Dollar or Foreign Currency Time Deposit. Those who are willing to accept more risk to have a potentially higher returns can invest the money in various investment vehicle depending on the individual’s risk appetite.
The chart below shows how much are invested in the different investment in terms of percentage, it does not reflect the actual valuation.
The amount contributed can be used to invest in a wide range of financial assets such as:
- Unit Trusts
- Stocks and Shares
- Fixed Deposits
- Annuity
- Cash Deposits in the SRS account
For example, the taxpayer decides to contribute $10,000 annually into his SRS account and invest the money in a financial tool that generates 4% p.a. returns for the next 30 years. At the statutory retirement age of 62, he will see a return of $593,283. He has also reduced his taxes payable $700 annually. Through SRS, he has increased his retirement funds substantially.
At 62, he can choose to withdraw the lump sum of almost $593,283 or spread the withdrawal over 10 years. Whichever is the amount withdrawn, 50% will be taxable if it is done after the statutory retirement age. Assuming he withdraw $59,283 annually over 10 years and the current tax rate remains the same, only $29,641.50 is taxable.
The gross tax payable on the withdrawn amount will be only $192.83
Do be reminded that any withdrawal made before the statutory retirement age will be penalised.
However, only 50% of the withdrawals will be taxed if withdrawals are made under the following conditions:
- On or after the statutory retirement age prevailing at the time of first contribution
- Medical grounds
- Death
As you enter into the final quarter of this year, busy with plans for the year-end holiday, I strongly encourage you to speak to your trusted financial adviser to plan for your taxes too