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Personal Tax, Supplementary Retirement Scheme (SRS)

SRS – Preparing Your War-Chest For Retirement

Coming to the Supplementary Retirement Scheme (SRS), one of the best ways to use your SRS, would be to preserve cash for your old age. Other ways, of course, for the more adventurous and the aggressive, would be to invest it, either actively or passively. But what the SRS can really do for you, is to save on taxes (save money) and give you the opportunity to get more out of the account.

tax savings

The SRS is seen as a cash vehicle, not much difference to your ordinary savings account. However, there are some benefits and conditions that come along with it.

Many people have the misconception that the SRS is related to your CPF (somewhat, or even having the idea that they are remotely linked). To be clear, the SRS is a separate scheme from your CPF. It is a vehicle to park monies for your retirement, apart from your CPF. Hence, the name, the Supplementary Retirement Scheme.

For the more diligent investors, the SRS can be utilised as yet another, potential prospective vehicle to grow your retirement funds. Like the CPFIS, one can easily set up a SRS account with any of the 3 major local banks, DBS, OCBC or UOB.

Here is a list of what you may use your SRS for:

Shares Unit Trusts
Loan Stocks Exchange Traded Fund (ETF)
Singapore Government Securities Property Fund
Corporate Bond Fund Management Accounts
Statutory Board Bonds Insurance Policies
Investment Administrator Gold Certificate
Fixed Deposits

The main take-away of the SRS account is actually the tax-savings that you enjoy when you contribute to the account. Take note that the account attracts a similar interest rate as a typical bank savings account which can be really negligible.

tax monies

How Much Tax Savings Can I Enjoy?

Assumption: If you’re currently employed and working in Singapore or own a business in Singapore (sole-proprietor) for the last 3 consecutive years, you should be taxed as a tax resident. As a tax resident, you get to enjoy tax reliefs, and the SRS relief is one of them. (Note: Non tax residents do not enjoy any tax reliefs)

The good news is you do not need to report your contributions to the tax authorities as the bank which you have your SRS account with, will provide this information to them. Pretty hands-off!

For the year 2013, a Singaporean / SPR can contribute up to S$12,750 to their SRS. How does this convert to tax savings for you?

Using the Individual Income Tax rates for 2013 (adapted from the IRAS), here is a calculation of tax-savings (by me) using the maximum contribution of S$12,750 to the SRS (taking into account solely the SRS relief as the only relief) for that year.

 

Chargeable Income Rates (%) Gross Tax Payable (S$) SRS Tax Savings (S$) (Max. of S$12,750)
First $20,000 0                                                                          –               –
Next $10,000 2                                                                   200.00       200.00
First $30,000                                                                   200.00  –
Next $10,000 3.5                                                                   350.00       405.00
First $40,000                                                                   550.00  –
Next $40,000 7                                                                2,800.00       892.50
First $80,000                                                                3,350.00  –
Next $40,000 11.5                                                                4,600.00    1,466.25
First $120,000                                                                7,950.00  –
Next $  40,000 15                                                                6,000.00    1,912.50
First $160,000                                                              13,950.00  –
Next $  40,000 17                                                                6,800.00    2,167.50
First $200,000                                                              20,750.00  –
Next $120,000 18                                                              21,600.00    2,295.00
First $320,000                                                              42,350.00  –
Above $320,000 20    2,550.00

Some observations:Income tax

Low-Income Bracket

1) For individuals in the low-income bracket, they can avoid paying hardly any taxes just by contributing to the SRS, whilst saving for their retirement. However, it can be challenging for the low income bracket with annual income below S$30,000 (approx. < = S$2,5000 / month). This would mean they need to set aside S$1,062.50 monthly (42.5% of their take-home pay) into their SRS account to enjoy the maximum SRS relief.

Is this amount highly difficult for Singaporeans and  > 3rd year SPRs who have to contribute 20% (Employee’s contribution) of their salary to the CPF?

Just an example calculation on how much you can spend for the month (for those who wish to contribute to the SRS):

Amount of take home pay in cash after CPF contributions: 0.80 * S$2,500 = S$2,000
Amount left for personal expenses after setting aside amount for the SRS: S$2,000 – S$1,062.50 = S$938.50

My take: To retire comfortably, one has to start early and be consistent. Much of the lifestyle will have to be put on hold (delayed gratification). The most important trait to living within this boundary is maintaining financial discipline. We often fall into the trap of being financial savvy, but lacking the discipline to see the plans through.

One has to be very disciplined with the amount set aside for personal expenses. Having to live simply is also a must (and a good habit to develop). Also, it may help getting a credit card which ties in to the transportation companies to help earn rebates / credits for shuttling between home and the office. For entertainment, perhaps finding a low-cost activity to unwind such as reading or taking a walk / exercising may be one of the many options out there.

Middle-Income Bracket

2) Based on the table above, the tax-savings can be substantial especially for the middle-income bracket of tax payers (S$80,000 – S$160,000 income bracket). It actually benefits the working class in this bracket as most would possibly be in the prime of their careers / businesses and this would probably be the best opportunity to amass funds for retirement. The income bracket for individuals with annual income of S$80,000 (approx. S$6,666.67 / month) to S$160,000 (approx. S$13,333.33 / month) could enjoy tax savings of approximately S$890 – S$1,900 annually.

In terms of protecting oneself against uncertainty, this is enough to:

a) Get the most expensive medical insurance;
b) Subsidise a whole-life policy;
c) Supplement savings to an endowment / annuity.

For annual income bracket of S$80,000 (max. monthly SRS contribution amounts to approx 15.94% of take-home pay)

Just an example calculation on how much you can spend for the month (for those who wish to contribute to the SRS):

Amount of take home pay in cash after CPF contributions: S$6,600 – 0.20 * S$5,000 (subject to CPF OW Ceiling cap) = S$5,600
Amount left for personal expenses after setting aside amount for the SRS: S$5,600 – S$1,062.50 = S$4,537.50

 

For annual income bracket of S$160,000 (max. monthly SRS contribution amounts to approx 7.97% of take-home pay)

*this should be well affordable by those in the bracket

Just an example calculation on how much you can spend for the month (for those who wish to contribute to the SRS):

Amount of take home pay in cash after CPF contributions: S$13,300 – 0.2 * S$5,000 = S$12,300
Amount left for personal expenses after setting aside amount for the SRS) S$12,300 – S$1,062.50 = S$11,237.50

Looks attractive doesn’t it! Probably should act on it too!

Gold Coins and plant isolated on white background

Making Your SRS Work Harder For You

Similar to the CPFIS, the funds in the SRS can be used to invest to reap decent profits which can be snowballed over time (compounding interest). This also helps to grow your retirement funds over time so that when you reach the age of 62 (or the age which you have chosen to withdraw), you can withdraw from it slowly over 10 years (the scheme is such that you can only withdraw in 10 years) which can help tide you through as you live longer too.

Also note that there is no capital gains tax on your SRS investments (i.e. if you invest using your SRS, the profits need not be taxed).


Withdrawal of SRS Monies

The most applicable and probable scenario for those who withdraw from the SRS upon reaching the statutory age of retirement is that 50% of the amount withdrawn will be brought to tax. However, if that amount is less than the income bracket that generates a tax liability for the entire year, then there will be no tax to be paid.

For example, in the preceding year (the year before), if the total amount withdrawn (over the next 10 years) is S$40,000, then 50% of S$40,000 (which is S$20,000) will be brought to tax. However, since the first S$20,000 (refer to the Individual Income Tax Rates Table) attracts zero tax, hence, this amount is tax-free.

**S$40,000 p.a. translates to approximately S$3,330 / month. Pretty decent amount in respect of today’s living standards.

If one has to withdraw the entire SRS monies, the entire amount will be brought to tax + 5% penalty charges. For more examples, please refer to the IRAS homepage provided below.

Here is a summary table of common scenarios of SRS withdrawals, taken from the IRAS homepage (the link can be found here):

Types of withdrawal Amount subject to tax
Withdrawal upon retirement (see note 1 below) 50% of amount withdrawn
Withdrawal in the form of annuities 50% of the annual stream
 Penalty free early withdrawals:
50% of the ‘Deemed withdrawal’ amount
50% of amount withdrawn
  • Withdrawal in one lump sum by a foreigner (excluding SPR).He/She must have maintained the SRS account for at least 10 years from the date of first contribution and have been a non-Singaporean for a continuous period of 10 years before the date of withdrawal.
50% of amount withdrawn
100% of amount withdrawn
Early withdrawals (before retirement) with 5% penalty

  • SRS operator will complete  Form PMP      (78KB)  to account for the penalty on premature withdrawal by Singapore citizens and Form IR37B    (80KB)   for SPRs and foreigners.
100% of amount withdrawn

Note 1 : You can withdraw your SRS monies over 10 years from the date of your first penalty-free withdrawal. Withdrawals are penalty-free only if they take place after the statutory retirement age that was prevailing at the time of your first SRS contribution. The statutory retirement age for all SRS members is currently at 62.

Spreading out your withdrawals will generally result in greater tax savings.

Note 2 : Under the Income Tax Act, where an SRS member dies, any sum standing in his SRS account shall be deemed to be withdrawn (‘Deemed withdrawal’ amount) on the date of his death even though no physical withdrawal may have been made on that day.

Best of Both Worlds

Well, now that you’ve unlocked the secret to creating a warchest for retirement and saving on income tax, it is time to take action TODAY! Happy saving! 🙂

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About Elvin

Singaporean. Christian. Blogger. Design Enthusiast. Portfolio Manager. Investor. Trader. Dreamer. If you're around town or would like to meet up in the city, let me know and perhaps a coffee would be nice.

Discussion

5 thoughts on “SRS – Preparing Your War-Chest For Retirement

  1. I think take home cash should be higher as employee CPF contribution rate is currently at 20% for those under 50 yo. Also, CPF contribution is cap at $5000 of Ordinary Wage and hence those earning 60k annually will have even more take home cash…

    Posted by Jimmy | June 4, 2014, 1:39 am
  2. Hi,
    Great acticle and thank for the info.
    I am 63 this year, still working, and I am wondering if it make any sense for me to do put money to srs. Hope you can share some advise. Thanks

    Posted by junkianu | December 11, 2015, 11:54 pm
    • Hi Junkianu,

      Nice to hear from you! If you’re 63, it may not make much sense now, however if you are looking to save some money on taxes, why not. In fact, if it is disposable income which you’d set aside even for the next 5 years, you could still park it in the SRS to benefit from the tax savings next year.

      The parked sum can then be allocated to an asset class of your choice, be it a savings bond, or fixed deposit, money market etc.. Lower risk assets.

      However, I’m assuming you’ve already maxed out your CPF minimum sum and contributions, if not, it would make sense to park it there to earn the higher returns too.

      Some ideas I have:

      1) if you intend to park the money for withdrawal a couple of years later, SRS makes a better choice vs CPF because of the flexibility of withdrawal.
      2) if you have a family member or spouse reaching this age bracket, you can also benefit from additional CPF tax deductions at the same time helping out the family member.

      Posted by Elf on a Shelf | December 12, 2015, 1:21 am

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Elvin

Elvin

Singaporean. Christian. Blogger. Design Enthusiast. Portfolio Manager. Investor. Trader. Dreamer. If you're around town or would like to meet up in the city, let me know and perhaps a coffee would be nice.

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