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SRS 101 - What can it do for you?

When it comes to the topic of retirement planning, many may find it daunting. However, with the right knowledge, you will find retirement planning to be a breeze. In fact, SRS can be one such piece in your retirement plan.

What is SRS?

In Singapore, Supplementary Retirement Scheme (SRS) is a voluntary savings scheme introduced by the Singapore Government that encourage individuals to plan and save for their golden years. Besides serving as a retirement tool, SRS contributions can benefit both Singaporeans and foreigners by providing tax concessions to personal income.

Unlike the CPF scheme, which is only applicable to Singaporeans and Singapore Permanent Residents (PR), the SRS is available to foreigners who are working in Singapore as well.

To open an SRS account with one of the three local banks (DBS, OCBC, UOB) in Singapore, you will need to meet the following criteria:

  • At least 18 years old.

  • Not be an undischarged bankrupt; and

  • not of unsound mind and can manage yourself and your affairs.

Why use the SRS account?

Besides serving as a retirement tool, SRS contributions can benefit both Singaporeans and foreigners by providing tax concessions to personal income.

Unlike a normal savings account, the main reason for putting money in your SRS account is to enjoy the immediate tax savings. This means that the higher your income tax bracket, the higher your tax savings will be, when you contribute to your SRS account. This tax savings is capped at $15,300 per year for Singaporeans and PRs, and up to $35,700 for foreigners.

SRS is designed to allow you to grow your retirement funds through investments that include stocks, bonds and endowment plans. Additionally, after the statutory retirement age (currently 62 years old), only 50% of your withdrawal amount will be subjected to personal income tax.

For example, if you withdraw $40,000 in a calendar year from your SRS account, only $20,000 is regarded as taxable income. On top of that, no tax will be paid as the tax rate is zero for the first $20,000 of an individual's chargeable income, so it is possible that you do not need to pay any income tax on your SRS withdrawals.

Furthermore, the power of compounding comes into play. Based on $15,300 contribution per year, the higher your contribution and the longer the number of years invested in the market, the higher the total growth.

To put it simply, SRS allows you to lower your income tax while growing your retirement nest egg. And you get to save on taxes on your withdrawals made during retirement.

Benefits from tax reduction is not enough for your retirement

While contributing to your SRS account is a good first step towards planning for your future retirement as you save money through tax reduction, it is probably not good enough on its own to help build the retirement nest egg that you need and want.

Inflation can easily take away the value of your savings, as such $10,000 today may not be worth the same in the future. Unlike funds in the CPF accounts, savings in the SRS accounts will only earn you a nominal interest rate of 0.05% per annum from any of the three local banks that you open an SRS account with. If you want meaningful growth for your hard earn money, investing is the way to go, and this applies to your SRS savings.

Important notes

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.

St. James’s Place (Singapore) Private Limited is regulated by the Monetary Authority of Singapore and is a member of the Investment Management Association of Singapore and Association of Financial Advisers (Singapore). Company Registration No. 200406398R. Capital Markets Services Licence No. CMS100851.

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