If you work in Singapore, you’ve probably heard of Supplementary Retirement Scheme (SRS).
However do you know what is SRS and how you can use it to save more for retirement?
What is SRS?
Supplementary Retirement Scheme is introduced by the Singapore Government in 2001 to help Singaporeans, Singapore Permanent Residents, and Foreigners working in Singapore save more for their old age. The SRS is operated by the private sector.
Unlike the CPF scheme, participation in SRS is voluntary. SRS members can contribute a varying amount to SRS (subject to a cap) at their own discretion.
Why contribute your money into SRS?
Why should you contribute your money into the Supplementary Retirement Scheme instead of leaving it in your bank or use it for some other investments?
There are 3 major advantages for putting your money into the SRS
1. Tax savings
The amount of money you contribute to SRS will be exempted from tax until you make a withdrawal. Your yearly contribution is capped at S$15,300 if you’re a Singaporean or Singapore Permanent Resident. If you’re a foreigner, you’ll be allowed a higher yearly contribution of S$35,700 as you do not enjoy tax relief on your CPF contributions. You can read more about SRS contributions on the IRAS website.
2. Tax deferment
Only 50% of your withdrawal amount will be taxable if you withdraw your money from your SRS account after age 62. Age 62 is the minimum retirement age in accordance with the Retirement and Re-employment Act which is passed by the Singapore Government.
3. Tax-free investment gains
SRS contributions can be used for investing in selected stocks, funds, bonds for a higher return on investment. Any investment gains will not be taxed until you make a withdrawal.
Example of how you can use SRS for tax savings
Let’s say your annual income is $100,000. At age 35, you start contributing $15,300 to Supplementary Retirement Scheme every year. When you reach age 62, you start withdrawing $40,000 from your SRS account every year. Only half of this withdrawal amount ($20,000) will be taxable.
On top of that, if you do not have any other income beside the above mentioned, you will not be taxed (based on the Year 2018 Resident Tax Rate).
Are you eligible for SRS?
Singapore Citizens, Singapore Permanent Residents (SPRs) and foreigners who derive any form of income can make SRS contributions in the current year. You must be:
- At least 18 years of age;
- Not an undischarged bankrupt;
- Not suffering from a mental disorder; and
- Capable of managing yourself and your affairs.
Your employer can also contribute part of your remuneration to your SRS account on your behalf. You will be given a tax relief on the SRS contribution made by your employer on your behalf.
If you have been paying too much taxes to IRAS, then you should give SRS some serious consideration.
