Photo credit: Scott Wills
Supplementary Retirement Scheme (SRS) is a retirement financial planning tool to augment the Central Provident Funds (CPF). The main difference is that the former is voluntary while the latter is compulsory. SRS was introduced in 2001 by the Singapore Government as a measure to deal with the increased financial needs of aging population.
Why you should put money into SRS?
Tax savings! The amount you set aside in SRS is deductible from your taxable salary for that year. Only 50% of the money withdrawn from your SRS account will be taxable. Moreover, it must be noted at your retirement age, your income bracket is much lower than your prime career period, thus if you can plan the amount of withdrawal properly, it is possible that you can achieve little or no tax (note that first S$22,000 is not taxed in Singapore).
Besides tax savings, you can invest freely in shares and unit trusts of your choice to grow your funds. Since you cannot cash in the dividends, you will enjoy the effect of compounding on your money.
What is the main catch?
SRS’s purpose is to provide financial support for Singaporeans’ retirement and thus, to discourage usage of this retirement fund, early withdrawal will not enjoy tax concession of 50% and 100% tax will be imposed. In addition, there will be a penalty of 5% for premature withdrawal. Thus, you must make sure the money you put in your SRS account is what you do not need in the near future.
Is there a limit of contribution?
Singaporeans and Singapore Permanent Residents are limited to 15% of their salary base while foreigners are limited to 35%. The maximum salary base is S$76,500 which means the maximum contribution cap to SRS is 15% x 76,500 = S$11,475, even if your annual salary is higher than this sum. For foreigners, 35% x 76,500 = S$26,775.
To be able to contribute funds to SRS account, you need to open one with any of the local banks listed below:
You can download the SRS Handbook compiled by Ministry of Finance here.
Please do take note that there have been a few changes in SRS as mentioned in Budget 2008 that are not reflected in the SRS Handbook:
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