5 Things You Need to Know About Investing With the Supplementary Retirement Scheme (SRS)
The end of year period happens when many of us would look to optimise tax savings. One such method is through the Supplementary Retirement Scheme (SRS). The Supplementary Retirement Scheme is part of the government's multi-pronged strategy to help Singaporeans develop savings for our retirement. Unlike CPF contributions from your salary, contributions to our SRS account are voluntary.
The main reason to top up our SRS account is to enjoy dollar-for-dollar tax relief, up to and including maximum of $15,300 for Singaporeans and Permanent Residents (PRs), and $35,700 for foreigners working in Singapore. The end-of-year period is also when some financial institutions may also offer attractive promotions should you invest SRS funds through them.
Since the SRS is supposed to provide us with retirement income during our golden years, you will find withdrawal rules that we have to take note of.
If we withdraw funds from our SRS account before the statutory retirement age (currently 62), the full withdrawal amount is going to be subject to income tax. In addition, you'll also have a 5% penalty on the withdrawal amount. For instance, if we withdraw $40,000, you will see a penalty of $2,000 (5%) that we'll pay.
If a withdrawal is made before the statutory retirement age due to death or medical grounds, 50% of the withdrawal amount will be subject to income tax. If the withdrawal is created before the statutory retirement age due to bankruptcy, 100% of the withdrawal amount is going to be subject to income tax. In all of these cases, there will be no 5% penalty payable.
If we make withdrawals after reaching the statutory retirement age, we will receive a 50% tax concession on our withdrawal amount. For instance, if we withdraw $40,000 from our SRS account for the year, only $20,000 will be considered as taxable income. Also, there will be no penalty imposed on our withdrawal amount.
Besides comprehending the SRS withdrawal rules, we also need to understand some other areas pertaining to the SRS.
#1 How Much Tax Relief We Enjoy Depends upon The Income Tax Bracket We Are In
Singapore practices a progressive tax system. Which means that the personal income tax rate increases because the taxable income increases. For those who need to pay personal income tax, the tax rate is often as little as 2% to as high as 22%.
For example, an individual with a chargeable income of $80,000 will pay $3,350 in income tax. In comparison, a person with a chargeable salary of $40,000 will pay $550, which is about six times lower.
|Chargeable Income||Income Tax Rate (%)||Tax Payable For Chargeable Income Of $80,000||Tax Payable For Chargeable Salary of $40,000|
($0 to $20,000)
($20,001 to $30,000)
($30,001 to $40,000)
($40,001 to $80,000)
|Total Amount Payable||$3,350||$550|
If both of these individuals contribute $5,000 to their SRS account, the person with the higher chargeable income of $80,000 will enjoy a tax savings of $350. The person with the lower chargeable salary of $40,000 will enjoy a tax savings of $175 since the person is in a lower tax bracket.
Before contributing to our SRS account, you need to first know which income tax bracket we fall within. This can determine how much tax savings we love if we contribute to our SRS take into account the year. The higher the tax savings, the higher the motivation to contribute to our SRS account.
#2 We ought to Seek to Invest Our SRS Monies
Unlike funds within our CPF accounts that earn us a risk-free return which is between 2.5% to 6.0% per annum (p.a.), funds in our SRS account will only earn us a nominal rate of interest of 0.05% p.a., that is obviously not good enough.
Unless you are close to retirement (e.g. you're 61 this year and intend to withdraw the money next year), it makes sense to invest our SRS monies to ensure that it earns higher returns. This is especially true if we still have a long-time horizon to our retirement.
For example, a person who is 42 this year will still have 20 years before they will start making withdrawals from their SRS account. This provides them sufficient time to invest and earn a higher return in the markets while being able to ride out market volatility.
#3 We do not Need to Invest Through the Agent Bank We Open an SRS Account With
Similar towards the CPF Investment Scheme (CPFIS), we will have to open an SRS account with one of the three local banks in Singapore – DBS; OCBC; UOB. We are able to only hold one SRS account at any point in time. If we have opened an SRS account with one of the agent banks and would like to switch to another bank, we can do so.
It's important to note that the responsibility from the agent banks is to hold the SRS monies on our behalf depending on the laws that govern it. The agent banks do not invest nor manage any of the funds in our SRS account for us. Funds within our SRS account can only be invested or withdrawn as per our instruction.
One misconception is the fact that we can only invest with the agent bank that we open an SRS account with. This is not true. Any SRS-approved investments can be created through our SRS account, regardless of which agent bank we open an SRS account with.
For example, whether we open an SRS account with DBS, OCBC or UOB, we can still invest our SRS savings via a platform such as MoneyOwl. The agent bank you open your SRS account with doesn't restrict you from any SRS-eligible investments you intend to make.
From now till 31 December 2021, MoneyOwl has an SRS Promo where you can get up to $200 price of eCapitaVouchers if you invest your SRS savings through them.
#4 Types of Investments We Can Make
While we can't use our SRS monies to purchase a property, overseas stocks or commodities, you may still find multiple investments that we can make using our SRS account.
For example, there are lots of stocks, REITs, ETFs and bonds listed on the Singapore Exchange (SGX) that we can invest in using our SRS monies. If we prefer to gain exposure to overseas markets, we can consider investing our SRS monies via unit trusts such as those offered by MoneyOwl. This will let us gain exposure to a wide range of globally diversified bonds and stocks. As always, the level of risk we are willing and able to take on will determine our investment portfolio's asset allocation.
Those who prefer an instrument that can provide us with regular income streams during our retirement can you will want a retirement income insurance plan using our SRS savings. Such plans are made to provide us with a steady stream of regular income (guaranteed + non-guaranteed) during our retirement many are an excellent complement to the CPF LIFE payouts. You can find out much more about such SRS-approved retirement plans with MoneyOwl.
When it comes to our SRS investments, we should ideally be investing based on a long-term investment strategy, and in assets that we're comfortable with. After all, the investments we made via our SRS savings are clearly earmarked for the retirement. This falls nicely in line with MoneyOwl's investment philosophy which concentrates on generating returns to achieve your long-term financial targets.
To be clear, whether we use our SRS money to invest in unit trusts and retirement income insurance coverage, or prefer funding them using cash, an investment products that we are getting are identical. The key difference is that by using our SRS account, we get to savor immediate tax savings, on top of the returns that we can get from these investments.
#5 The Statutory Retirement Age When We Can Start Making Penalty-Free Withdrawals Is dependant on When Your First SRS Contribution Was Made
As produced in point 1, SRS account holders can make penalty-free withdrawals from their accounts when they reach the statutory retirement age (currently 62). They also enjoy a 50% tax concession for the amount they withdraw from their accounts.
What fewer people know would be that the statutory retirement age is based on when your first SRS contribution was made.
As announced in last year's National Day Rally, the statutory retirement age will increase to 63 in 2022, and eventually move up to 65 by 2030. So if you want to make a penalty-free withdrawal from 62, it may be logical to open and contribute to your SRS account soon, prior to the statutory retirement age increases.
Invest Your SRS Funds Through MoneyOwl And Get Up To $200 eCapitaVouchers
If you are intending to bring about your SRS account and would like to invest your money in an eligible unit trust or retirement income insurance plan, you will be glad to know that MoneyOwl is quitting to $200 in eCapitaVouchers when you invest your SRS funds through them.
Here is when much you can redeem in line with the amount you invest:
|SRS Funds Invested with MoneyOwl||Shopping Vouchers|
|$1,000 to $10,000 fresh funds invested OR;||$50|
|$10,001 to $50,000 fresh funds invested OR;||$100|
|$50,001 and above fresh funds invested||$200|
Do observe that only first-time MoneyOwl customers are eligible to redeem for vouchers in the first tier (between $1,000 to $10,000).
*Terms & conditions apply.
You can find out more details about this MoneyOwl SRS promotion here.
Whether we're just starting in our career, or going to approach our golden years, the Supplementary Retirement Scheme (SRS) is a superb way to enjoy tax savings while still ensuring that we aside money for our future retirement. By investing our SRS contributions, we also ensure that our retirement money is working hard for us.
In a nutshell (captured in an infographic), here are the 5 things you need to around investing through your Supplementary Retirement Scheme (SRS):