As end of the year is approaching and if you are looking for the SRS calculator, please scroll down to the end of this article.
The Supplementary Retirement Scheme or SRS for short is a tax deferred scheme. In this tax deferred scheme, tax benefits are enjoyed immediately through income tax relief upon contribution to the SRS account. The annual contribution is up to $15,300 and $35,700 for Singapore citizens/PRs and foreigners respectively.
Assets in the Supplementary Retirement Scheme accumulate tax free until a stipulate age known as the penalty free year. As a concession, instead of the full amount, only 50% of the amount withdrawn are taxed. The first penalty free year is the retirement age defined as the statutory retirement age that was prevailing when the first SRS contribution was made. Of course, there is no need to made any withdrawal when you reach the retirement age. Withdrawal can be made after the retirement age. However, once a withdrawal is made, you have 10 years to withdraw the entire amount in the Supplementary Retirement Scheme.
Poor SRS take up rate
As on end of December 2013, there are 91,652 SRS account holders representing $4.34 billion in amount. However, how many tax paying individuals are there in Singapore? According to the Year Book of Statistics 2015, there are 1,416,391 taxable residents for Year of Assessment 2013. Of course, not everyone pay tax as their income could be too low. If I assume those whose income above $40,000 pays income tax, I estimate that there are (1,416,391 – 66,410 – 121,292 – 270,703) = 957,986 tax paying individuals (see section 20.7 of the 2015 year book).
The statistics is quite alarming because it means more than 90% of those eligible to open the SRS account are not doing so!
Besides not being aware of the existence of the Supplementary Retirement Scheme, there are those who are concerned of the potentially large amount of tax they are required to pay if they would to accumulate large amount of balances in their SRS accounts. The fact that both capital and profits are taxed upon withdrawal are usually the objections for opening the Supplementary Retirement Scheme account. Due to this reason, professional advisers introduce the concept of Relative Value.
To illustrate how such tax deferred scheme works and the meaning of Relative Value, you can enter your current age, first penalty-free year, assumed pre-tax investments return and as well as your chargeable income. Note that chargeable income is not your gross income. Chargeable income is gross income less all tax relief such as CPF relief, personal relief, Nsman relief, etc.
By trying the calculator below, a report will be sent to your email account immediately telling you whether is it worth the effort to use the Supplementary Retirement Scheme.
If you try to use the SRS calculator below, you will also receive a FREE Retirement Planning software. The retirement software will allow you to know:
- Whether do you have sufficient passive income to meet your retirement expenses?
- How inflation affects the purchasing power of these passive income streams?
- If there are insufficient passive income streams, exactly how much money is needed before you can retire.
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