Last Updated on 1, December 2022
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 As a concession, instead of the full amount, only 50% of the amount withdrawn are taxed.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 2021, there were 288,793 SRS account holders representing $14.36 billion in amount. However, how many tax paying individuals are there in Singapore? According to the Singapore Yearbook Manpower Statistics 2021 Edition, there were approximately 995,2000 taxable residents who pay income tax.
The statistics is quite alarming because it means more than 70% 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.
Like this article? Subscribe to my newsletter below for more.
Hi Wilfred, I chanced upon your website & thoroughly enjoy it. Thanks for sharing your knowledge.
I’d like to say something about SRS. The tax incentive is good but my money has been idling there, unable to invest in things I could have invested if I left my money as cash.
To gain global exposure, I’ve always wanted to invest in non Singapore ETFs. But other than STI ETF, most other ETFs listed in Singapore are just not right (low liquidity, synthetic, etc). And I can’t use my SRS money to invest in good ETFs listed in say Hong Kong or London.
This is an expensive price to pay for a one-time tax saving, which could be one of the reasons for its low take-up by more savvy investors.
You can always invests in unit trusts which has global presence. There are a number of good unit trusts although you have to work a little bit harder to identify them.. Otherwise, buying Singapore stocks is fine. Many companies listed on the SGX have global presence. Besides, your SRS money is just a small part of the overall portfolio. Investing all the SRS in Singapore stocks or STI ETF does not mean you are overexposed to a single country as long as you are diversified overall.