A Supplementary Retirement Scheme (SRS) is a voluntary scheme which complements your Central Provident Fund (CPF) savings for retirement. For SRS, you can contribute as many times as you wish at any amount within the year though subjected to cap and such contribution made on or before December 31st will qualify for tax relief in the following year of assessment.
Banks would usually provide incentives to encourage you to set up an SRS account or boost your balance if you have signed up. Setting up an SRS account has its benefits as the funds can be used to purchase various investments including insurance plans such as single premium endowment policies, unit trust or shares. The savings in your account are eligible for tax relief and you can also stretch your dollar.
One of the benefits of owning an SRS account is that it contributes to tax relief and it lessens your income chargeable to tax by one dollar. It is to be noted that there is an overall personal income tax relief cap amounting to $80,000 since the Year of Assessment. Tax is payable during the withdrawal of savings which includes any investment gains. When withdrawing during retirement (referring to the statutory retirement age that was prevailing when you made your first SRS contribution), 50 per cent of the sum will be subjected to tax. The withdrawal can also be spread to ten years which results in greater tax savings.
HOW TO INVEST SRS MONEY
SRS funds can be invested in shares, all Singapore-listed exchange-traded funds (ETFs), real estate investment trusts, bonds, fixed deposits, single-premium insurance plans and unit trusts although direct property investments aren’t allowed. You can receive benefits such as tax savings and potential high returns from the investments.
Early planning for retirement is encouraged as you can benefit from the compounding effect of time which smoothens out the impact of volatility on investment holdings.
ADOPT A LONG-TERM VIEW
There is no standard method on how one should invest their SRS funds as it is determined by risk appetites and investment time horizons. As SRS is intended for long-term needs such as retirement, it is best to invest with a long-term prospect. You should identify the risk that you are willing to take before investing.
Investment tools that can be made with funds from SRS varies according to their tenor, potential returns and risk levels though it is best to not place all your eggs in one basket. A wrong move could jeopardize your investment plans which is why you should diversify your investments. It is to be noted that all investments made with SRS must be returned to the account as the scheme enables individuals to fund their retirement. However, direct property investments aren’t allowed and only single-premium insurance plans with life cover of not more than three times the single premium are allowed.
Individuals with lower risk appetite are encouraged to select single-premium endowment products and those with stronger risk appetite can consider stocks or equity-related unit trusts. Although these may be more volatile, they provide higher returns in the long term.
It is crucial to do your research before investing and to monitor your investments regularly.
SRS TO SUPPLEMENT OTHER OPTIONS
An SRS account can also supplement other investment options in which it encourages investment disciplines as the returns will ultimately be deposited back into the account. Investors can consider investing in ETF’s such as the Philip SING Income ETF that provides income and capital appreciation.
Although SRS withdrawals are taxable, it is to be noted that those who withdraw before the statutory retirement age of 62 will be subjected to 5 per cent of penalty and it only can be disregarded under certain circumstances such as medical grounds.
SRS WITHDRAWALS IN THE FORM OF INVESTMENTS
Members of SRS have been able to request their account operator to withdraw an investment by transferring to their Central Depository (CDP) account without having to liquidate their investments. Introduced in July 2015, it is subjected to certain conditions. It is to be noted that those who wish to withdraw their SRS savings prematurely must do so in the form of cash in which the investments have to be liquidated.
The information contained in this article is for general guidance on matters of interest only. While we made every attempt to ensure that the information contained herein has been obtained from reliable sources, we are not responsible for any errors or omissions, or for the results obtained from the use of this information. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any financial products. As such, before taking any action you should seek advice from an independent professional advisor.