Webinar: SRS top-ups for tax relief — cash trap or retirement windfall?
Endowus Insights

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Webinar: SRS top-ups for tax relief — cash trap or retirement windfall?

Nov 2022
Oct 2021

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.

0:00 - Introductions

5:48 - What is SRS?

6:56 - Tax reliefs for SRS contributions

10:10 - Tax deferment on SRS

12:50 - Common questions about SRS

20:03 - Question: “Would it make sense to top up into SRS instead of buying saving plans?”

24:10 - Income tax deductions

32:28 - Growth of SRS contributions in Singapore

36:11 - Useful SRS facts to know

41:04 - Investing your SRS

42:26 - Question: “As a foreigner, if I move to a different country, can I keep my investments in my SRS account or do I have to close the account?”

47:53 - Question: “What happens to the money not withdrawn after 72 years old?”

51:23 - General QnA

What is SRS?

The Supplementary Retirement Scheme (SRS) is a voluntary retirement savings scheme, separate from CPF. SRS contributions reduce your income tax in the Assessment Year on a dollar-for-dollar basis. It is available to Singaporean citizens, Permanent Residents (PRs), and foreigners above the age of 18. To open a SRS account, simply approach one of the three local banks (DBS, OCBC, or UOB) to open your account and start to contribute.

You and/or your employer may contribute at any time, and as often as desired, up to the maximum SRS contribution amount for the year, which is $15,300 for Singapore citizens/PRs and $35,700 for foreigners. All contributions must be made by 31 December of the year, or the date set by your SRS operator, in order to qualify for SRS tax relief.

Key excerpts from the webinar

Tax deferment on SRS (6:56)

Sheng Shi: SRS is not a tax relief scheme but a tax deferment scheme. You get tax deferment till the statutory retirement age (currently 62 years old) if you were to top up your SRS account by July 2022. When you reach the statutory retirement age, you can start withdrawing from your SRS account. Before reaching this age, withdrawals would incur a penalty of 5%, and your full withdrawal sum would be taxable. For withdrawals on or after the retirement age, 50% of the withdrawal amount will be taxable.

There has been talks about the government intending to push back the retirement age, so in order to lock in your withdrawal age at 62 years old, you should contribute to your SRS account as soon as you can.

Am I too young to start my SRS account? (13:26)

Sheng Shi: You should start your SRS account as soon as you can, if you are of eligible age, to lock in your retirement age.

The right time for you to seriously contribute larger amounts to your SRS account would depend on your income tax level. You should also take into consideration the opportunity cost of keeping your money locked up in a retirement account for the long term.

Can my SRS account grow “too big” such that I have to be taxed for it? (15:26)

Sheng Shi: Based on the tax savings you can make now, it might help if you let your money grow in your SRS account, such that paying higher taxes in the future would still make you more well-off. Generally, it is better to have a bigger than smaller SRS account.

Are annuity products better because I can spread out withdrawals? (16:10)

Sheng Shi: Generally, annuity products give a lower return, especially considering the current interest rate environment. If you are able to invest for the long term, using higher return products might be better for you. But as always, do take into account your personal risk appetite and financial needs when you invest.

Income tax deductions (24:10)

Lean Sing: If your annual income is within a certain tax bracket, through a mixture of discretionary and non-discretionary means, you are able to lower your income tax. The non-discretionary measures are usually automatically filled in your income tax return. The discretionary measures include donations, CPF self top-ups, CPF top-ups for loved ones, and SRS contributions.

There are two main ways to top up our CPF for ourselves - through the Medisave Account (MA) and Special Account (SA), subject to the yearly top-up limit for each account.

table of cpf top up details for yourself, including the different cpf accounts and top up limits
Topping up CPF for ourselves

Beyond ourselves, we can also top up our loved ones’ (e.g., parents, grandparents, spouse, etc.) accounts, subject to the various criteria and tax relief limit.

table of cpf top up details for our loved ones, including relationship to you, criteria, and tax relief limit
Topping up CPF for our loved ones

You can potentially enjoy up to $14,000 in tax relief by topping up your and your loved ones’ CPF accounts, pending the various qualifying factors and limits.

Investing your SRS (41:04)

Lean Sing: We highly encourage you to invest your SRS monies. According to the Ministry of Finance, 26% of SRS contributions are in cash. Cash in your SRS account only earns 0.05% interest, meaning that your inflation-adjusted returns on your cash in SRS is actually negative. SRS funds have a long-term investment horizon, where you can afford to take higher risks for higher expected returns over time.

At Endowus, you have two options of how to invest your SRS monies. Firstly, if you prefer a portfolio recommendation, we will provide you with a risk-appropriate optimized portfolio with a mix of equities and fixed income unit trusts. Secondly, under Endowus Fund Smart, you are able to create your own customised portfolio from a pool of best-in-class funds.

Questions and answers from the webinar

Would it make sense to top up into SRS instead of buying saving plans? (20:03)

Lean Sing: Regarding whether or not saving plans are suitable for yourself, you have to consider factors such as cost, risk, and pay out.

Contributing to our SRS accounts would be beneficial for some of us from a tax deferment perspective. You need to consider if top-up into SRS account is beneficial for you in your current tax bracket, then you can evaluate how the financial instrument that is suitable for your financial needs.

Sheng Shi: If you do decide to top up your SRS account, it is very important that you invest the amount, as you are only earning 0.05%p.a. interest in your SRS account. It is crucial that you ensure your retirement money keeps afloat of inflation.

As a foreigner, if I move to a different country, can I keep my investments in my SRS account or do I have to close the account? (42:26)

Sheng Shi: You can keep your investments in your SRS account and withdraw the contents after 10 years, subject to the prevailing tax rates at the point of withdrawal.

What happens to the money not withdrawn after 72 years old? (47:53)

Sheng Shi: The remaining value of your investments at 72 will be calculated and added to your taxable income for that year.

What is the difference between Endowus and iFast? (49:10)

Lean Sing: Firstly, Endowus is an advisory platform and we prioritize our advice. We have a threefold approach to advisory. First, before clients even open an account with us, we have already begun curating best-in-class portfolios that are suitable for our clients. Second, after you create an account, we will help you identify your risk appetite and subsequently advise you on a suitable investment portfolio. Lastly, after you have invested with us, through a variety of manners such as our Insights articles and investment office updates, you are able to get consistent, up-to-date advice from us.

We also do not accept trailer fees or commissions from any product providers.

Finally, we utilise institutional share class products that are typically only available at private banks and are inaccessible to the general masses. These are not found on the typical fund platforms like Fundsupermart or Dollardex.

Learn more about Endowus SRS offerings here.

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