The period of festivity is upon us once more, with Christmas round the corner and the new year just over the horizon.
This season, let us indulge in the merriment of the occasion with some conventional gifting! Gift giving has always been an embodiment of Christmas, and what is most important is the thought and love that accompanies the act.
Incidentally, this also ties in with the Supplementary Retirement Scheme (SRS) contribution period, which traditionally happens towards the end of year during the festive season.
The SRS is an initiative by the to provide Singaporeans and residents with a pathway to enjoy near-term tangible benefits while they save towards their retirement years.
With SRS, you can enjoy tax savings on your next assessment year. While your funds can be managed by the private sector, SRS complements the Central Provident Fund (CPF), which is meant to supplement your housing, medical and basic living needs after retirement. Unlike the CPF scheme, participation in the SRS is voluntary.
SRS accounts receive dollar-for-dollar tax relief up to $15,300 for Singapore citizens and Singapore permanent residents (PRs) and $35,700 for foreigners. In addition, your contributions can be put to work when you use your funds to purchase a range of quality investment instruments.
Saving for our retirement is something we should prioritise in our income-earning years. However, as most people at this stage have more immediate financial goals, retirement planning often gets delayed. This is where the SRS comes in.
Debunking TOP 4 Myths on SRS:
Myth 1: “SRS is part of the CPF.”
Fact: The SRS is part of the government’s multi-pronged strategy to address the financial needs of an ageing population. It is a voluntary scheme that complements the CPF. This means that on top of our usual CPF contributions, we can make additional SRS contributions subject to a capped annual limit of $15,300 for Singaporeans/PRs and $35,700 for foreigners. Below is the table for maximum yearly contribution.
Maximum Yearly Contribution | Amount in SGD |
Singaporean / Singapore PR: | S$15,300 |
Foreigners: | S$35,700 |
Furthermore, SRS has no direct links with the CPF Board. It is currently operated by our three local Singapore banks – OCBC, UOB & DBS, and administered by our Inland Revenue Authority of Singapore (IRAS).
Myth 2: “SRS contributions are purely for Singaporeans.”
Fact: No, SRS is eligible for all Singaporeans, Singapore PRs and foreigners. The only eligibility criteria are that you must be at least 18 years old, are not an undischarged bankrupt, have no existing or pending SRS account or account application with any bank; and can contribute varying amounts, subjected to a cap. Additionally, one has to be certified to not be suffering from any mental disorders, and prove to be capable of managing own affairs.
Myth 3: “SRS contribution amounts are locked all the way till the retirement age of 62.”
Fact: SRS contribution amounts are not completely locked up. However, withdrawal of funds will be subject to the withdrawal penalty as below:
Type of withdrawal | Amount subject to tax | 5% penalty imposed? | |
Penalty-free withdrawal | Withdrawal on or after prescribed retirement age (Withdrawal can be spread over 10 years from the date of first penalty-free withdrawal) |
50% of withdrawal sum | No |
Withdrawal on medical ground (physical or mental incapacity; partial withdrawal on grounds of terminal illness) | 50% of withdrawal sum | No | |
Withdrawal in full due to terminal illness | 50% of full withdrawal sum less an exempt amount of up to $400,000 | No | |
In the event of bankruptcy | 100% of withdrawal sum | No | |
Withdrawal in one lump sum by a foreigner (with at least 10 years holding period) | 50% of lump sum | No | |
Other withdrawals | Early withdrawals before prescribed retirement age | 100% of withdrawal sum | Yes |
To further encourage individuals to withdraw SRS savings at age 62 (the current statutory retirement age) or later, the government does grant a 50% tax concession for such withdrawals (example; only 50% of the withdrawal is subject to tax). Such withdrawals also do not attract a 5% penalty.
Myth 4: “SRS is only for the high-income earners.”
Fact: There is a perception that SRS is only useful for high income earners. However, while high-income earners generally stand to benefit more from SRS because of the increased amount of tax relief, the SRS scheme has intrinsic values that can benefit everyone. It can also be useful for many of us who are earning a salary which is closer to the median income range in Singapore. All income earners can opt to contribute any amount that they are comfortable with on an annual basis (subject to the contribution limit of S$15,300 yearly) to help offset some of their taxes. Below are some illustrations on how much can be saved:
An illustration of how the SRS can help a Singaporean / Singapore PR save based on an annual income of SGD $120,000:
Employment Income Less Personal Reliefs(Earned Income, CPF, Qualifying Child, Parent, etc.) | S$120,000 S$30,000 |
|
Without SRS Contribution | With SRS Contribution | |
SRS Contribution | – | S$15,300 |
Total Relief | S$30,000 | S$45,300 (Including SRS) |
Chargeable Income | S$90,000 | S$74,700 |
Total Tax Payable | S$4,500 | S$2,979 |
Potential Tax Savings |
S$1,521 You save 33% more on tax deductions this year. |
Disclaimer: For illustration purposes only. Please seek advice from a Financial Adviser Representative before making any investment decisions.
An illustration of how the SRS can help a Singaporean / Singapore PR save based on an annual income of SGD $240,000:
Employment IncomeLess Personal Reliefs(Earned Income, CPF, Qualifying Child, Parent, etc.) | S$240,000 S$50,000 |
|
Without SRS Contribution | With SRS Contribution | |
SRS Contribution | – | S$15,300 |
Total Relief | S$50,000 | S$65,300 (Including SRS) |
Chargeable Income | S$190,000 | S$174,700 |
Total Tax Payable | S$19,350 | S$16,596 |
Potential Tax Savings |
S$2,754 You save 14% more on tax deductions this year. |
Disclaimer: For illustration purposes only. Please seek advice from a Financial Adviser Representative before making any investment decisions.
An illustration of how the SRS helps a foreigner save based on annual income of SGD $200,000:
Employment Income Less Personal Reliefs (Earned Income, Qualifying Child, Parent, etc.) | S$200,000 S$30,000 |
|
Without SRS Contribution | With SRS Contribution | |
SRS Contribution | – | S$35,700 |
Total Relief | S$30,000 | S$65,300 (Including SRS) |
Chargeable Income | S$170,000 | S$134,300 |
Total Tax Payable | S$15,750 | S$10,095 |
Potential Tax Savings |
S$5,655 You save 35% more on tax deductions this year. |
Disclaimer: For illustration purposes only. Please seek advice from a Financial Adviser Representative before making any investment decisions.
For the retirees out there, you have spent a large part of your life putting your best foot forward in climbing the corporate ladder. You have contributed to building brands and breathed life into companies. Now that your work journey has come full circle, it is the best time for you to enjoy the fruits of your labour with the retirement nest egg that you have built. If you decide to make SRS contributions to your SRS account before the deadline of 31 Dec 2021, you will be eligible for tax relief the following year.
Disclaimer: Whilst we have taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Please seek advice from a Financial Adviser Representative before making any investment decisions.
APEX ADVISORY GROUP
Alex Ang
Alex Ang, a well sought-after adviser in the financial planning industry, has more than a decade of experience in helping people achieve their financial goals. As a dedicated adviser, he has built an extensive network of long-term clients who appreciate his impeccable service and advice.
Based on his outstanding performance, Alex has received numerous awards such as the IPP Chairman’s Round Table and the IPP-APEX Top Adviser. He is also consistently ranked as one of the top 10 advisers in IPP since 2014.
Recognised for his leadership skills, Alex is known to be selfless as a mentor to his team and new advisers. Under his tutelage, these advisers too have achieved success within a short timeframe. Described as a kind and passionate leader, Alex is proficient in customising the learning program according to each of his mentee’s personality. By identifying their talents, he guides them patiently on how to utilise their skills to flourish in the industry. With numerous accolades under his belt, Alex’s next goal is to nurture the next generation of leaders in the financial planning industry.
Contact Alex Ang at:
Corporate E-mail:
alexang@ippfa.com
IPP Financial Advisers Pte Ltd
78 Shenton Way #30-01 Singapore 079120 | Tel: +65 6511 8888 | enquiry@ippfa.com |
IPP Financial Advisers Pte Ltd
78 Shenton Way #30-01 Singapore 079120
Tel: +65 6511 8888 | enquiry@ippfa.com