You will be able to explain SRS contributions, the yearly limit and the lock until retirement age.
Every December, Darren's school staffroom has the same conversation. One teacher has just put money into SRS. Another says it's a trap because the money is stuck until retirement. A third says he opened an account years ago with one dollar and never touched it again, and nobody is sure whether that was clever or pointless. Darren had nodded along for three years without knowing which of them was right.
This lesson sets out how the Supplementary Retirement Scheme works from the tax side: what goes in, how the relief is worked out, and the rule about retirement age that explains the one-dollar account. Build and run an ETF portfolio, lesson 7.1, How SRS works for an ETF investor, covers SRS from an investor's point of view. Module 4 here follows the tax all the way through.
The Supplementary Retirement Scheme, or SRS, is a voluntary savings account for retirement. You open it with one of the banks that act as SRS operators, and you can only have one SRS account at a time. Nobody pays into it for you. You decide whether to contribute in a year, and how much, from nothing up to the yearly limit.
Each dollar you contribute is relief from your income for that year. It reduces your chargeable income, so like every relief in this course it saves tax at your marginal rate. Contributions made by 31 December count for the next year of assessment. The SRS relief also counts toward the cap on total personal reliefs from lesson 3.3, The relief cap and the order you claim in.
The yearly limit is set by the government and published by IRAS. There is one limit for Singapore citizens and permanent residents, and a higher one for foreigners. Look up the current figures on the IRAS website before you plan an amount.
SRS is built for long-term money. You can withdraw at any time, but the tax treatment depends on when.
From the statutory retirement age that applies to your account, withdrawals get favourable tax treatment, which lesson 4.3, The tax on withdrawal, and what early withdrawal costs, explains. Take money out before that age and the whole withdrawal is taxed, with a penalty on top, apart from a few exceptions.
Which statutory retirement age applies to you is fixed by the date of your first contribution. The age that applies is the one in force when you first put money in. The government has been raising the statutory retirement age in steps, so a later first contribution can mean a later age.
That is the reason behind the one-dollar account. Making a small first contribution early fixes the retirement age that applied at that time, even if you don't contribute again for years. Whether that's worth doing depends on whether you're likely to use SRS at all, but it isn't pointless. IRAS sets out the current ages and the rule on its website.
The arithmetic is the same as for any relief. Take your expected chargeable income, subtract the contribution, and run both through your band formulas from lesson 1.4, Rebuild your tax bill from scratch.
Darren's example chargeable income is S$33,000, at a marginal rate of 3% under the practice table. A S$10,000 contribution, an example amount below the limit, would bring him to S$23,000, still inside the 3% band. It would save him S$300.
His sister Shu Ting ran the same number. After the top-up she decided on in lesson 3.4, Decide your top-up for the year, her expected chargeable income was S$79,000, which sits in the 6% band. S$10,000 would bring her to S$69,000, all within that band, so it would save her S$600.
Same contribution, twice the saving, because her rate is twice his. Neither number tells you yet whether SRS is worth it. That depends on what the money does inside the account and on the tax when it comes out, which the next three lessons cover.
From the tax side alone, SRS suits people with a higher marginal rate now, money they're confident they won't need until retirement, and a plan to invest what goes in. It suits people less if they're in a low band, if they may need the money for a home or a career break, or if they would leave it as cash.
Darren's answer was that at 3%, a S$10,000 contribution saved him S$300 and locked the money up for decades. He wasn't ruling it out, but he wanted to see the whole picture first.
For the activity, look up the current SRS limit that applies to you on the IRAS website, then work out what a full contribution would save at your marginal rate, using your rebuild sheet.
Write the current SRS limit for you and the tax a full contribution would save at your marginal rate.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).