Supplementary Retirement Scheme (SRS)
Asked on 08 Nov 2019
What happens after 10 years when it matures? Does the total amount plus interest go back to SRS?
How much is the annuity plan?
I am just going to start contributing to my SRS, so likely it will be just 15k for now.
I would prefer just the SSB or Annuity plan for low risk.
If you buy an SSB via SRS, the bi-yearly coupons credit back to the SRS account, and maturity capital will also be credited back to the SRS account.
Annuity plans vary in pricing based on your desired payout age and duration and I won't be able to give a blanket answer here. But most SRS annuity plans are single premium or recurring single premium, so you won't have to worry about premium commitment.
By all means, do contribute to SRS to lower your tax and build another pillar for retirement income. However, to full maximize your SRS, you should look into deploying it instead of leaving it sitting in the account. Whether you choose SSB or annuity, or even UTs/equity, will have to depend on your preferences after you understand the pros and cons of each option.
You might want to speak to an independent financial advisor to find out more before taking action.
If you have any further question, feel free to reply to this post.
The other answers have given the mechanics of either purchase. But I would like to discuss the yield and risk comparison between SSB and an annuity/retirement product.
Currently SSBs yield just short of 2% per annum over their entire 10 year period. They also provide simple interest, not compounding interest.
The return on annuities that can be purchased with SRS funds would on average provide a projected 4% compounded return. Even if you look at just the guaranteed yields (even though you shouldn't), it is comparable to SSBs and again provide compounded return.
SSBs are a great savings tool provided by the Govt. But it's main feature is the flexibility in redeeming them without a loss of capital and some income received bi annually. SRS monies is locked up till the retirement age of 62, you can't use the flexibility nor the income generated from SSBs purchased with SRS monies.
So I wouldn't recommend SSBs purchased with SRS. Just doesn't match the objective and limitation of SRS.
The amount goes back to SRS when it matures or when you decide to close it before 10 years.
Annuity plan depends really, you need to sit down with an independent financial adviser like myself who can save you time by comparing across various insurers at one go.
But if you can max out your annual SRS ($15300) every year and you are very young now, I can tell you that you are going to get a lot of retirement income.
So to the question of SSB or Annuity, given the numbers I’ll say Annuity for sure as there is guaranteed yields plus non-guaranteed returns that could do more than SSB highest yield to date.
And SSB runs the risk of reinvestment risk. Amongst many things it is different from a traditional bond that makes it unattractive as a retirement planning tool.
Again, speak to an independent financial adviser to learn more about this before making a decision.
You have a long time horizon as for SRS you cannot touch it till 62 or whatever is the prevailing age when you open account so find something that suits this time horizon.
Proceeds (whether annuity payments or SSB maturities) will go back to the SRS fund.
If you are young/early middle age - you really should consider growth assets as you can rise the cycles of up-and-down and have high long term return.