What are the benefits of SRS? I'm finding a lot of cons, not a lot of pros. Any advice? - Seedly
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Supplementary Retirement Scheme (SRS)

Retirement

Savings

Anonymous

Asked 2w ago

What are the benefits of SRS? I'm finding a lot of cons, not a lot of pros. Any advice?

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Takingstock @
Takingstock @
Level 6. Master
Updated 2w ago

It's a tax deferral scheme and is more beneficial to high income earners by granting tax relief which lowers the income tax they have to pay.

I came up with my own guidelines sometime last year, which is to use my incremental tax rate x annual income to determine the amount to set aside for tax relief.

Example say Benny earns 7k salary per mth, 12 mth + 13 mth bonus = 91k. After deducting the cpf relief, Benny's incremental tax rate is likely to be 7% on chargeable income (between 40-80k). In this case, I would advise Benny to consider doing tax relief of 7% x 91k which is about 6,300. For this amt, it might be better to just set all of the 6,300 in cpf retirement sum top-up (risk free 4% plus no future tax liability). Benny would save 7% of 6300 = 441 on next year income tax bill.

Consider Charlie who earns 9k per mth, with 13 mth bonus, annual salary is 117k. Charlie's incremental tax rate is probably 11.5% for chargeable income between 80-120k. So I would recommend doing tax relief of 11.5% x 117k ~ 13.5k. I would further recommend first 7k into cpf retirement sum top-up, and the remaining 6.5k into srs, which allows him to do a regular savings plan of 500 per mth, possibly using those robo advisors doing index investing. Charlie will save 11.5% x 13.5k = 1550 on next year income tax bill.

When Charlie reaches 62, assuming Charlie did this over 20 years, and the funds grew 200%. The srs pot would be 6.5k x 20 x 3= 390k. He could withdraw 39k each year and only need to pay tax on half the withdrawals. Assuming tax rates don't change, and he is not working, he only needs to pay less than 350 of income tax on the 39k withdrawal, each year for 10 years. So Charlie would have 1550 x 20 years = 31,000 of tax savings over the 20 years but pay less than 3,500 of taxes between 62 to 72.

How would this not be a good deal?

Note: the numbers are agar agar, so please don't troll me. =)

Note 2: To be fair, the tax savings on the srs contributions would be 11.5% x 6500 x 20 = 14,950. The balance of tax savings would be due to the 7k cpf top-up, which increases your SA and allows you to have more payout from frs without incurring tax.

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Lok Yang Teng
Lok Yang Teng
Top Contributor

Top Contributor (Jun)

Level 9. God of Wisdom
Answered 2w ago

It's a scheme in addition to CPF for tax relief. It is useful for those who are able to maximise their voluntary contributions for CPF. Learn more about it here: https://dollarsandsense.sg/how-you-can-maximise-your-savings-for-retirement-just-by-using-your-supplementary-retirement-scheme-srs-account/

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