Anonymous
What are the pros of having an SRS acc?
Not quite sure how having a SRS acc works? Pros and cons? Recommended?
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Elijah Lee
22 Feb 2021
Senior Financial Services Manager at Phillip Securities (Jurong East)
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Hi anon,
SRS as a scheme was conceived to encourage Singaporeans to save more for retirement. To attract people to contribute, tax relief on SRS contributions was introduced.
It is a good idea to open and lock in your withdrawal age which is based on the prevailing retirement age in Singapore in the year you open the SRS account. That is currently age 62 this year and will be raised to 63 in July next year. However, whether or not to contribute annually will really depend on the tax savings you can derive from it.
The key things you need to take note, along with some pros and cons are:
You can open an SRS account online with a local bank. Just put a dollar in. There's no need to go down to the branch. However, you are not allowed to withdraw whatever you put in until the statutory retirement age (more below)
Contributing to your SRS will 'lock in' your future withdrawal age at the prevailing retirement age when you contribute (currently age 62). So just lock it in first, even if you don't intend to contribute yet. If you open it next year, you can only withdraw SRS monies starting at age 63.
Contributions are voluntary, subject to a cap (Cap amount is depending on whether you are SC/PR or foreigner). Even if you have high income tax to pay, but you need the cash flow (e.g. due to family expenses), then it might be better not to contribute even though you won't be able to reduce your tax, as your cash is needed for day to day matters.
Your SRS contribution will reduce your income tax as it confers tax relief (under personal relief). Your chargeable income will be reduced by the amount of your SRS contribution, up to the cap of $80000 of personal reliefs. If you don't have any income tax or low income tax to pay, it may not be worth contributing. If you have a lot of reliefs (I see this often with working mothers), it may also not be worth contributing too. Generally, I'd recommend looking at SRS if you are in the 7% bracket, and definitely contribute if you are in the 11.5% bracket.
Your SRS monies can be used to invest (please don't leave it lying in the bank) in various asset classes, and you will need to know the pros and cons of each asset class to see what suits you, along with how this ties into your overall retirement planning.
Your SRS can be withdrawn prematurely but with a penalty, unless under exceptional circumstances. Foreigners may withdraw if they leave Singapore for at least 10 years.
After you reach retirement age, your first withdrawal will trigger a 10 year withdrawal period whereby you should withdrawal your SRS holdings by the end of this 10 year period
Half of your withdrawal is considered your income stream (still subjected to income tax calculations). If you don't withdraw, you can keep your assets in the SRS account.
If you were going to invest for retirement at any rate, and can refrain from touching your assets till then, then SRS is a good way to save tax and prepare for retirement at the same time.