Supplementary Retirement Scheme (SRS)
Asked on 12 Feb 2020
Hi, I'm 18 years old and keen to build up my wealth. With that being said, may I know what is a SRS account? What are the benefits, charges, interest rate, contribution rate, etc? Which local banks provide the best SRS account? Do I need to contribute monthly? What can I do with this account?
Overview and benefits
SRS stands for supplementary retirement scheme. It is an account (opened with any of the 3 local banks) where you contribute money to save on income tax. Thus, you can see that it won't be too useful unless you are working and have income tax to pay, and are in a relatively high income tax bracket (11.5%), since the money you put in an SRS account cannot be touched until the statutory retirement age (currently 62). The penalty free withdrawal age is pegged to the retirement age in the year you open the account, so if the retirement age is raised to 63 next year, and you only open the SRS account next year, you can't withdraw anything till 63 earliest. I'd suggest opening an account first and putting a dollar in to lock in your withdrawal age. Early withdrawal penalties have been elaborated by Hariz and I won't touch on it again. Once you start withdrawals after the retirement age, you are given 10 years to withdraw everything from your SRS account.
Charges, contribution and interest rate
Local banks currently do not have any transactional charges for any transaction involving SRS. The monies inside earn 0.05% however, so you will want to invest it. Contribution is voluntary, and can be done monthly or yearly or ad hoc. All banks are pretty much similar for SRS. You should invest your SRS monies, and you can do so in a variety of products such as annuities, UTs, ETFs, stocks, SSB, FDs, endowments. You will want to understand the pros and cons of each asset class before you decide what to invest in.
SRS is a tax deferred account. It allows you to save on income tax by contributing up to 15300 to reduce your assesable income.
You choose a SRS provider from one of our 3 local banks and the base interest in 0.05%.
You're allowed to invest SRS monies into a multitude of things and you should because the interest is so low.
You can withdraw money from SRS anytime but if you do it before the retirement age you have to pay a 5% penalty and the withdrawal will add into your assesable income for the year.
Only withdrawals after the retirement age will have no penalty and only 50% of the amount withdrawn will be taxed.
You can contribute anytime. We suggest opening your account and putting in just $1 to lock in your retirement age. I suggest only looking at SRS after you make more than 80k after CPF.
Also all SRS accounts are the same.