IN THE latest episode of Money Hacks podcast by The Business Times, financial experts delve into the advantages and considerations of the Supplementary Retirement Scheme (SRS) for boosting retirement savings. Hosted by Howie Lim, this episode features insights from Shawn Lee, assistant vice president of financial planning literacy at DBS Bank.
The SRS is a voluntary scheme designed to encourage Singaporeans to save more for retirement. Unlike the Central Provident Fund (CPF), contributions to the SRS are voluntary and come with attractive tax benefits. However, to enjoy these benefits for the following year, contributions must be made by 31st December.
Securing tax reliefs
According to Lee, the year-end spike in SRS contributions is primarily driven by the desire to secure tax relief benefits. By contributing to the SRS before the year ends, individuals can enjoy dollar-for-dollar tax relief in the subsequent year. Banks also offer promotions, such as cash gifts, to incentivise contributions and account openings during this period.
One key takeaway from the podcast is that leaving funds idle in your SRS account yields a minimal interest rate of just 0.05 per cent per year. To maximise returns, it’s crucial to invest your SRS funds.
Importance of being proactive
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For instance, with a 5 per cent annual return on the maximum annual contribution of $15,300, your SRS balance could grow to around $505,000 after 20 years due to the power of compounding. Additionally, any investment returns within the SRS are tax-free until withdrawal.
While anyone can contribute to the SRS, it is most beneficial for higher-income earners. In the podcast Lee explains why.
What’s the catch
SRS does come with considerations. Early withdrawals before the prescribed retirement age are subject to a 100 per cent tax on the withdrawn amount and a 5 per cent penalty. Despite these penalties, there’s still flexibility if the need arises to access your funds.
Highlighting a significant concern, the podcast cites a survey indicating that around a quarter of Singaporeans haven’t started planning for retirement.
Why now is a good time
Upcoming changes to the CPF Act in January 2025 may impact the uptake of the SRS. For CPF members aged 55 and above, the Special Account (SA) will be closed, with funds transferred to the Retirement Account (RA) to receive higher monthly payouts. Excess SA funds could be transferred to the Ordinary Account (OA), which can be withdrawn in cash. These funds could then be contributed to the SRS for additional tax relief, provided the returns on SRS investments outperform the CPF OA interest rate of 2.5 per cent.
Listen to this episode Money Hacks now to understand the importance of the SRS in shoring up retirement savings.
The Money Hacks podcast offers reliable and engaging conversations with expert insights, actionable advice, and a focus on current events – each episode is designed to help you navigate your financial journey. Tune in, stay informed, and get ahead financially with Money Hacks.
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Written and hosted by: Howie Lim (howielim@sph.com.sg)
With Shawn Lee, assistant vice president, financial planning literacy, DBS Bank
Edited by: Howie Lim & Claressa Monteiro
Produced by: Howie Lim
Engineered by: Chai Pei Chieh
A podcast by BT Podcasts, The Business Times, SPH Media
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