With proper planning and smart decisions, retirement should be a financially care-free time to enjoy your golden years. The Supplementary Retirement Scheme (SRS), a voluntary scheme where participants contribute varying amounts of cash, can give you a good head-start.
Set up in 2001, SRS is part of the government's multi-pronged strategy to address the financial needs of a greying population by helping Singaporeans save more for their old age. It is operated by the private sector through the three local banks - DBS, OCBC and UOB - with whom you have to open an SRS account. The annual SRS contribution cap is $12,750 for Singaporeans and Permanent Residents, and $29,750 for foreigners.
Subject to certain restrictions, you are free to put your money in unit trusts, listed shares, bonds, fixed deposits or insurance policies. You can invest in these financial instruments offered by product providers other than your SRS operator. Thus, you benefit from compounding of potential returns, making your SRS savings (and the tax savings) work harder.
The scheme offers attractive benefits:
•Contributions are eligible for tax relief subject to the maximum cap.
•Investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement.
•You can save on taxes by spreading your withdrawals over 10 years. Bear in mind also that on retirement, you pay little or no income tax - that means your investment is almost untouched, compared to the taxes you have to cough out when you were economically active.
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The Supplementary Retirement Scheme account (SRS) is thus more than just another investment avenue. It encourages members to save, invest and plan for their retirement while reducing their tax liability at the same time.
A word of advice to those who would want to take this on: Caveat emptor (Latin for "Let the buyer beware"). You invest with your eyes open and make your own decision, so it is important to get the right professional advice for your investments.