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Why join the Supplementary Retirement Scheme?

Friday, April 21, 2017

Reader says...
I just like to share one of my view on SRS account.

When I first decided to contribute to SRS, it was mainly to reduce my income tax.

However, I realize that a lot of people between 55 to 65 years old have to work because their CPF is not enough for them to stop work before the CPF life pay out at age 65. 

This is assuming that CPF is their only retirement fund.

By contributing to SRS, we will have a sum of money which we can withdraw at age 62 penalty free. 

I do realize that you can withdraw up to $40k (per year) to avoid paying income tax on them.

Hence, SRS form a safety net for us between the age of 55 to 65. 

Knowing that we have something to withdraw for our old age at 62 instead of 65 (which the earliest  CPF Life can start paying).

Maybe this might convince more people to contribute to their SRS?

AK says...
I feel the same way. I will be very happy to share your POV in my blog. Thank you. :)

Related post:
SRS e-book and analysis.


Breakfive said...

I agree SRS is mainly for tax advantage but it does not make sense for married women with kids anymore because the income tax relief is capped alongside with all other relief.

AK71 said...

Good update :)

Taxpayers who make SRS contributions on or after 1 Jan 2017 should note that the overall personal income tax relief cap of $80,000 applies from YA 2018 (when the income earned in 2017 is assessed to tax).

Feb 16, 2017

Breakfive said...

Yep.. I think this income tax relief cap really is a step backwards for working mothers because even CPF contributions (to parents / self ) also doesnt quite make sense.

AK71 said...

Hi Breakfive,

I am curious why they decided to do this as well.

New Finance Minister, new ideas.

Nick said...

It really depends on the number of children a woman has and her annual employment income. The median monthly household income in 2016 was $8,846. So generally these women pay little or no tax. Unlike Top 10% earners who now has to contribute to the government coffers.

Example Top 10% earner:
Employment Income of Mrs X $125,000
Less: Personal Reliefs
- Earned Income Relief $1,000
- CPF Relief $20,400
- NSman Wife Relief $750
- WMCR on 1st child $18,750 (15% x $125,000)
- WMCR on 2nd child $25,000 (20% x $125,000)
- WMCR on 3rd child $31,250 (25% x 125,000)
- Foreign Maid Levy Relief $1,440
- SRS Relief $15,300
Total Personal Reliefs $113,890
Total Personal Reliefs after capping (for YA 2018) $80,000
Chargeable Income $45,000 ($125,000-$80,000) vs $11,110 ($125,000-$113,890) w/o cap
Tax Payable by Mrs X $900 vs $0

AK71 said...

Hi Nick,

Ah, I see. For the purpose of wealth redistribution, it would make sense for the top earners to pay some income tax. We would have to appeal to their charitable side. ;)

AK71 said...

Reader says...
I am thinking of contributing to SRS, but if I am 62 and I see myself still earning a lot of money, then probably also nt much use right?
If I contribute 13k to save about 15% in taxes but in future if I happen to earn a lot from property, or even getting passive income from my job, then I end up paying tax of 20% but 50% non taxable, then about 10%.

AK says...
Then, you have a happy problem 😀
If must pay, pay lor. High income and pay some tax is OK lah. 🙂

Nick said...

From your first withdrawal made after reaching the statutory retirement age, you will have up to 10 years to withdraw the full amount.

Or you may consider delaying your first withdrawal after the statutory retirement age. For example:

Date of birth of SRS member A is 1 Mar 1952. He started his first penalty-free withdrawal on 1 Apr 2016 (at age 64) instead of the prescribed statutory retirement age of 62 years old. He can spread his withdrawals until he reaches the age of 74...31 Mar 2026 marks the end of his withdrawal period.

You can refer to MOF website for more information.

AK71 said...

Reader says...
I chanced upon your blog but have since taken an interest to reading the articles as much as possible to educate myself so i can rely on more than just one active income.

I started doing SRS and also using my CPF in a different way by using it to save for retirement.

Recently, with the cap on personal income tax relief, I'm wondering if it still makes sense to do SRS. What do you think -- If one has hit the personal income tax relief cap, would you still recommend doing SRS?

AK says...
Welcome to ASSI and I am happy you have enjoyed my blogs. :)

The SRS is most attractive for me because of the income tax relief.

If contributing to the SRS account does not attract any income tax relief, frankly, it is out the window for me.

AK71 said...

Lee Jiahui says...
For working mother with 2 kids below 21 yo and 150k gross income will about hit the 80k max relief.

AK71 said...

Jack James says...
It really depends on the number of children a woman has and her annual employment income. The median monthly household income in 2016 was $8,846. So generally these women pay little or no tax.

In general , I don’t have complaint for those women paying little or no tax . At one hand , we encourage people to have more babies , and at the other hand , we are removing their benefits . 🤦‍♂️

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