Fatherhood, Finance & Insurance, Man Matter, Solutions

Maximising the Supplementary Retirement Scheme

What is SRS?

Most people are familiar with CPF OA, SA & MediSave, and what you can do with each account. CPF also manages another account for Singaporeans/PRs & even Foreigners, it called Supplementary Retirement Scheme or SRS.

SRS is primarily used as a tax relief scheme in Singapore due to the compulsory Minimum Sum Scheme that feeds in the CPF Life pension fund for Singaporeans & PR. For Foreigners, who lack other means of tax relief, the maximum SRS tax relief is higher.

Most people who contribute to SRS knows you can use 100% of the funds for saving and investment purposes. However, due to the volatility of the markets this past few years, many had withheld their investments.

Tax Relief

If you go to IRAS website, you can find the Tax calculator. For readers earning more than $50,000 gross income, it’s worth taking a look at it even if your other Tax reliefs reduces your Tax liability to roughly $1000 per year. If your gross income is more than $100,000, it’s time to pay attention!

Assuming you have max out all your other relief and you still have to pay a sizable income tax every year, SRS is a viable tax relief to consider. Check out the table below.

This table is for calendar year 2015 where assessment is done in 2016. Maximum SRS is $12,750 for Singaporeans & PRs, and $29,750 for foreigners. For the purpose of illustration, I’m ignoring the 50% rebate (capped at $1000) on payable Income Tax due to SG50, and the table is calculated for Singaporeans and PRs only. Foreigners will jump down 2 tax brackets so the potential tax savings is doubled!

Income bracket after other relief Tax payable Tax Payable after SRS Tax Savings
$40,000.00 $550.00 $145.00 $405.00
$50,000.00 $1,250.00 $453.75 $796.25
$60,000.00 $1,950.00 $1,057.50 $892.50
$70,000.00 $2,650.00 $1,757.50 $892.50
$80,000.00 $3,350.00 $2,457.50 $892.50
$90,000.00 $4,500.00 $3,157.50 $1,342.50
$100,000.00 $5,650.00 $4,183.75 $1,466.25
$120,000.00 $7,950.00 $6,483.75 $1,466.25
$130,000.00 $9,450.00 $7,633.75 $1,816.25
$140,000.00 $10,950.00 $9,037.50 $1,912.50
$150,000.00 $12,450.00 $10,537.50 $1,912.50
$160,000.00 $13,950.00 $12,037.50 $1,912.50
$170,000.00 $15,650.00 $13,537.50 $2,112.50
$180,000.00 $17,350.00 $15,182.50 $2,167.50
$190,000.00 $19,050.00 $16,882.50 $2,167.50
$200,000.00 $20,750.00 $18,582.50 $2,167.50
$210,000.00 $22,550.00 $20,282.50 $2,267.50
$220,000.00 $24,350.00 $22,055.00 $2,295.00
$230,000.00 $26,150.00 $23,855.00 $2,295.00
$240,000.00 $27,950.00 $25,655.00 $2,295.00
$250,000.00 $29,750.00 $27,455.00 $2,295.00
$260,000.00 $31,550.00 $29,255.00 $2,295.00
$270,000.00 $33,350.00 $31,055.00 $2,295.00
$280,000.00 $35,150.00 $32,855.00 $2,295.00
$290,000.00 $36,950.00 $34,655.00 $2,295.00
$300,000.00 $38,750.00 $36,455.00 $2,295.00
$310,000.00 $40,550.00 $38,255.00 $2,295.00
$320,000.00 $42,350.00 $40,055.00 $2,295.00
$330,000.00 $44,350.00 $41,855.00 $2,495.00
$340,000.00 $46,350.00 $43,800.00 $2,550.00
$350,000.00 $48,350.00 $45,800.00 $2,550.00
$500,000.00 + $78,350.00 $75,800.00 $2,550.00

It is important to note that SRS tax relief should be viewed as a tax deferment scheme because after you retire, any funds withdrawn will STILL be subjected to Income Tax. Fortunately, only 50% of the withdrawn amount is taxable.

Investment opportunities for SRS funds

SRS pays out a 0.5% interest per annum, which until last year was an attractive safe investment return compared to Fixed Deposit. Investors looking for higher returns typically invest in unit trust funds or structured funds of some sort. However, higher risks funds are negatively impacted recently due to market forces.

Fortunately, AIA just introduced a new product in 2015 to cater to savvy investors looking for a safer investment instrument while beating inflation. As I’m not allowed to advertise any insurance & investment products, all I can say is this is an SRS lump sum endowment product that gives a guaranteed monthly annuity for a period of 15 or 20 years starting from the retirement age.

For more information, please email me directly and reference this article in the email.

Limitations of SRS

To prevent money laundering and tax evasion, limitations are placed on SRS funds, whether invested or not.

There is a limit on how much cash you can inject into SRS to qualify for tax relief. This figure is revised yearly. For example, maximum SRS tax relief is $12,750 for FY2015 while in FY2016, this is increased to $15,300 for Singaporeans/PRs and $35,700 for foreigners.

Withdrawals from SRS are also governed by a strict set of rules which can be found here. The most important of which is, early withdrawal before the statutory retirement age causes the withdrawal amount to be 100% taxable + a 5% penalty on the withdrawal amount. Investment returns are also 50% taxable even after the statutory retirement age.

Despite these restrictions, if your investment returns can beat the penalty + additional load to your Income Tax for that year, it’s still a worthwhile tax relief.

All comments and questions are welcome. Be sure to like this article if it’s useful and share it with your friends and family, or colleagues who can benefit from it! Button are all over my website just waiting for you to click them! 🙂

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Finance & Insurance, Health, Solutions

How the new Medisave Additional Withdrawal Limit affect your AIA HealthShield?

Many of my clients have received letters from AIA explaining the new MediSave Additional Withdrawal Limits (AWL) and their first questions is, “Will I have to pay more cash?”

The answer is fortunately, NO!

The new AWL actually INCREASE your withdrawal limit which can be used to pay for your AIA HealthShield plans, so you have to pay less cash if you’re nearing retirement or already retired.

I’ve done up a new post with Tables showing the before/after of how much you need to top up in cash. Check it out below.

AIA HealthShield Gold Max Additional Withdrawal Limit Table

Once I get some sleep, I’d update my original Integrated Plans article to include the latest published information from MOH.

Finance & Insurance, Health, Opinions

MediShield Life & Integrated Plans

MediShield Life is slated to be launched by end of 2015. It supersedes the current MediShield plan by providing better coverage for all Singaporean & PR while making concessions to premium by subsidizing premium for the elderly.

Many of my clients have asked me if it’s worth to continue their Private Medical Insurance Scheme (PMIS) integrated plans (IP) and my answer to them is YES! MediShield Life does not change the reason for buying an IP in the first place.

The reason is simple. A PMIS policy from any of the 5 insurers is meant to cover an individual who wants to enjoy a higher level of service from hospitals in Singapore. MediShield Life doesn’t provide adequate coverage for this group.

To read more, click here to continue reading my article.

Finance & Insurance

7 in 10 Singaporeans snub buying homes in 2014

7 in 10 Singaporeans snub buying homes next year
Staff Reporter | Singapore Business Review | Singapore Business Review – Thu Aug 22 01:30:00 UTC 2013
Is it the best tactic today?

According to a survey by iProperty Group, 74% of respondents do not …

7 in 10 Singaporeans snub buying homes next year.

Supply & Demand alone may stagnate property prices next year. Central Banks around the world are also talking about raising interest rates and/or reducing stimulus to the economy. Will these factors precipitate property prices?