Tuesday, October 10, 2006

Supplementary Retirement Scheme (SRS)

The Central Provident Fund is designed for Singapore workers to make savings for their retirement and other purposes. Singapore workers contribute up to the salary ceiling (about S$4,000 per month). Contributions are tax exempt and the benefits are received free of tax.

The Supplementary Retirement Scheme was created to allow the foreigners and high income earners to make supplementary savings for their retirement. Contributions are tax-exempt but 50% of the benefits are subject to tax. It benefits the tax-paying contributors due to deferral of tax.

The tax benefit is modest, but it is better than nothing. The cost to the government is also quite modest.

Currently, the maximum sum that a Singaporean can contribute to the SRS is about $11,000. This is too small to be worth while.

I suggest that the SRS be reviewed, so that it can be more adequate as a vehicle to save for retirement. I propose that the contribution to SRS be set at 20% of the taxable income, less any contribution to the CPF.

Most people need to save about 20% of their income to meet their retirement needs. The CPF gives the best tax advantage, but the government wish to reduce the tax leakage. Under the SRS scheme, the tax leakage is reduced, as 50% of the benefit receievd (which includes capital gains) is subject to tax.

I hope that the Government will consider this proposal, to enable more people to make adequate savings for their retirement.
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2 comments:

Alamah said...

As retirement needs can be a concerns, SRS should be encourage.

SRS was largely mistaken that it is for those who earn more. Hopefully it can be easier for man on the street.

I know of some who regularly deposit into SRS account.

October 11, 2006 11:49 PM
japaw said...

Dear Mr Tan,

I feel that SRS scheme is only useful if one continues to be employed. If you are unemployed before reaching the statutory retirement age (62) it may become a burden, as there is a penalty of 5% for early withdrawal and 100% taxable on capital gain. The deferrment of tax by locking up cash in SRS account then become a liability.

Also foreigners are allowed to withdrawl the full amount in their SRS account before retirement age without penalty if they have lived in singapore for 10 years and decide to leave the country. Should the same concession be extended to citizens?

- francis

October 15, 2006 5:16 PM

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