This article was first published on 26 December 2018 and was updated to include additional information.
Started in 2001, the Supplementary Retirement Scheme (SRS) is a voluntary initiative that forms part of Singapore’s multi-pronged strategy to help citizens, permanent residents (PRs) and foreigners start building up their retirement nest egg.
As an incentive to contribute to our SRS accounts will receive a dollar-for-dollar tax relief up to $15,300 for citizens and PRs and $35,700 for foreigners. Note that we have a personal income tax relief cap of $80,000 each year.
To start contributing to our SRS account, we need to first open an SRS account with either DBS, OCBC or UOB, which are the three SRS operators in Singapore. We are not tied down to these operators after opening our SRS accounts and can choose to invest in all available SRS investments with other financial institutions.
Finally, we can only start withdrawing once we hit the statutory retirement age of 62. As announced by the government, Singapore’s statutory retirement age is set to increase to 65 by about 2030. This is why it makes sense to open an SRS account now to “lock in” the current statutory retirement age for withdrawals.
Subsequently, upon our first withdrawal, we will have a 10-year window to withdraw the entire amount of our SRS funds. We need to understand that the SRS is a tax deferral system, which means we will be taxed on our SRS withdrawals. 50% of our SRS withdrawals will be taxable. For example, if we withdraw $40,000 from our SRS account during the year, we will only be taxed on $20,000. We also have to note that there will be a 5% penalty as well as 100% taxation on withdrawals for those who take out funds before the statutory retirement age of 62.
Importance Of Investing Your SRS Contributions
Funds that we contribute into our SRS account earns an interest rate of 0.05% per annum (p.a.). This means that if we want to meaningfully grow our retirement nest egg, we need to invest our SRS funds to earn better returns.
This is quite different from voluntarily contributing to our CPF Special Account (SA), where funds earn a base interest rate of 4.0% p.a.
Thus, even though we can invest a portion of our CPF balances, we may not need to. Conversely, even though we can allow our funds to sit in our SRS accounts, we have to invest it to see a meaningful return.
In reality, 29% of all SRS contributions, or $3.1 billion, are left sitting idle in cash or Singapore Dollar fixed deposit as at December 2019. With that in mind, here are 10 investments we can all make with our SRS accounts today to grow our retirement portfolio.
# 1 Stocks
We can invest in stocks listed on the Singapore Exchange (SGX) with our SRS funds. We don’t have to invest via the banks administering our SRS accounts – we can continue using our brokers in most instances.
This is especially handy for investors who are already funnelling a chunk of our savings into locally-listed stocks. This way, we are just going to continue making investments, while saving on our taxes in return.
# 2 REITs
Similar to investing in stocks, we can invest in real estate investment trusts (REITs) that are listed in Singapore. Again, since REITs are bought and sold like stocks, we can continue to use our existing brokerage firms to make such investments.
REITs tend to pay out higher distributions, and we need to note that these distributions will be channelled back into our SRS accounts rather than come to us in liquid cash.
# 3 ETFs
Short for Exchange Traded Funds, ETFs typically replicate the composition of a broad index tracking regional or country indexes, stocks in a particular sector, REITs, bonds, commodities and other financial instruments.
In Singapore, there are two ETFs tracking the country’s Straits Times Index (STI) – the SPDR STI ETF and the Nikko AM Singapore STI ETF. There are also bond ETFs, the ABF Singapore Bond Fund comprise bonds issued by the Singapore government and Singapore government-linked entities, while the Nikko AM SGD Investment Grade Corporate Bond ETF comprise corporate bonds issued by investment-grade issuers. There are many other ETFs also listed on the SGX, with three REIT ETFs, the SPDR Gold Shares and many others.
# 4 Bonds
Several bonds are also listed on the SGX, and we can invest our SRS funds in these bonds. These include Temasek’s T2023 S$ bonds and Temasek-linked Astrea IV private equity bonds, as well as retail bonds that have been listed on SGX.
# 5 Singapore Savings Bonds
From December 2018, the Monetary Authority of Singapore (MAS) announced that they would allow investors to buy Singapore Savings Bonds using our SRS funds, as well as double the amount of SSBs that an individual can hold to $200,000 from $100,000 previously.
# 6 Regular Shares Savings (RSS)
A regular shares savings (RSS) plan allows us to start investing in stocks, bonds, ETFs and REITs listed on the SGX from as little as $100 a month. It is an ideal way for investors with limited knowledge and interest in monitoring their portfolio to start their investment journey.
In Singapore, there are four brokerages currently offering RSS plans – OCBC Blue Chip Investment Plan; POSB/DBS Invest-Saver; Phillip Share Builders Plan; and FSMOne ETF Regular Savings Plan. Each has its own specifications of which types of shares we can invest in and brokerage charges we have to pay.
# 7 Robo-Advisors
As more investment tools become available to us, we can also start incorporating them into our portfolio. Majority of robo-advisory firms aim to utilise complex algorithms to offer retail investors access to professional portfolio management services. We can also tap on robos to park our SRS top-ups into less risky cash management accounts – which enables us to earn a better interest than just letting it sit idle.
The following robo-advisors allow us to invest our SRS funds with them:
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# 8 Unit Trusts/Mutual Funds
We can also invest in unit trust and mutual funds with our SRS funds. Remember, this extends to unit trusts outside of the three SRS administrators – which means we are not limited to investing in unit trusts that are sold by them.
Platforms such as FSMOne and Aviva’s Navigator, dollarDEX allows you to invest in diverse unit trusts investments with your SRS funds. These platforms also enable us to choose the regions, sectors and even fund managers we are comfortable investing our funds in.
# 9 Insurance Products/Annuities
We can also put our SRS funds towards insurance products and annuities. On this point, we have to note that there are restrictions on Life Insurance products that we can buy. Typically, we can invest in only single-premium products, including recurrent single premium products. We also aren’t allowed to purchase critical illness, health and long-term care products with our SRS funds.
We need to check with our agents and/or insurers if we want to invest with our SRS funds. MoneyOwl is an example of one such platform we can use to purchase retirement income plans with our SRS funds.
# 10 Fixed Deposits
If we are extremely risk-averse and unsure of what to do with our funds, we can invest in fixed deposits rather than let it sit idly in cash. This way, we’re pretty much exposed to the same extremely low level of risk but receiving a significantly improved interest rate return on our SRS funds.
The SRS Is A Powerful Tool To Save On Taxes And Encourage Us To Build Our Retirement Nest Egg
The Supplementary Retirement Scheme gives us the dual benefit of saving on taxes today as well as encouraging us to invest for our retirement.
Many people may procrastinate retirement planning today as we don’t see an immediate benefit. The SRS helps resolve some of this issue by giving us a tangible benefit, of paying lower taxes in the following year of assessment immediately.
We will also be more in-tuned to investing our SRS funds to grow it for our retirement. The 10 investments listed above are not an exhaustive list, however, they provide a good start to get us on our way to making investments with our SRS funds.
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