More Supplementary Retirement Scheme accounts opened at year-end

More Supplementary Retirement Scheme accounts opened at year-end
By Linette Lim | Posted: 13 December 2012 1928 hrs
 
SINGAPORE: More Supplementary Retirement Scheme (SRS) accounts are opened in the month of December each year, according to banks in Singapore.

The SRS is a voluntary savings scheme and administered by three local banks.

OCBC Bank said SRS account openings this month can be more than five times that of other months.

As the year comes to a close, financial advisors said more clients are topping up SRS accounts in order to qualify for tax savings.

Launched by the government in 2001, the scheme encourages people to put aside money for their retirement. This is over and above what they have in their mandatory CPF accounts.

The money can only be withdrawn at retirement age, which currently stands at 62, but only half of it will be taxed upon withdrawal.

Wong Sui Jau, General Manager of Fundsupermart.com, said: "It works based on a deferred tax scheme, so for monies that you actually put into the SRS, it will not count towards your chargeable income. I think the biggest benefits is for people in high-income tax brackets, because it allows them to reduce their chargeable income for tax."

The number of SRS account holders is growing at above 10 per cent each year since the scheme began.

The take-up rate for the scheme is modest, relative to the size of the taxable population.

There are more than a million taxable individuals in Singapore as at 2010, according to official statistics.

However, not everyone pays tax as their income could be too low.

Assuming only those with an annual income above $40,000 pays tax, there are around 720,000 tax-paying individuals. Out of this, only slightly more than 70,000 are SRS account holders.

This means only 10 per cent of people who are eligible to open an SRS account have done so.

Wong Sui Jau added: "SRS is not like your CPF ordinary account or special account where you have special interest rates you will receive. The interest rate is no different from what you get if you put it in a bank which almost definitely mean you will really need to invest it because this is money that is going to be locked up for the long term."

Money in SRS accounts can be used to invest in stocks and insurance, and the investment returns are accumulated tax-free.

Still, experts say the SRS is not for everyone. For example, it may not be appropriate for those with many dependents under their charge.

Chew Hock Beng, Associate Director of Financial Advisory Group, Financial Alliance, said: "They probably have to take care of four parents for a married couple, and two to three kids, so a lot of money have been used for expenses."

According to DBS, SRS contributors should make sure that they have adequate disposable income and emergency funds, because premature withdrawals will incur a 5 per cent penalty and will be 100 per cent taxed.

- CNA/de

- wong chee tat :)