There are hundreds of ways to save, how do you know which is the best option for you?
Supplementary Retirement Scheme (SRS)
The Supplementary Retirement Scheme (SRS) in Singapore is a tax-deferred savings plan that allows individuals to set aside a portion of their income for retirement, while also receiving certain tax benefits.
At the same time, you can also save for retirement with endowment plans and legacy plans.
An endowment plan is a type of insurance plan that combines savings and insurance protection. You will pay premiums as usual, and the insurance company invests the money and pays out a lump sum at the end of the term or upon maturity. Endowment plans usually have a fixed term and pay out a guaranteed amount at maturity, which can be used for retirement or other purposes.
A legacy plan is a type of life insurance policy that is designed to provide a death benefit to the policyholder’s beneficiaries in the event of the policyholder’s death. Some legacy plans such as NTUC Income’s Luxe Plus Solitaire also offer the option for you to receive continuous income during your retirement years, which is also transferable to your heir. Just like endowment plans, you will pay premiums or a lump sum into the plan, and the insurance company invests the money and then pays out a lump sum to the beneficiaries upon the policyholder’s death. Legacy plans are generally used to provide a financial safety net for your retirement, as well as for your loved ones when you eventually pass on.
What’s the Difference?
One major difference between SRS and traditional retirement savings plans is the level of control that you have over your investments. With an endowment plan or legacy plan, you won’t have any control over what the insurance companies invest with your money, although you’ll be paid a guaranteed return. With SRS however, you have much more freedom to choose the specific investments that you want to make, which could potentially give you higher returns. Because you have more control over your investments, you can potentially earn higher returns than you would with a traditional plan. This can include things like stocks, bonds, SRS investment-linked plans, mutual funds, index funds and more… However, this would also mean that you would have to manage your risk on your own.
Another difference between SRS and other retirement plans is the tax treatment of contributions and withdrawals. With traditional plans, contributions are typically tax-deductible, and withdrawals are taxed as income in the year they are taken. On the other hand, premiums paid are not tax-deductible, while some withdrawals could be taxed at a lower rate. This can make an SRS a more tax-efficient option.
However, one of the main advantages of endowment plans is that they provide life insurance coverage while saving for retirement and they also have the option of premium waiver, where the insurer will pay the premium if the policyholder is unable to pay the premium due to death or total permanent disability. This would be helpful as an added layer of financial protection for you and your loved ones, in the event something unfortunate happens.
Besides, legacy plans such as China Taiping’s Infinite Harvest Plus may also be a better option as they will guarantee you income during your retirement years, whether the economy is doing well or not. On top of that, you can also pass this income to your next generation.
What’s the same?
In addition to these differences, there are also some similarities between SRS and traditional plans. For example, both types of plans have contribution limits that are set by the government. Both types of plans also have penalties for early withdrawals. SRS funds can only be withdrawn after the statutory retirement age of 63 (as of January 2023) and a 5% penalty will be imposed if you withdraw before that, on top of your withdrawal being taxed at 100%.
Of course, if you decide to invest your SRS funds, you can also choose to invest them in some of the retirement plans or legacy plans, such as NTUC Income’s Gro Retire Flex Pro and Singlife’s Flexi Life Income, which can help you get the best of both worlds.
In summary, SRS is a type of retirement savings plan that offers more flexibility and control over investments than other retirement savings plans. However, they also come with more risk and you would need to plan your contributions and withdrawals to maximise the benefits. It’s also important to consider your risk tolerance, investment goals, and financial situation before deciding whether SRS and SRS investments is the right option for you.
SRS is not for everyone, but for those who are comfortable with the risks and have the knowledge to manage their investments, it can be a valuable tool in achieving their retirement goals.
It’s always advisable to consult a financial advisor to understand the best retirement saving plan for you. Speak to our financial advisor here.
This is for general information only and does not constitute financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.