Supplementary Retirement Scheme (SRS) For Foreigners – How Can It Benefit You?
Singapore is increasingly a country of choice for Expatriate Professionals. A client and now Friend of mine who came to Singapore 8 years ago has recently decided to settle down with his wife and his 2 children here. I used to ask him why he made such a decision to settle down and eventually retire in Singapore? “Isn’t Europe a better choice for your family? You have free medical coverage!”
“My family has gotten too used to living here. The kids (now 15 & 17) can come home in the evenings without my wife thinking they’ve been eaten by lions. Plus we love the food here.” He joked.
Indeed, besides Singapore being a Foodie destination, we are also ranked one of the Top 10 “safest countries to live in”.
According to a HSBC Expat Explorer survey, the average salary of a Singapore’s expat is US$117,904 annually. Singapore is ranked number 1 for being the most preferred location for Expats around the world to live in and work in because of its:
- Excellent facilities and infrastructure
- Low crime rates
- Quality education
- Quality healthcare facilities
- Low levels of pollution
As such, Singapore will continue to attract more talents from many countries.
However, there are also many Expats who live and work in Singapore for a couple of extended years before returning to their home country.
Challenges of keeping what you earn
Besides getting used to what some may refer to as the 9-6 city life, let us look at some of the other challenges that one might face as an Expat living in Singapore.
- High costs of living
- High costs of education for children without subsidy
- Increased cost of Medical Treatments
- Higher Foreigner Income Tax Bracket Tiering
Being just a small Red Dot on the map, it is no wonder that the amount of land available in Singapore is limited. With a total population of more than 5 million people, it is no wonder why property & rental prices are high. Many of the Expats I know are staying in Condominiums, as they prefer to enjoy facilities like swimming pools, gyms etc. The monthly rent for a (900 Sqft) furnished Condominium ranges between $2,500 to $3,400 (depending on the proximity from the city area).
Besides rental, other expenses includes daily food, utilities & increasing cost of transportation.
2. High Cost of Education
Singapore was ranked third as a “preferred country to raise a family in” by the Expats in the HSBC Expat Explorer survey, many of them bringing their spouses and the children along when given a career opportunity here. One of the most obvious reasons why Expats love working in Singapore is the world class education.
This gives Expat parents a peace of mind, and reassurance that their children will receive a good level of education while they pursue an advance in their own career in Singapore. But of course, the school fees are not cheap. For example, Dover Court International School Singapore charges S$25,200 annually – or S$2,100 monthly – for Upper Primary students, whereas the Australian International School charges S$33,646 annually – or S$2,804 monthly – for Elementary School students.
3. High Cost of Medical Treatments
We have seen people around the world flying into Singapore for medical treatments, however quality healthcare does not come cheap here in Singapore. The Singapore Ministry of Health statistics show the cost of treatment in private hospitals averages from S$1,800 – S$3,700 daily, with an average surgery bill costing up to S$28,000. Pregnancy and birth can cost anywhere from S$6,000 – S$30,000.
As there are no subsidies for foreigners, a simple Brain Aneurysm (Stroke) surgery and a 2-week hospital stay in a government hospital B1 ward could amount up to more than S$60,000.
While some employers provide medical insurance, those who don’t would result in Expats being forced to source for their own local or global healthcare insurance.
4. Higher Foreigner Income Tax Bracket Tiering
Although many Expats draw a relatively high income, however, they also have higher expenses as mentioned above. Furthermore, Expats are paying higher taxes due to their higher tax bracket tier and have little to no relief. Unlike Singaporeans, they enjoy tax reliefs like parent’s relief, CPF contribution relief etc.
Having spoken to many Expats throughout my journey as a Financial Adviser Representative, I’ve gotten to realize that many of them are not aware that they can save on taxes via the Supplementary Retirement Scheme (SRS). Paying for our Income tax gradually became a fixed expense year after year..
Let’s take a quick look at the current 2019 income tax brackets below…
Click the above image to enlarge
Although many Expats have told me that they do not mind paying the taxes as Singapore’s tax rates are lower as compared to their home countries’, but what if you can save from these taxes and make better use of your money?
Ultimately, we cannot control the rate of inflation, however what we can still take advantage of is our chargeable income tax. This is where we should utilise the Supplementary Retirement Scheme (SRS) to help us save money through lowering our taxable income.
Using SRS to save on tax
What is Supplementary Retirement Scheme (SRS)
Supplementary Retirement Scheme (SRS) is a voluntary scheme available to all taxpayers in Singapore – for Singaporean or Expat, it is an incentive to save towards retirement. Singaporeans and Permanent Residents can contribute up to S$15,300, while Expats are allowed at S$35,700 to their SRS account yearly. This contribution is treated as a tax relief thereby reducing their taxable income.
For the tax-savings part – let’s just take the average income of US$117,904 (using 1.4 as the exchange rate for easy calculation), Expats are drawing $162,700 per annum averagely.
Click on the image to enlarge
For an Expat who contributes $35,700 per annum to the SRS account, he will be saving $5,415 effectively!
Here’s a rough estimate on the income tax you can expect to pay based on your annual income, before and after your SRS contribution.
Click on the image to enlarge
You can claim tax relief for contributions made to SRS. SRS contribution will reduce your income chargeable. Any investment gains from SRS will accumulate tax free.
How to open an SRS Account
SRS Accounts are managed by three SRS operators. To begin making contributions, you must first open an SRS Account with one of them. The three SRS operators are the 3 local banks:
You can only have one SRS account at any point in time. However, you can transfer your account between different SRS operators. Do take note that it is an offence to open multiple SRS accounts with more than one operator and there are penalties for doing so.
How to Make SRS Contribution
You can contribute at any time, and as often as you like, subject to the maximum SRS contribution for the year. All contributions must be made by 31 Dec of the year or as your SRS operator requires, to be eligible for tax relief.
You can continue to make SRS contributions as long as you have not made any withdrawals from your SRS account.
What Do I Do With the Money in My SRS Account?
The SRS account generates a low interest rate of 0.05% per annum which is close to many bank savings accounts. AsSingapore’s inflation rate is around 2% and the SRS account pays an interest rate of 0.05%, it is not advisable to leave the monies idle in the account. The best way to beat inflation is to achieve returns from financial instruments that pays 2% or more.
Below is an example of the difference between someone who contributed to SRS & someone who does not.
For easy understanding, let’s assume you set aside $30,000 per annum for savings and investment purposes, and your tax bracket is 20%. This means that $6,000 will be used as tax payment and the remaining $24,000 will be left for savings & investing.
Scenario A (Invest on your own with no SRS): Effectively you are left with $24,000 after paying income tax of $6,000. To grow your money, you invest in a safe instrument that gives you 3% per annum, you would have accumulated $277k at the end of 10th year.
Scenario B (With SRS): You contribute $30,000 per annum to your SRS account hence you save $6,000 in tax. In 10 years’ time, you would have accumulated $300,000 even with zero returns! To add on to that, the money in the SRS account can also be invested in a vast range of solutions for even higher returns.
For illustration purposes only. Click on the image above to enlarge.
It is possible that if SRS savings are withdrawn in a lump sum, but you may end up paying more taxes than what you have gained. This however, can be prevented if you stagger the withdrawals over a period of 10 years from the statutory retirement age and can be achieved if you start planning ahead.
By contributing to your SRS account, you not only enjoy the tax deferment benefit, you are also able to fully utilize the monies to enhance your wealth. This is possible by SRS approved investments and savings solutions!
Many people prefer to use their SRS savings as part of their retirement planning and would rather place their funds in an Annuity. The Resource List provided below would give you a good perspective on the types of solutions available to you. Download SRS Resource List here.
Alternatively, feel free to drop me text or book an appointment for a 30 minute review with me.
Article by Stephanie Choong.