Friday May 2, 2:20 PM
$103 MILLION LYING IDLE IN SRS ACCOUNTS
By Vasu Menon, Chief Editorial finatiQ
According to recent statistics from the Ministry of Finance, a large proportion of savings in the Supplementary Retirement Scheme (SRS) is lying idle as cash and earning paltry returns of less than 0.5 per cent. Cash savings in the SRS amounted to $103.3 million at the end of last year.
Insurance had the biggest share of $137.7 million or 44 per cent while unit trusts accounted for 16 per cent or $50.1 million. Shares only garnered $12.5 million, just a shade above fixed deposits which attracted $9.4 million or 3 per cent of the total.
Interestingly, the number of SRS account holders rose by 39 per cent to 16,548 at the end of last year while SRS savings doubled to $313 million from $157 million previously. Although these numbers may appear small relative to the underlying potential, it is evident that more people are beginning to appreciate the tax benefits of SRS which was launched here in April 2001.
SRS applies to anyone above the age of 21 and it is also open to foreigners. Withdrawal from the SRS account can be made after the retirement age of 62 and they can be staggered over a maximum 10-year period. 50 per cent of the amount withdrawn will be subject to the income tax. But there is a likelihood that you may not even pay taxes if you stagger your withdrawals carefully.
For instance, if you have $500,000 in SRS savings at age 62 and you stagger your withdrawals over ten years, this will amount to $50,000 per year. Of this amount, only $25,000 will be liable for income tax. But based on current tax rates, those earning $25,000 in annual income, won't have to pay income tax.
SRS Statistics as at 31st December 2002
| Number of Account holders |
11,900 |
16,548 |
39 |
| Total Contribution |
$157 mil |
$313 mil |
99 |
Composition of SRS portfolio
| Cash |
$103.3 |
33 |
| Unit trusts |
$50.1 |
16 |
| Insurance |
$137.7 |
44 |
| S$ Fixed Deposits |
$9.4 |
3 |
| Shares |
$12.5 |
4 |
Age profile of SRS account holders
| 21-35 |
2317 |
14 |
| 36-45 |
6288 |
38 |
| 46-55 |
6288 |
38 |
| 56-61 |
1489 |
9 |
| 62 and above |
166 |
1 |
Why you should invest your SRS savings
Leaving your SRS idle is the safest thing to do but it may not be the smartest thing to do at this juncture if you are trying to build your retirement nest-egg.
For instance, if you leave $10,000 in your SRS account lying idle, and it earns a meagre 0.5 per cent per annum, the amount will grow to $10,407 at the end of eight years. On the other hand, if you were to invest it and derive a return of say 5 per cent per annum, the amount will grow to $14,775 at the end of eight years. The difference is a significant $4,368.
A safe way to invest your SRS savings
Understandably, some SRS savers who have left their savings idle may be nervous about the outlook for equity markets. But there are safe ways to invest your SRS savings without taking too much risk.
Take the example of the latest guaranteed return plan from Overseas Assurance Corporation (OAC), a single premium endowment product that guarantees a net profit of 25.7 per cent over eight years. An investor who puts $10,000 of his savings into this plan, will get back $12,570 at the end of eight years. This works out to a compounded return of 2.9 per cent per annum, which is significantly higher than current bank deposit rates.
The effective return is even higher if SRS savings are used to invest in the guaranteed return plan. For example, an individual in the 15 per cent income tax bracket, will enjoy tax savings of $1,500 on a $10,000 investment. In other words, his net cash outlay at the onset will effectively be $8,500 (10,000 less $1,500). At the end of the plan's eight-year tenure, the individual will still get back $12,570. This works out to a total return of 47.9 per cent over eight years or a compounded return of 5.01 per cent per annum. The effective return will be higher for those in a higher income tax bracket.
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