SRS: dumbest scheme yet

Set up in 2001, the little-known Supplementary Retirement Scheme is meant to complement Central Provident Fund savings. It gives wage earners an incentive to save for retirement as well as enjoy tax relief.

Annual contributions are capped at $11,475 for Singaporeans and permanent residents and $26,775 for foreigners.

The money may be used to buy investment instruments like shares and unit trusts, or can be deposited with banks where it earns prevailing savings or fixed deposit rates.

A 5 per cent penalty fee is imposed if a withdrawal is made before the statutory retirement age. In addition,  100 per cent of savings under SRS will be considered taxable income and taxed accordingly -- including capital gains made from the SRS funds.

However, an SRS saver gets a 50 per cent tax concession if SRS funds are withdrawn after the statutory retirement age. Also, because SRS can be withdrawn over a 10-year withdrawal period, those with lower or nominal income could stagger their withdrawals so that they may end up having to pay little or no tax.

Big deal, right?

Maybe so for those foreigners who may not need to wait till they reach retirement to withdraw their goodies. They can do so by proving that they are leaving Singapore for good.

But for Singaporeans, is it such a big deal to set aside $11,475 a year for 25 years and based on a 4 per cent yield per annum, would up with $497,000 or half a million dollars.

Twenty five years ago, $500K might have seem a big deal when homes were about one-fifth of what they are today. Now, you would be lucky to get a decent sized HDB flat for that money.

And 25 years from now, that $500K may not buy you even a HDB pigeon hole.

Ditto for all those desirable goods and services as well as for those unwanted but necessary services like health care.

Worse you would have to contend with the tax man who waits to "chope" his share unless you've the skill the schedule your withdrawal in a way that he can't touch your lolly.

After waiting 25 years to lay your hands on the cash pile, you could be forgiven if you don't care to access it in bits and pieces over another 10 years -- it would try the patience of Job to wait in total 35 years! -- instead of getting hold of it the dough in one fell swoop.

No wonder then the SRS scheme isn't a hot item among those for whom it's targetted!