Fresh look at SRS needed to spur retirement savings

Jan 22, 2007

COMMENTARY

Fresh look at SRS needed to spur retirement savings

Contribution limit should be raised as take-up rate remains low despite tax perks

By Goh Eng Yeow

MY FRIEND had a wonderful surprise recently when he received the annual statement for the supplementary retirement scheme (SRS) account he opened with a local bank four years ago.

His investment was almost double the total contributions he had made, giving him an average gain of about 19 per cent a year.

Any fund manager would be shouting from the rooftops if he managed such a spectacular return, yet my friend's good fortune can't hide a couple of clouds on the SRS front.

One is that just not enough people here are aware of SRS accounts and how good they are at imposing a level of discipline on savers, as my friend would attest.

The other more serious problem is that the incentive to save via SRS accounts is being inadvertently eroded by a government policy that has cut the total tax-free amount that can be invested a year.

The SRS was started in 2001 to complement the Central Provident Fund (CPF) by giving wage earners an incentive to save for their retirement and, like CPF contributions, cash invested into an SRS account is tax-free.

But a saver can invest no more than $11,475 a year.

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