SRS funds can be put to work harder

Most SRS account holders are aged 36 to 55.
Most SRS account holders are aged 36 to 55. PHOTO: ST FILE

You can make your Supplementary Retirement Scheme (SRS) contributions work harder by buying into a wide range of investment instruments.

However, Finance Ministry data shows that 34 per cent, or about $2.34 billion, of SRS funds is lying idle as cash.

SRS investment options include shares, exchange-traded funds (ETFs), real estate investment trusts (Reits), bonds, fixed deposits, single-premium insurance plans and unit trusts. Direct property investments are not allowed.

Shares, Reits and ETFs are the most popular among the SRS-approved instruments, accounting for 28 per cent of portfolios. This is followed by 22 per cent parked in insurance plans.

The number of SRS accounts nearly doubled to 127,753 last year from 63,984 in December 2010. The number was just 11,890 when the scheme began in 2001.

Total SRS contributions hit $7.02 billion as at the end of last year, up from $5.97 billion in the year ended Dec 31, 2015.

Most SRS account holders are aged 36 to 55. Financial experts say this indicates that the scheme appears attractive mainly to middle-and high-income earners and those nearing retirement. Another reason for the predominance of this age bracket is that most people typically do not plan for retirement till they are in their mid-30s or older.

Ms P'ing Lim, head of deposits and secured lending at DBS Bank, notes that its customers have been taking a proactive approach with SRS funds.

With the largest share of SRS accounts in the market, DBS has seen growth of around 20 per cent in SRS balances and more than 10 per cent increase in SRS accounts from 2015 to 2016.

"About 70 per cent of the SRS funds are used to draw higher returns in investments such as equities, funds and insurance," she says.

Beyond the yields that they may enjoy, the returns from capital gains on investments are not taxable before the statutory retirement age. Ms Lim says more SRS account holders use their funds to buy single-premium bancassurance (insurance sold via banking channels), unit trusts and equities.

"A large number of our customers are savvy enough to use their SRS accounts concurrently for tax savings and investments," she adds.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on November 05, 2017, with the headline 'SRS funds can be put to work harder'. Print Edition | Subscribe