Supplementary Retirement Scheme (SRS): Definitive Guide

Financially Reviewed by Edward Hee
By Firdaus Syazwani

Published: 11 July, 2024
Last Updated: 11 July, 2024

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Are you wondering whether you should open and contribute to a Supplementary Retirement Scheme (SRS) account?

In this post, you’ll learn:

Why prioritising your CPF contributions might be the best first step
The tax benefits of contributing to your SRS account
Who should consider opening an SRS account
How to make the most of your SRS investments
Practical steps to open and manage your SRS account

I’ve navigated the financial planning landscape myself, balancing CPF and SRS contributions to maximise my retirement savings and tax benefits.

It’s a path that many Singaporeans find confusing, but it’s crucial to get it right for a secure future.

Curious to see how you can make the most of your retirement savings?

Keep reading to discover the best strategies for your financial future.

What is the Supplementary Retirement Scheme?

The Supplementary Retirement Scheme (SRS) is a voluntary scheme designed to encourage individuals to save for their retirement, complementing the mandatory CPF savings contributions.

This scheme provides an additional avenue for retirement savings, allowing individuals to enhance their financial security in their later years.

Unlike CPF, contributions to the SRS are entirely voluntary, giving individuals the flexibility to decide how much they wish to save each year.

Contributions made to an SRS account can be invested in a variety of financial instruments, including unit trusts, shares, bonds, and fixed deposits.

This investment flexibility enables individuals to tailor their investment strategy according to their risk tolerance and financial goals, potentially achieving higher returns than what is typically offered by traditional savings accounts.

What are the benefits of an SRS account?

Opting for a Supplementary Retirement Scheme (SRS) account can offer you numerous advantages, particularly when it comes to tax savings and enhancing your retirement nest egg.

Save on Tax

One of the standout benefits of an SRS account is the substantial tax relief it offers.

Firstly, you get immediate tax savings.

Contributions to your SRS account are eligible for tax relief.

This means that every dollar you contribute reduces your taxable income by the same amount.

For example, if you contribute S$10,000 to your SRS account, your taxable income is reduced by S$10,000 for that year.

This can lead to significant tax savings, especially if you fall into a higher tax bracket.

The returns on your SRS investments also grow tax-free.

This allows your savings to compound over time without being eroded by taxes.

Lastly, you get favourable tax treatment on SRS withdrawals.

When you eventually withdraw from your SRS account at retirement, only 50% of the amount withdrawn is subject to tax.

This favourable tax treatment means you’ll likely pay less tax on your withdrawals compared to other taxable income, helping you keep more of your savings.

Extra Retirement Savings

Beyond the immediate tax benefits, an SRS account provides an excellent way to build additional retirement savings.

While CPF contributions are mandatory and provide a solid foundation for retirement, they might not be enough to maintain your desired lifestyle in retirement.

The SRS allows you to top up your savings voluntarily, ensuring you have a larger pool of funds to draw upon when you retire.

With an SRS account, you have the flexibility to invest in a wide range of financial instruments, including unit trusts, stocks, fixed deposits, and more.

This flexibility enables you to tailor your investment strategy to suit your risk tolerance and financial goals, potentially enhancing the growth of your retirement savings.

By consistently contributing to your SRS account and making wise investment choices, you can significantly increase your retirement savings over the long term.

Problems with the SRS account

While the Supplementary Retirement Scheme (SRS) offers several benefits, it’s important to be aware of its potential drawbacks.

Here are some issues you might encounter with an SRS account:

Low Interest Rate

One of the notable downsides of an SRS account is the low interest rate on cash balances.

Currently, the interest rate is just 0.05% per annum.

This is significantly lower compared to other savings options and inflation rates.

Essentially, if you leave your contributions as cash in the SRS account without investing them, the real value of your savings could diminish over time.

To counteract this, it’s crucial to actively invest your SRS funds in higher-yielding investment instruments rather than letting them sit idle.

Penalty for Early Withdrawal

The SRS is designed to be a long-term savings vehicle, and this comes with a caveat – early withdrawals are penalised.

If you withdraw funds from your SRS account before the statutory retirement age of 63 (or if you opened the account after 63, 10 years from the account opening date), you will face a 5% penalty on the withdrawal amount.

Additionally, the full amount withdrawn will be subject to tax.

This penalty structure can be quite harsh and may deter individuals who might need to access their funds earlier due to unforeseen circumstances.

Withdrawal Limits

Another issue with the SRS account is the withdrawal limits and tax implications.

Upon reaching the retirement age, while you can start making withdrawals, only 50% of the amount withdrawn is taxable.

While this is beneficial from a tax perspective, it also means you need to plan your withdrawals carefully to manage your tax liabilities efficiently.

Moreover, if you spread your withdrawals over 10 years, this can help minimise the tax impact, but it requires careful planning and financial discipline.

For example, if you withdraw a large lump sum, you might push yourself into a higher tax bracket, resulting in higher taxes paid.

This aspect makes financial planning and management more complex compared to more straightforward savings or investment accounts.

Here’s what I mean:

Imagine you’re 55 years old and facing unexpected medical expenses.

You decide to withdraw S$20,000 from your SRS account to cover these costs.

Not only will you incur a 5% penalty (S$1,000), but the entire S$20,000 will also be added to your taxable income for the year, potentially increasing your overall tax liability significantly.

This can be a financial burden, especially during a time when you need funds the most.

What is the maximum annual SRS contribution?

The government has set specific limits on how much you can contribute to your SRS account each year.

These limits vary depending on your residency status:

Singapore Citizens/Singapore Permanent Residents	Foreigners
$15,300	$35,700

Understanding the limits on SRS contributions is crucial for maximising your tax savings and ensuring that you’re making the most of this retirement scheme.

What is the deadline for SRS contributions?

The deadline for making contributions to your Supplementary Retirement Scheme (SRS) account 31 December each year.

This means if you want to reduce your taxable income for the current year, you must ensure that your contributions are completed by the end of December.

This is a key date to remember if you want to take full advantage of the tax benefits offered by the scheme.

What is the maximum amount of money I can have in my SRS account?

There is no upper limit on the total amount you can accumulate in your SRS account.

Here’s how SRS helps you save on taxes

Illustration of how much you could save in taxes:

Employment Income	$102,000
Less: Personal Reliefs (Earned Income, CPF, Qualifying Child, Parent, etc)	$31,500
	Without SRS	With SRS
SRS Contribution	$0	$15,300
Total Relief	$31,500	$46,800
Chargeable Income	$70,500	$55,200
Total Tax	$2,685	$1,614
Potential Tax Savings	$1,071 You save 40% more tax this year!

The Supplementary Retirement Scheme (SRS) offers a variety of tax benefits that can significantly enhance your financial planning and retirement savings.

Who can open an SRS account?

Anyone who is a Singaporean, Permanent Resident (PR), or foreigner residing in Singapore can open an SRS account, provided they meet these criteria:

At least 18 years old and not an undischarged bankrupt
Have no existing SRS Account with another bank
Do not have an ongoing SRS Account opening application with another bank

How to open an SRS account?

Opening a Supplementary Retirement Scheme (SRS) account is a straightforward process managed by 3 major banks in Singapore: DBS, UOB, and OCBC.

I’ve included the links to how you can open an SRS account with each of the respectively banks here:

Before starting your application, ensure you have the necessary documents ready:

Identity Card/Passport: Singaporeans and PRs can use their NRIC, while foreigners should use their passport.

Completed Declaration Form for SRS (For Foreigners): If you are a foreigner, you will need to complete this declaration form as part of the application process.

I already have an SRS account, can I switch banks?

As of now, the regulations for the Supplementary Retirement Scheme (SRS) stipulate that each individual can only maintain one SRS account at any given time.

However, you can decide to switch your SRS account to a different bank.

Each bank has their own processes for this, so it’s best to contact your bank for instructions.

The interest rate is so slow… can I invest my SRS funds?

Yes, you can definitely invest your SRS funds to achieve potentially higher returns compared to the low interest rate (0.05%) offered on cash balances.

Best SRS funds investment in Singapore

Here are some of the best SRS investment options in Singapore, along with a brief overview of each:

There are a lot more options to choose from, and I’ve talked about them in detail here.

What happens to my SRS investments if I liquidate them?

If you decide to liquidate your investments within your Supplementary Retirement Scheme (SRS) account, the proceeds from the sale will be returned to your SRS account as cash.

This process means that any gains or funds obtained from liquidating your investments will not be lost but instead will remain within your SRS account, ready for future investment opportunities or to simply earn the prevailing interest rate.

However, it’s important to understand that you will not be able to withdraw these funds from your SRS account until you reach the statutory retirement age of 62 or under specific circumstances such as medical grounds or if you are a foreigner leaving Singapore permanently.

The SRS is designed as a long-term savings and investment vehicle, and early withdrawal incurs penalties and tax implications.

Therefore, while the funds from liquidated investments are accessible for reinvestment within the account, they are not available for withdrawal until the appropriate time, ensuring that the scheme’s primary goal of long-term retirement savings is maintained.

How to Withdraw from Your SRS Account: Tax Implications and Strategies

Withdrawal During the First 10 Years:

After reaching the statutory retirement age (currently 63), you can start making penalty-free withdrawals from your SRS account.

These withdrawals benefit from a 50% tax concession, meaning only 50% of the amount withdrawn is subject to tax.

This allows you to potentially withdraw up to $40,000 annually tax-free, assuming you have no other income, as only $20,000 would be considered taxable income, which falls within the tax-exempt bracket for personal income tax in Singapore.

To optimize your tax savings, it is advisable to spread your withdrawals over this 10-year period.

This staggered approach can help you remain within lower tax brackets each year, thereby minimising the overall tax you pay.

Tax Implications After the 10-Year Period:

At the end of the 10-year withdrawal period, any remaining balance in your SRS account will be deemed withdrawn and subject to tax.

However, the 50% tax concession still applies, meaning only half of the remaining balance will be considered taxable income.

Who should open & contribute to their SRS accounts?

Here are key considerations to help determine if SRS is right for you:

1. What is Your Annual Income?

If you’re paying more than 15% in tax, contributing to an SRS account is a good idea.

Contributions to SRS accounts are eligible for tax relief, which can significantly reduce your taxable income.

For instance, if your annual income places you in a higher tax bracket, making SRS contributions can lower your tax liability, resulting in substantial tax savings.

2. Do You Need the Money Immediately?

SRS is designed for long-term retirement savings.

You can only withdraw the funds at the official retirement age (currently 63), or under specific circumstances such as medical grounds or if you are a foreigner leaving Singapore permanently.

If you anticipate needing access to your savings before retirement, SRS might not be the best option due to penalties and taxes on early withdrawals.

3. How Long Will You Be in Singapore?

Consider how long you plan to stay in Singapore – for Singaporeans planning to live or work abroad.

The benefits of SRS are maximised if you remain in the country for a significant period, allowing your contributions to grow tax-free and taking advantage of the tax relief.

If you are a foreigner and might leave Singapore permanently before retirement age, you can still benefit from SRS, but you will need to understand the implications for early withdrawals and the process of accessing your funds upon leaving.

However, if you plan to leave in a few years, you need to weigh the benefits against the potential penalties and taxes for early withdrawals.

You should consider contributing to your CPF accounts first…

Before considering contributions to a Supplementary Retirement Scheme (SRS) account, it’s advisable to prioritise contributions to your Central Provident Fund (CPF) accounts.

Firstly, CPF contributions are mandatory for all employed Singaporeans and Permanent Residents, with both employees and employers making regular contributions.

One of the significant benefits of CPF is the attractive, government-guaranteed interest rates.

The CPF Special Account (SA) and Medisave Account (MA) currently offer up to 5% per annum, and the Ordinary Account (OA) offers up to 3.5% per annum.

These rates are risk-free and typically higher than the returns on many low-risk investments available in the market.

The interest earned on CPF savings compounds over time, significantly boosting your retirement nest egg.

Moreover, CPF contributions provide tax relief, which reduces your taxable income and, consequently, your tax liability.

This immediate tax benefit, combined with the long-term growth of your CPF savings, makes it a financially prudent move.

The CPF Life scheme, which provides a lifelong monthly payout from age 65, ensures that you have a steady income stream throughout your retirement, addressing longevity risk effectively.

In contrast, while SRS also offers tax benefits and investment flexibility, it is primarily designed to complement your CPF savings rather than replace them.

The interest rate on cash balances in SRS accounts is relatively low, and the tax benefits, while significant, do not outweigh the guaranteed returns and security provided by CPF.

Therefore, maximising your CPF contributions should be the first step in your retirement planning.

Once you have maximised your CPF contributions and if you have additional funds to allocate towards retirement savings, then considering the SRS for its tax benefits and investment opportunities can be a wise next step.

Frequently Asked Questions

What happens to my SRS funds if I pass on?

If you pass on, your SRS funds will be handled as part of your estate. The balance in your SRS account will be paid out to your legal heirs or beneficiaries.

They will not face any early withdrawal penalties, but the full amount will be taxed in the year of withdrawal. This process ensures that your savings are transferred smoothly to your loved ones, helping to secure their financial future even after you are gone.

Is it worth putting money into SRS?

Putting money into an SRS account can be highly beneficial. It offers significant tax relief by reducing your taxable income, which can be especially advantageous if you are in a higher tax bracket.

Additionally, your investments within the SRS account grow tax-free, enhancing your retirement savings. However, it’s essential to consider your long-term financial plans, as the funds are locked in until retirement age, with penalties for early withdrawal.

What is the difference between SRS and CPF?

The SRS (Supplementary Retirement Scheme) is a voluntary savings program that provides tax benefits for contributions, while the CPF (Central Provident Fund) is a mandatory savings scheme for Singaporeans and PRs, aimed at retirement, healthcare, and housing needs.

CPF contributions earn attractive, government-guaranteed interest rates, whereas SRS funds can be invested in various financial instruments but typically earn lower interest on cash balances.

Additionally, CPF contributions are compulsory with fixed rates, while SRS contributions are voluntary and flexible, offering different tax advantages and investment opportunities.

Can I transfer SRS to CPF?

No, you cannot transfer funds from your Supplementary Retirement Scheme (SRS) account to your Central Provident Fund (CPF) account. These 2 schemes are separate and serve different purposes in your retirement planning.

Does SRS makes sense for foreigners?

Yes, contributing to an SRS account can be advantageous for foreigners residing in Singapore.

Here’s why:

Tax Relief: Foreigners can enjoy significant tax savings as SRS contributions reduce taxable income. This can be particularly beneficial if you are in a higher tax bracket.
Flexible Contributions: SRS offers flexibility in the amount and frequency of contributions, allowing you to adjust based on your financial situation.
Investment Opportunities: You can invest your SRS funds in various instruments like unit trusts, stocks, and bonds, potentially earning higher returns than the low interest rate on cash balances.
Withdrawal Benefits: Upon leaving Singapore permanently, you can withdraw your SRS funds, subject to a 5% penalty, but only 50% of the withdrawal amount is taxable.

Conclusion

In summary, deciding to open and contribute to an SRS account involves weighing several key factors.

We’ve covered why prioritising your CPF contributions first is essential due to its guaranteed returns and solid retirement foundation.

We also discussed the significant tax benefits of SRS, especially if you’re in a higher tax bracket, and the long-term nature of SRS savings.

Plus, we looked at the importance of your planned residency duration in Singapore and how it impacts your decision.

Remember, SRS can be a fantastic tool to boost your retirement savings and enjoy tax relief, but it requires careful consideration and commitment.

If you’re still unsure about whether SRS is right for you, or how to balance it with your CPF contributions, don’t worry.

You can talk to one of our financial advisor partners for free.

They’ll help you navigate your options and make the best decision for your financial future.

Click here to reach out and get the personalised advice you need.

References

Firdaus Syazwani

In 1999, Firdaus's mother bought an endowment plan from an insurance agent to gift him $20,000. However, after 20 years of paying premiums, Firdaus discovered that the policy was actually a whole life plan with a sum assured of $20,000, and they didn't receive any money back. This experience inspired Firdaus to create dollarbureau.com, so that others won't face the same problem of being misled or not understanding what they are purchasing – which he sees as a is a huge problem in the industry.

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