Do you want to pay less income tax and save more for the future? If so, you should pay some attention to the Supplementary Retirement Scheme (a.k.a. SRS).
Unlike the popular CPF retirement scheme, many people have not even heard of SRS.
In this article, I will explain
- What is SRS and what are the benefits of SRS contribution
- How to make an SRS contribution
- How to make an SRS withdrawal
- How to invest your SRS balance
What is SRS?
The Supplementary Retirement Scheme (SRS) is part of the Singapore government’s multi-pronged strategy to address the financial needs of a greying population. It was established on 1st April 2001 to encourage individuals to save for their retirement by offering tax incentives.
SRS plays a complementary role in CPF savings, which are meant to provide for housing and medical needs and for basic living needs after retirement. Unlike the CPF scheme, participation in SRS is voluntary. SRS members can contribute a varying amount to SRS (subject to a cap) at their own discretion. The contributions may be used to purchase various investment instruments.
How much tax relief can you get for SRS Contribution?
The SRS scheme is designed to help you save for the future while reducing your tax expenses at the present time. SRS tax benefits are on top of your CPF top-up tax relief.
- Reduction on taxable income: every dollar deposited into your SRS account reduces your taxable income by a dollar, subject to a cap on personal income tax relief of $80,000 per year.
- Tax benefits on SRS funds: you can enjoy tax-free investment gains made through SRS funds (except Singapore dividends received), and pay tax on only 50% of the amount withdrawn upon retirement. You can stagger SRS withdrawal over 10 years to enjoy greater tax savings.
Note for foreigners, the yearly maximum SRS contributions are capped at $35,700. I will elaborate on this more later.
Assuming your annual income is S$85,000 this year and you have the following personal tax relief of S$31,500
- Earned Income Relief of S$1,000
- CPF Relief of S$17,000
- NSman Self Relief of S$5,000
- Qualifying Child Relief of S$4,000
- Parent Relief of S$4,500
You can potentially save 60% of the tax you were supposed to pay, which is $892.50 if you contribute $15,300 to your SRS account. The calculation is illustrated as below, based on YA 2021 tax rate:
|An illustration of how SRS helps you save|
|Less: Personal Reliefs |
(Earned Income, CPF, Qualifying Child, Parent etc)
|Without SRS||With SRS|
|Potential tax savings||S$1,008|
Who are qualified for SRS contribution
Singapore Citizens, Singapore Permanent Residents (SPRs), and foreigners who derive any form of income can make SRS contributions in the current year. You must be:
- At least 18 years of age;
- Not an undischarged bankrupt;
- Not mentally disordered; and
- Capable of managing yourself and your affairs.
Your employer can also contribute voluntarily to your SRS account. However, the contribution will be taxed as an employment benefit.
What is the maximum amount of SRS Contribution?
You and your employer may contribute any amount to your SRS account up to the maximum SRS contribution. Contributions must be made in cash.
Yearly Maximum SRS Contribution by Singapore Citizens / SPRs
|Year||Absolute Income Base*||Yearly Maximum SRS Contribution|
|2011 to 2015||$85,000|
(17 months x $5,000)
(15% of $85,000)
|2016 onwards||(17 months x $6,000) = $102,000||15% of Absolute Income Base (15% x $102,000) = $15,300|
Yearly Maximum SRS Contribution by Foreigners
|Year||Absolute Income Base*||Yearly Maximum SRS Contribution|
(17 months x $5,000)
(35% of $85,000)
|2016 onwards||(17 months x $6,000) = $102,000||35% of Absolute Income base (35% x $102,000) = $35,700|
*The Absolute Income Base is calculated on 17 months of the CPF monthly salary ceiling.
Note if you are a foreigner, you are required by the SRS bank operator to complete the Declaration Form for SRS and declare your foreigner status. This allows the operator to calculate your maximum SRS contribution.
If you become a Singapore Citizen or Singapore Permanent Resident during the year, please update the SRS bank operator as your maximum contribution amount will have to be recalculated even if you have already made contributions for that year. The SRS bank operator will re-compute your SRS contribution cap for the year on a pro-rata basis.
Penalties may be imposed for excess contributions if a wrongful declaration has been made to the SRS bank operator. For example, if, at the time of contribution, you are already a Singapore Permanent Resident, you cannot declare that you are a foreigner.
How to Make SRS Contribution
You can contribute at any time, and as often as you like, subject to the maximum SRS contribution for the year. All contributions must be made by 31 Dec of the year or as your SRS operator requires, to be eligible for tax relief.
You can continue to make SRS contributions as long as you have not made any withdrawals from your SRS account:
- At or after reaching the statutory retirement age that was applicable when you made your first SRS contribution;
- On medical grounds.
How to open an SRS Account
SRS Accounts are managed by three SRS operators. To begin making contributions, you must first open an SRS account with one of them. The three SRS operators are the 3 local banks:
You can only have one SRS account at any point in time. However, you can transfer your account between different SRS operators. It is an offense to open SRS accounts with more than one operator and there are penalties for doing so.
How to make an SRS withdrawal
Perhaps the main reason stopping people from contributing to SRS is that they are afraid that the money is locked up like CPF.
The truth is that you can withdraw funds from your SRS account anytime. Withdrawals can be made:
- in cash
- in the form of investments (effective 1 Jul 2015).
The catch is that if you withdraw your SRS before the statutory retirement age (currently at 62), there will be a 5% penalty. In addition, when you withdraw money or investment from your SRS Account, the withdrawal is subject to tax.
The taxable amount of the withdrawal will be added to your other taxable income (e.g. employment, rental) and taxed based on the prevailing tax rate. The time of withdrawal and circumstances determine the taxable amount of the withdrawal.
Scenario 1: Contribution made before withdrawal in the same year
Ms Jasmine, 40 years old, first made a contribution of $10,000 and then made a withdrawal of $8,000 in the same year. SRS relief will not be granted on the amount of $8,000 she contributed and withdrawn, and there will not be any tax and penalty on the amount withdrawn.
If Ms Jasmine made a withdrawal of $15,000 instead of $8,000, there will be no tax relief allowed on the $10,000 contributed, as the amount withdrawn exceeds the amount contributed in the year. The remaining amount of $5,000 ($15,000 – $10,000) will be subject to tax and a 5% penalty.
Scenario 2: Withdrawal made before contribution in the same year
Ms Jasmine, 40 years old, first made a withdrawal of $15,000 and then made a contribution of $10,000 in the same year. The withdrawal of $15,000 will be brought to tax in full and a 5% penalty will be imposed. Subsequently, the SRS contribution made after will be allowed SRS tax relief.
There are a total of 7 Types of Withdrawals
- Withdrawal After Retirement – 50% of the amount withdrawn is taxable.
- Early Withdrawal (Before Retirement) – 100% of the sum withdrawn will be taxed.
- Withdrawal in the Form of Annuities – 50% of the annual stream is subject to tax when the SRS account is closed or deemed closed. SRS account is deemed closed at the end of the 10 th year withdrawal period.
- Withdrawal Upon Death – 50% of the ‘deemed withdrawal’ amount is subject to tax.
- Withdrawal on Medical Grounds – 50% of the amount withdrawn is subject to tax.
- Withdrawal in Event of Bankruptcy – 100% of the amount withdrawn is subject to tax.
- Withdrawal of Lump Sum by a Foreigner (10-year parking period) – 50% of the amount fully withdrawn is subject to tax. The penalty for early withdrawal does not apply.
How to get the best deal?
Before you start saving under the SRS scheme, you should do a simple cost-benefit analysis to review the potential tax benefits as well as earnings from investing your SRS funds. This should be weighed against the opportunity cost of tying down your funds until retirement age.
There is a chance that if SRS savings are withdrawn in their entirety on retirement, you will end up paying more income tax on the withdrawals than what was gained in tax savings. However, this may be mitigated by staggering withdrawals over a period of 10 years.
Don’t underinvest SRS
The worst thing you can do is to contribute to your SRS account and leave the money there to be eroded by inflation. Money in the SRS account has the same pathetic 0.05% interest rate as a cash saving account, yet over one-third of SRS savings is left idling. This is far higher than the 22% recorded six years ago when interest rates were much higher.
According to SRS Statistics, there are 116,466 SRS accounts with a total contribution of 5.97 billion Singapore dollars. Yet there is still $1.91 billion left in the SRS account as cash.
What are SRS Investment Options?
There are many approved schemes under SRS: from bonds to endowment insurance plans; from unit trusts to stocks and ETFs. And you don’t have to invest with the bank that opens the SRS account for you. In fact, you are better off with an SRS Investment Administrator.
To help you with this, I have written a complete guide to SRS investment options.
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