Guide to Supplementary Retirement Scheme (SRS) and tips to maximise it

As we approach the end of yet another year, the topic of SRS — short for Supplementary Retirement Scheme — will undoubtedly start to appear. This is also the prime time when SRS providers start to offer promotions to open an account.

• Why open an SRS account
• How much taxes can you save?
• What you can invest in using SRS
• Tips to maximise your SRS
• Limits to SRS contributions and tax relief
• Cons of the SRS
• SRS or CPF Special Account
• How to open an SRS account
• SRS promotions

What is the Supplementary Retirement Scheme?

The Supplementary Retirement Scheme (SRS) is a voluntary scheme to help Singaporeans, PRs and foreigners save up for retirement. This goes beyond the compulsory CPF savings we have set aside in our CPF accounts. 

To incentivise Singaporeans, SRS contributions are eligible for tax relief and can be invested in a variety of products.

Why people open an SRS account

Opening an SRS account can help Singaporeans, PRs and foreigners to save on income tax — the biggest appeal of the SRS account. 

Every dollar you put in your SRS account is tax deductible, up until the contribution cap of $15,300 for Singaporeans and PRs, and $35,700 for foreigners.

Whether you prefer to top up your SRS account at the end of the year, or at the very start, these contributions to your SRS account can be made at any time of the year. 

A tip: You might want to do it on or before 31 December in order to enjoy tax relief in the following year of assessment.

How much can you save with the SRS tax reliefs?

For example, if your taxable income for the year is $100,000, by contributing $15,300 to your SRS account, your taxable income drops to $84,700. Based on the IRAS income tax rates, here’s how much tax you would be paying.

This means actual tax savings of $1,759.50 — more than enough to pay for your next shopping spree. You can even grow these tax savings by channeling them to your existing investments.

Besides reducing tax, an SRS account is also a great tool to help you grow your nest egg. With the money contributed to your SRS, you can tap on a wide variety of investment products to better prepare for a comfortable retirement. 

What can you invest in? 

The money in your SRS account will earn just 0.05 per cent p.a. To grow these funds, you can use them to invest in products such as: 

• Shares
• Bonds
• Unit trusts/mutual funds
• Exchange Traded Funds (ETFs)
• Single-premium insurance plans (both annuity and non-annuity plans)
• Certain life insurance products
• Fixed deposits

You can also consider robo-advisors such as Endowus, StashAway and Syfe that allow you to invest with them using your SRS money. These robo-advisors offer a wide range of portfolios which are well-diversified, at low cost. 

6 tips to maximise your SRS account

#1 Open and top up $1 to your SRS account today

While retirement could be a distance away, the year we make our contribution to our SRS account matters, as it affects the year in which we can withdraw our SRS funds. Your SRS funds can be withdrawn without penalty upon the prevailing statutory retirement age when you made your first SRS contribution. 

If you’ve heard of the idea to top up $1 to your SRS account, here’s the reason why:

It was announced last year that the retirement age will be raised from 62 to 63 in 2022 and further increased to 65 by 2030. What this means is, if you want to withdraw your SRS money at the retirement age of 62, you should make your first contribution to your SRS account before 2022 — the year when retirement age will officially increase. 

Since you can contribute any amount to your SRS account (up to your SRS contribution cap), this contribution could be as little as $1. So why delay the age in which you can withdraw without penalty, when you can ensure an earlier retirement age with a small contribution today?

#2 Top up the maximum of $15,300 a year

The more you top up, the more tax savings you enjoy. As the year comes to a close, why not maximise the amount of tax savings you can enjoy by bolstering your SRS account? Singaporeans and PRs can contribute up to $15,300 to their SRS accounts while foreigners can contribute up to $35,700. 

While tax savings are appealing, this should only be done when you can afford it, especially since early withdrawals will incur a 5 per cent penalty. 

#3 Plan and spread out your withdrawals

As early withdrawals incur a 5 per cent penalty and are 100 per cent taxable, you should look to withdraw from your SRS account only upon the statutory retirement age. Withdrawals after the retirement age are taxable at 50 per cent and can be withdrawn over a period of 10 years.

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You can plan and stagger your withdrawals across the 10 years to reduce (or even eliminate) the amount of tax you have to pay with each withdrawal. There is no minimum or maximum withdrawal amount imposed.

You should also consider making withdrawals only after you have retired and have stopped earning an income. If you have no other source of taxable income, the first $20,000 of your total annual income is tax-exempted.

In the perfect scenario, if you withdraw $40,000, only $20,000 is taxable (at 50 per cent), and with no alternative income stream, you effectively have no taxes to pay for the year. 

#4 Opt for investments that complement your current portfolio

Your SRS returns would depend on the investments you make. When investing your SRS funds, you can reexamine your investment portfolioto see which investment gaps your SRS might fill. 

For example, if your SRS funds are used for an annuity plan for retirement, you might prefer to use your cash on hand to invest in equities in order to spread your eggs across multiple baskets. This would ultimately boil down to your risk appetite and investment goals.

Unlike cash, the investment options available for your SRS funds are more limiting. Take robo-advisors, for example. Not all robo-advisors allow you to invest with your SRS money. 

#5 Stash it in cash management accounts 

Any cash sitting idle in your SRS account earns a measly 0.05 per cent p.a. Cash management accounts such as Endowus Cash Smart and StashAway Simple offer projected returns of 1.4 per cent to 1.9 per cent p.a. This can be a good stop-gap option when pondering over which investment vehicle to put your SRS funds in.

While the returns offered by cash management accounts isn’t guaranteed, it’s far better than the 0.05 per cent p.a. while offering liquidity and low risk.

#6 Not all withdrawals have to be made in cash

You can consider making non-cash withdrawals by transferring the investment out of your SRS account and into your Central Depository (CDP) account.

This option allows you to avoid liquidating your SRS investments and also allows you to hold your SRS investments outside of the SRS scheme, particularly important during times when markets are down. 

However, this is only applicable for the following types of withdrawals, which qualify for the 50 per cent tax concession:

• Withdrawal on or after the statutory retirement age prevailing at the time of an SRS member’s first contribution
• Withdrawal on medical grounds
• Withdrawal in full by a foreigner who has maintained his SRS account for at least 10 years from the date of his first contribution

There are also exceptions to these investment withdrawals. The following withdrawals can only be in cash: 

• Withdrawals on the grounds of bankruptcy 
• Withdrawals before the statutory retirement age 
• Withdrawals of contributions in excess of the SRS contribution cap

Limits to your SRS contributions

Tax savings are always welcomed. However, there is a limit to how much tax savings you can enjoy by contributing to your SRS. There are two limits for you to take note of:

• Yearly SRS contribution limit: Singaporeans and PRs can contribute up to $15,300 to their SRS accounts while foreigners can contribute up to $35,700 each year.
• Personal income tax relief cap: $80,000 — the maximum amount of tax relief you can enjoy each Year of Assessment, including relief on SRS contributions.

As there is no refund for SRS contributions made, you should keep these caps in mind before making your SRS account contributions. Read this article to find more ways to reduce your tax in Singapore.

Drawbacks of the SRS account

While tax saving is the main sell of SRS contributions, there are a couple of cons to keeping your money here, especially if you do not invest these funds. 

Low liquidity: Your money cannot be withdrawn till the statutory retirement age. This retirement age can also change depending on when you first make your SRS contribution.

Early withdrawal of your SRS funds results in a penalty of 5 per cent and are also 100 per cent taxable, negating the purpose of contributing to your SRS in the first place. Early withdrawals are also allowed only in cash. 

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However, there are specific scenarios that allow you to withdraw your SRS money without a penalty imposed, such as those on medical grounds, death or bankruptcy.

Foreigners can also withdraw in full with no penalty if they have maintained their SRS account for at least 10 years from the date of the first contribution. For these withdrawals, 50 per cent of the withdrawal amount will still be taxable. 

Withdrawals post-retirement age remain taxable: Your contributions will still be taxed — albeit halved at 50 per cent — when you withdraw your SRS funds. Not quite tax-free.

0.05 per cent p.a. interest rate: Like your everyday savings account, your SRS account will do no more than generate 0.05 per cent p.a., far from protecting your cash against inflation.

Top up SRS or CPF Special Account?

Making contributions to your SRS and topping up your CPF Special Account (SA) are both ways to lower your taxable income in Singapore. CPF SA top ups enjoy dollar-for-dollar tax relief.

Here are the key reasons and differences between these two options:

If your finances permit, who’s to say you can’t do both? To maximise the tax savings you enjoy, you can contribute to your SRS as well as top up your CPF SA. This allows you to enjoy more tax relief, up till the personal income tax relief cap of $80,000.

If you’ve already hit the cap, you can consider holding on to your cash, either in a high-yield savings account, in an insurance savings plan, cash management account or to grow your investments.

How to open an SRS account and make contributions

You first have to satisfy the eligibility requirements:

• At least 18 years of age;
• Not an undischarged bankrupt;
• Not suffering from a mental disorder; and
• Capable of managing yourself and your affairs.

You can only open an SRS account with any of these three providers: DBS, OCBC or UOB. Applications can be fully done online via iBanking. However, unlike brokerage accounts, you may not have more than one SRS account at any point in time. 

Supplementary Retirement Scheme (SRS) promotions

To further incentivise you to get started, here are the current SRS account opening promotions available:

• DBS: Get up to $100 cash when you open an SRS Account online, top up and invest. 
• OCBC: Get a $50 FairPrice e-Voucher when you open an SRS Account and contribute a minimum of $10,000. This promotion is limited to the first 2,000 customers and ends Dec 31, 2020. 

If you’re still on the fence about the SRS account, keep in mind that the change to the statutory retirement age is fast approaching. With no cost to opening an SRS account (and even getting rewarded for opening and investing your SRS money), now’s a good time as ever to start your SRS investments.