What is the Supplementary Retirement Scheme?

The Supplementary Retirement Scheme (SRS) is a voluntary saving scheme to encourage individuals to save for retirement, over and above their CPF savings. As a sizeable portion of CPF money is often used for the down payment and to service mortgage loans, we could consider alternatives such as SRS as a supplementary source of our retirement nest egg.

Contributions to SRS are eligible for tax relief. You can choose to contribute to your SRS contribution cap before 31 December every year and enjoy tax relief in the following Year of Assessment. 

Saving on income tax is the biggest appeal of the SRS account for Singaporeans, PRs, and foreigners. Every dollar you put in your SRS account is tax-deductible, up to the contribution cap.

You can choose to open your SRS account with either DBS, OCBC, or UOB and you will earn the standard 0.05% p.a. return as you would with a regular bank savings account.

How much can you contribute to SRS?

Currently, the maximum you can contribute each year is $15,300 for Singaporeans and PRs and $35,700 for foreigners.

There is no need to indicate your tax return in order to get your SRS tax relief. The bank administering your SRS account will report directly to the government and your tax relief will be computed automatically.

Do note that there is a total personal income tax relief cap of $80,000. This includes SRS contributions and anything else that entitles you to tax relief such as Working Mother’s Child Relief and donations.

What are the benefits of contributing to SRS?

• Pay less income tax
  
  
• Investment returns are tax-free before withdrawal, only 50% of SRS withdrawals are taxable at retirement
  • Instead of letting the cash in your SRS account lose its value due to inflation, you can invest the funds in government-approved instruments such as shares, REITs, ETFs, Index funds, Singapore Savings Bonds, Unit Trusts, and Endowment insurance plans.
    
    Best of all, your investment gains will not be taxed. Similar to investing your CPF funds, the returns on your investments funded by SRS will return to your SRS account. When you withdraw your savings once you reach the prescribed retirement age (currently age 62), you will only be taxed 50% of the withdrawal amount as taxable income.
    
    
  • What this means – if you have no other taxable income (from employment or rental), you can withdraw up to $40,000 a year from your SRS account without paying any tax. Why? Because only 50% or $20,000 will be considered taxable income, and there is no tax on an annual income of $20,000 and below.
    
    
• Flexible contributions
  All SRS members can contribute as much or as little as they want. The SRS contribution rate for Singaporeans and residents is 15% (capped at $15,300) of the income base while it is 35% (capped at $35,700) for foreigners.
  
  
• Opportunity to grow your SRS to supplement your retirement income
  The money in your SRS account not only provides you with tax savings, it also has the potential to grow. You can invest in SRS approved shares, unit trusts, REITs, ETFs as well as insurance plans (i.e. endowment). When considering an endowment plan, be sure to check whether your capital is guaranteed. Also, in your retirement planning, it is advisable to have more than one source of retirement income. 

What are the withdrawal rules?

Since the SRS is meant to provide us with retirement income during our golden years, there are withdrawal rules that we need to take note of.

• If you withdraw any amount before the statutory retirement age (i.e. currently age 62), 100% of the withdrawn amount is taxable. Furthermore, you will be charged a 5% penalty. For example, if you withdraw $40,000, you will need to pay a penalty of $2,000.
• If a withdrawal is made before the statutory retirement age due to death or medical grounds, 50% of the withdrawal amount will be subject to income tax. There will be no penalty.
• If the withdrawal is made before the statutory retirement age due to bankruptcy, 100% of the withdrawal amount will be subject to income tax. There will be no penalty.
• If you withdraw before retirement age and not for medical or bankruptcy reasons, you will have to pay a 5% penalty, plus pay taxes on 100% of the withdrawn amount. The withdrawn amount will be added to your taxable income when calculating your income tax liabilities for the year.
• If you make withdrawals after the statutory retirement age, you will receive a 50% tax concession on your withdrawal amount. For example, if you withdraw $40,000 from your SRS account for the year, only $20,000 will be considered as taxable income. There will be no penalty imposed on the withdrawal amount.
  

How much can you save with SRS tax reliefs?

The main advantage of depositing money in your SRS account is the tax breaks. If you do participate in the SRS, it should be because you wish to lower your tax liabilities. For those who are earning more than $40,000 a year, the savings can be quite significant.

This table shows you an estimation of how much you can expect to pay in income tax each year for every dollar that you earn: