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Here’s Everything You Should Know About the Supplementary Retirement Scheme (SRS) Account

SRS-Retirement-Account
SRS-Retirement-Account

In Singapore, retirement is always something we crave. While not all of us will be FIRE fanatics, we do want to plan for having more of that cash money when we pack it in with our day job.

That’s where the Supplementary Retirement Scheme (SRS) comes in for Singapore residents. Yes, retirement investing (*yawn*) doesn’t exactly get your heart racing. But, the tax savings on offer by investing through the SRS should. 

So, for all of us who like to keep more money for ourselves (and our retirement) and make sure less of it goes to the Inland Revenue Authority of Singapore (IRAS), here’s everything you need to know about the SRS in Singapore.

Everything You Should Know About the Supplementary Retirement Scheme (SRS) Account

Contents

          1. What is SRS Account?

          2. SRS Account Retirement Age

          3. SRS Tax Relief

          4. SRS Contributions and Tax Relief: Limits

          5. Best SRS Accounts and Promotions

          6. SRS Investments

          7. When can I withdraw from SRS Account?

          8. Should I open SRS Account?

1. What is an SRS Account?

The Supplementary Retirement Scheme (SRS) is a voluntary savings scheme by the government designed to prepare you for retirement.

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But wait, don’t we already have CPF? What is the difference between CPF and SRS? Well, CPF is a mandatory savings scheme, and it’s meant only to give you a pool of basic retirement income. That might not be enough for those who lead more elaborate lifestyles. 

What’s more, as many people are draining their CPF accounts to buy BTOs and condos, there might be some Singaporeans who can’t rely on CPF to fund their retirement.

That’s where the SRS (Supplementary Retirement Scheme) come in. In very simplified terms, SRS is a retirement savings bank account which you can voluntarily open at DBS/POSB, OCBC, and UOB.

As an incentive, SRS contributions are eligible for tax relief the following year. So, if you contribute to your SRS account by 31 Dec 2024, you can get tax relief in Year of Assessment 2025 (which is filed by IRAS and paid by you in 2025).

However, you can’t contribute your entire income to SRS and get away tax-free, because you can only stash away S$15,300 into your SRS bank account every year for Singaporeans and PRs. For foreigners, the contribution cap is set at S$35,700.

Unlike CPF which only allows you to deposit and not withdraw funds, you can withdraw your SRS account’s funds whenever you want. 

However, this is not without negative consequences. Early withdrawal (i.e. before the retirement age) subjects you to a 5% penalty, and you’ll also be taxed on any amounts withdrawn before the retirement age.

2. SRS Account Retirement Age

Now that we’ve established you don’t want to withdraw your SRS funds earlier than necessary, it’s worth brushing on what the official retirement age is in Singapore.

The current retirement age is 63 years old. The last time the government raised it was in July 2022, when it went up to 63 from 62.

How does the retirement age affect your SRS account’s money? When you hit the official retirement age, say 63 years old, and you are no longer working, you can withdraw $40,000 per year tax-free.

However, for those of us who are thinking of opening an SRS account, just go ahead and do it! Why? Because, according to the Ministry of Finance, your official retirement age will be set for life once you open your SRS account. 

That’s important because on 1 July 2026, Singapore’s retirement age will go up to 64 (from the current 63).

So, say you open an SRS account now, you can withdraw your funds at 63. If you only open it after July 2026, you’ll only be eligible to withdraw your SRS funds at 64.

If you’ve got time, go ahead and get it done because all you need to do is open an SRS account and contribute S$1 to lock in that retirement age.

3. How Much Can I Save With SRS Tax Relief?

Let’s be clear here. For most people, the main advantage of depositing money in their Supplementary Retirement Scheme (SRS) account is the tax breaks.

Besides the tax breaks, the SRS account doesn’t do anything special with your money. So, left alone, there are few advantages over investing the money or keeping it in a high-interest savings account.

If you participate in the SRS, it should be because you wish to lower your tax payment. For those who are earning more than $40,000 a year, the savings can be quite significant.

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

Annual income

Income tax rate

Up to $20,000

0%

$20,001 to $30,000

2%

$30,001 to $40,000

3.5%

$40,001 to $80,000

7%

$80,001 to $120,000

11.5%

$120,001 to $160,000

15%

$160,001 to $200,000

18%

$200,001 to $240,000

19%

$240,001 to $280,000

19.5%

$280,001 to $320,000

20%

$320,001 to $500,000

22%

$500,001 to $1,000,000

23%

Anything above $1,000,000

24%

Notice how there’s a big increase from $40,000 to the next tier? That’s why it’s only worth considering opening an SRS account when you start earning more than $40,000 per year.

Here’s an extremely simplified example, ignoring all other tax reliefs available:

Let’s say you’re John Doe, an office worker who earned $40,000 last year. You would have paid $550 in income tax this year.

But early this year, you landed a new job and are now earning $50,000 annually. This means that come tax season next year, you’ll need to cough up $550 (on the first $40,000 of income) + $700 (7% of the $10,000 increment) = $1,250 in income tax. That’s over double the amount you paid this year!

However, if you open an SRS account this year and deposit $10,000 in there, you’ll be given tax relief on that $10,000. This brings you back to your previous income bracket, and your income tax “bill” will drop to $550 once more. You’d be saving $700 on income tax.

4. Are There Limits to SRS Contributions and Tax Relief

Yes, there are limits to SRS contributions.

Before you start trying to deposit your windfall from your en bloc sale in your Supplementary Retirement Scheme (SRS) account, know that there are 2 limits in place to keep people from abusing the scheme to avoid taxes: (a) annual SRS contribution limits and (b) personal income tax relief cap.

For (a) annual SRS contribution limits, there’s a maximum of how much you can contribute to your SRS account each year. Here are the latest SRS caps as of 2024:

Account holder

Maximum yearly contribution

Singapore citizens/PRs

$15,300

Foreigners

$35,700

There is no need to indicate your tax return 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.

But this is where the (b) personal income tax relief cap kicks in. There is a cap of $80,000 for total personal income tax relief, including SRS contributions and anything else that entitles you to tax relief such as Working Mother’s Child Relief and donations.

Refer to this IRAS tax calculator page to estimate how much tax reliefs and rebates you are eligible for. For more on how to reduce your personal income tax, see our article.

5. Best SRS Accounts and Promotions

You can open a Supplementary Retirement Scheme (SRS) account at one of the local banks: DBS, OCBC or UOB. To open an account, you can either show up in person at one of the banks with your NRIC or passport or apply online:

The banks are offering the following SRS account opening/investment promotions:

Bank

SRS account promotion

Expiry

DBS

Open a new SRS account via digibank and contribute
a minimum of $10,000 to receive a $50 cash gift*

30 June
2024

OCBC

No promo currently

UOB

No promo currently

*Limited to first 1,000 qualified customers

While the promos above look pretty sparse, look out for more promos the closer we get to the end of the calendar year. 

That’s because there’s typically a rush from individuals to open an SRS account in the final few months of the year to lock in those tax savings, with banks offering up some added incentives of their own.

How about the mechanics of contributing? Well, putting money into your SRS account works  the same way as depositing money in any other bank account. 

While the exact procedure will vary according to the bank you’re using, you should be able to deposit money through internet/mobile banking, at the branch, or by cheque (indicate your SRS number at the back of your cheque).

You can also get your employer to contribute money to your SRS. Note, though, that SRS contributions are strictly in cash. You cannot use CPF to top up your SRS account. Don’t be cheeky.

6. Can I Use My SRS Funds for Investments?

Yes. You can and should because putting your money in a Supplementary Retirement Scheme (SRS) account and not doing anything with it is like flushing it down the toilet.

Instead of letting the cash in your account twiddle its thumbs and lose value due to inflation, you can put those SRS funds into investments. Best of all, your investment gains will not be taxed.

Also, if you leave cash in your SRS, you’ll earn only 0.05% in annual interest. That’s clearly way below the rate of inflation in Singapore or any other “safe” investment you could put it into (like Singapore Savings Bonds).

The catch is that you can only invest your SRS funds in ways the government has approved, such as:

  • Unit trusts

  • Index funds

  • Blue chip shares

  • Endowment insurance plans

  • SGD fixed deposits

  • Singapore Savings Bonds

The bank you opened your SRS account with can advise on what exactly you can use your SRS funds to invest in.

7. When Can I Withdraw From the SRS Account?

Singaporeans with a Supplementary Retirement Scheme (SRS) account can make a withdrawal on or after the statutory retirement age, i.e. age 62 (currently). You can also do so on medical grounds (e.g. you need the money for an operation) or due to bankruptcy.

If you withdraw before retirement age and not for medical/bankruptcy reasons, you will have to pay a 5% penalty, plus you’ll be made to 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.

Sounds harsh, but it is the Supplementary Retirement Scheme after all. On the other hand, if you wait till retirement age to withdraw your SRS savings, you’ll be taxed only for 50% of the withdrawal amount.

This means you can make SRS withdrawals of up to $40,000 a year without tax! (Because 50% x $40,000 = $20,000. And there’s no income tax on annual incomes of $20,000 and below. This is, of course, assuming that you have no other source of income.)

Age at SRS withdrawal

Penalty

Tax payable

Before retirement age

5%

100% of withdrawal amount

Retirement age (62) & after

None

50% of withdrawal amount

8. Should I Open an SRS Account? Is It Worth It?

Even without the “wow” promos from the big 3 banks to open a Supplementary Retirement Scheme (SRS) account, we should all consider opening an account just to get the whole admin aspect out of the way.

That way, if we haven’t opened one up already, you can lock in that current retirement age of 63. Also, you are not obliged to contribute (besides that initial $1) after you’ve opened the account. 

Again, the hint is in the first word—Supplementary—in that the SRS is supposed to be the “icing on the cake”, with the “cake” being your CPF. 

So, if you can afford to contribute regularly and will definitely put those funds to work (remember do NOT have cash sitting in there for too long!), then you should.

Unlike, say, signing up for a new credit card, opening an SRS account is a serious long-term commitment. The penalties for early withdrawal are not to be sniffed at. You should have a long hard think about whether you’re willing to lock in your money until retirement just for a few vouchers and several hundreds of dollars in tax relief.

If you participate in SRS, you must invest your SRS funds in something or another. Otherwise, leaving it as cash in your SRS account is like asking inflation to come and makan your hard-earned money.

Note that the Supplementary Retirement Scheme is NOT the only way to plan for retirement.

Nothing is stopping you from simply opening another bank account and depositing your retirement savings there for investment purposes!

Or, if you don’t mind locking in your funds until retirement, but leceh to do your own investments, you can always top up your CPF for guaranteed 2.5% to 4.08% p.a. returns.

To conclude, the key reason to participate in the SRS is for tax reliefs and nothing else. So you owe it to yourself to do the maths beforehand to figure out just how much money the tax relief will save you, and whether it’s worth it.

Know someone who should learn about SRS tax reliefs? Share this article with them.

The post Here’s Everything You Should Know About the Supplementary Retirement Scheme (SRS) Account appeared first on the MoneySmart blog.

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Original article: Here’s Everything You Should Know About the Supplementary Retirement Scheme (SRS) Account.

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