Planning for retirement is crucial, and beyond CPF, there’s another option available: the Supplementary Retirement Scheme (SRS). Unlike CPF, which is mandatory, SRS is entirely voluntary and comes with attractive tax benefits. However, it’s not a one-size-fits-all solution. It works best for those who are actively looking to reduce taxable income while growing their retirement savings.
Before opening an SRS account, it’s important to understand how it works and whether it aligns with your financial goals. Here’s what you need to know about SRS, its advantages, potential drawbacks, and how it fits into a retirement plan.
What is the Supplementary Retirement Scheme (SRS)?
SRS is a government-backed initiative designed to encourage Singaporeans, Permanent Residents (PRs), and even foreigners to set aside additional savings for retirement. It acts as a complement to CPF by offering an additional avenue to accumulate funds for the future.
Opening an SRS account is simple, and there are no fixed contribution rates. You can contribute as much or as little as you want each year, up to a government-imposed cap. These contributions provide immediate tax relief while allowing funds to be invested in various financial instruments like stocks, bonds, and insurance plans.
Additionally, investment gains made through SRS are tax-free until withdrawal. Upon reaching retirement age, only 50% of withdrawals are subject to tax, making it an efficient tax-deferral tool.
Key Benefits of SRS
Tax Reliefs and SRS Benefits
The Supplementary Retirement Scheme (SRS) is primarily known as a tax-relief tool. Every dollar you contribute to your SRS account is eligible for tax reliefs, subject to an annual cap of $15,300 for Singaporeans and PRs, and $35,700 for foreigners.
This personal income tax relief feature is particularly relevant if you want to reduce your chargeable income. Your tax liability depends on your income bracket, as shown below:
Chargeable Income | Income Tax Rate (%) | Gross Tax Payable ($) |
First $20,000 | 0 | 0 |
Next $10,000 | 2 | 200 |
First $30,000 | – | 200 |
Next $10,000 | 3.5 | 350 |
First $40,000 | – | 550 |
Next $40,000 | 7 | 2,800 |
First $80,000 | – | 3,350 |
Next $40,000 | 11.5 | 4,600 |
First $120,000 | – | 7,950 |
Next $40,000 | 15 | 6,000 |
First $160,000 | – | 13,950 |
Next $40,000 | 18 | 7,200 |
First $200,000 | – | 21,150 |
Next $40,000 | 19 | 7,600 |
Source: IRAS
From the tax table above, if you earn more than $40,000 annually, your tax payable increases significantly. This is where SRS can help by reducing your taxable income.
For instance, if your annual income is $60,000, your tax liability without reliefs would be $1,950:
Calculation | Amount ($) |
Chargeable Income | 60,000 |
Tax on First $40,000 | 550 |
Tax on Next $20,000 (7%) | 1,400 |
Total Tax Payable | 1,950 |
However, if you contribute $15,300 to your SRS account, your taxable income is reduced to $44,700, lowering your tax bill:
Calculation | Amount ($) |
Chargeable Income | 44,700 |
Tax on First $40,000 | 550 |
Tax on Next $4,700 (7%) | 329 |
Total Tax Payable | 879 |
By leveraging SRS, you can reduce your income tax from $1,950 to $879—saving more than $1,000 in taxes!
Grow Your Retirement Fund
The advantages of contributing to your SRS account go beyond just tax savings. Every dollar you contribute qualifies for tax relief—up to $15,300 per year for Singaporeans and PRs, and $35,700 for foreigners. This can significantly reduce your chargeable income, helping you save on taxes.
For instance, if your annual income is $60,000, your estimated tax payable is $1,950. However, by depositing the full $15,300 into SRS, your taxable income drops to $44,700, reducing your tax bill to $879—a savings of over $1,000!
Beyond tax relief, SRS also allows you to grow your retirement savings through investments. Depending on your risk tolerance, you can invest in stocks, unit trusts, Singapore Savings Bonds (SSB), or single premium insurance savings plans. The best part? Returns on your SRS investments are not taxed until withdrawal, and when you withdraw after the statutory retirement age, only 50% of the amount is taxable.
To maximize your SRS benefits, invest your savings and reinvest your returns. Leverage compound interest to grow your retirement pot while keeping your tax burden low.
Limitations of SRS You Should Know
While SRS offers attractive tax benefits, it also comes with certain drawbacks, such as low base interest rates and withdrawal restrictions.
Low Interest Rates
Unlike CPF accounts or high-interest savings accounts, SRS accounts offer a minimal 0.05% per annum interest rate. Leaving your funds idle in SRS means they will lose value over time due to inflation.
To make the most of your SRS savings, you are strongly encouraged to invest them instead. For example, you can use your SRS funds for single-premium insurance products like WealthLink, an Investment-Linked Plan by Income Insurance. This allows you to grow your retirement savings more effectively while still enjoying tax reliefs.
Withdrawal Restrictions and Penalties
Your SRS account is subject to withdrawal limitations based on the statutory retirement age at the time of your first contribution. If you open an SRS account today, withdrawals before age 62 would be considered early withdrawals.
Although you can withdraw funds anytime, doing so comes with penalties:
- A 5% penalty applies to early withdrawals.
- The withdrawn amount will be 100% taxable instead of 50% (for withdrawals made after retirement age).
By timing your withdrawals properly, you can minimize or even eliminate taxes on your SRS savings. For example, if you withdraw $40,000 annually in retirement, only 50% ($20,000) is taxable, which falls under the 0% tax bracket. This means you can withdraw at zero tax if planned strategically.
The 5% penalty is waived only in exceptional cases, such as:
- Death
- Medical grounds
- Bankruptcy
- Full withdrawal by a foreigner (subject to conditions)
CPF vs. SRS – Do You Need Both?
If you already have CPF, should you still consider SRS? The short answer: Both can work together to enhance your retirement plan.
How CPF and SRS Benefit You at Different Life Stages
- 20s: Fresh into the workforce? Use CPF to build housing and medical savings while contributing small amounts to SRS for tax relief and cultivating a savings habit.
- 30s-40s: With increased financial commitments (marriage, home, family), use CPF for home financing and insurance, while investing excess funds—including SRS contributions—for long-term growth.
- 40s-50s: Focus on wealth accumulation. Maximize CPF interest rates with top-ups and increase SRS contributions to enjoy greater tax relief while investing for retirement.
- 50s-60s: Shift to a wealth protection mindset. Adjust both CPF and SRS investment strategies to prioritize stability and liquidity.
- Mid-60s & Beyond: CPF LIFE starts paying out, and it’s time to withdraw SRS funds strategically over 10 years to keep taxable income low—potentially at 0% tax.
Is SRS Right for You?
SRS can be a powerful tool for reducing taxes and growing retirement savings, but it’s not suitable for everyone. It works best if you:
- Earn at least $40,000 annually and want to lower your tax burden
- Are comfortable locking in funds until retirement
- Are willing to invest your SRS savings instead of leaving them idle
On the other hand, if you need liquidity, rely on CPF, or have other investment priorities, SRS may not be the best fit.
Learn More: Starting The Year Right: Financial Tips For you
Final Thoughts
The Supplementary Retirement Scheme is a useful option for those looking to reduce taxes and build their retirement nest egg. However, to maximize its benefits, it’s essential to invest the funds wisely and plan withdrawals strategically. If used effectively, SRS can complement CPF and other savings methods to provide greater financial security in retirement.