I’ve been dreaming about retirement since the day I started working. So the Supplementary Retirement Scheme (SRS), as dry as it sounds, is more interesting to me than an H&M sale.
The SRS is a government scheme that’s set up to help Singaporeans prepare for retirement (in tandem with CPF). But as with all things set up by the government, it may not be suitable for everyone and can be quite restrictive. Here’s all you need to know about the scheme and how to sign up.
What is the Supplementary Retirement Scheme?
The Supplementary Retirement Scheme (SRS) is a voluntary savings scheme that is designed to prepare you for retirement.
But wait, don’t we already have CPF? Well, CPF is an involuntary savings scheme and is meant to only give you a very basic retirement income, which might not be enough for more elaborate lifestyles. What’s more, as many people are draining their CPF accounts to buy homes, there might be some Singaporeans who can’t rely on CPF to fund their retirement.
That’s where the SRS (Supplementary Retirement Scheme) comes in. In very basic terms, it’s an account in which you can stash your retirement savings.
As an incentive, SRS contributions are eligible for tax relief the following year. So if you contribute to your SRS account by 31 Dec 2019, you can get tax relief in Year of Assessment 2019 (which is filed in 2020).
However, you can’t contribute your entire income and get away tax-free, because there’s a contribution cap of $15,300 for Singaporeans and PRs.
Unlike CPF, you can withdraw the funds you’ve deposited into your SRS account 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Early withdrawal (i.e. before the retirement age) subjects you to a 5% penalty, and you’ll also be taxed on any amounts withdrawn before retirement age.
How much can you save with the SRS tax reliefs?
Let’s be clear here. The main advantage of depositing money in your Supplementary Retirement Scheme (SRS) is for the tax breaks.
Other than the tax breaks, the SRS account doesn’t actually 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 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 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%|
|Any income above $320,000||22%|
Notice how there’s big increase from $40,000 to the next tier? That’s why it’s only worth it to consider opening an SRS account when you start earning more than $40,000.
Here’s an extremely simplified example, ignoring all other tax reliefs available:
Let’s say you’re Joe Average, 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 down to $550 once more. You’d be saving $700 on income tax.
Are there limits to your SRS contributions & tax breaks?
Yes, there are.
Before you start trying to deposit your windfall from your en bloc sale in your Supplementary Retirement Scheme (SRS) account, know that there are two 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 2019:
|Account holder||Maximum yearly contribution|
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.
But this is where (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.
How do you open an SRS account & start contributing?
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:
All 3 banks are currently hustling to get more people to put their money in SRS accounts with them, and are offering the following SRS account opening/investment promotions:
|DBS||Open new SRS account + top up at least $10,000||$50 cash for first 5,000||7 Dec 2019|
|DBS||Use SRS to invest in insurance or unit trust||Additional $10 cash for first 5,000||7 Dec 2019|
|UOB||Open new SRS account + top up at least $1,000||$30 shopping vouchers||16 Dec 2019|
|UOB||Top up at least $10,000 into existing SRS account||$20 shopping vouchers for first 2,000||16 Dec 2019|
|UOB||Use SRS to invest in unit trusts or insurance plans ($30,000 and above)||$100 shopping vouchers||16 Dec 2019|
|UOB||Use SRS to invest in unit trusts or insurance plans ($20,000 to $29,999)||$70 shopping vouchers||16 Dec 2019|
|UOB||Use SRS to invest in unit trusts or insurance plans ($10,000 to $19,999)||$50 shopping vouchers||16 Dec 2019|
|OCBC||Open new SRS account + top up $10,000||$50 Cold Storage voucher for first 2,000||31 Dec 2019|
Contributing to your SRS account works in the much 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.
Can you use your funds for SRS 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.
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 (from Feb 2019)
The bank you opened your SRS account with can advise on what exactly you can use your SRS funds to invest in.
When can you make an SRS withdrawal?
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|
In conclusion: is the Supplementary Retirement Scheme really worth it?
The banks may be very aggressive with their Supplementary Retirement Scheme (SRS) account opening promotions right now, but that shouldn’t be your sole reason for opening one.
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 do participate in SRS, you must invest your SRS funds in something or other. 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 you can plan for retirement.
There’s nothing 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% p.a. returns.
To conclude, the key reason to participate in SRS is for tax reliefs and nothing else. So you owe it to yourself to do the math beforehand to figure out just how much money the tax relief will save you, and whether it’s worth it.
Is the SRS tax relief attractive enough for you to participate in the scheme? Tell us why or why not in the comments!