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 SRS and why should you take part?
The 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.
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Early withdrawal (i.e. before the retirement age) subjects you to a 5% penalty, and you’ll also be taxed on any amounts withdrawn before retirement age.
The main advantage of depositing money in your SRS is for the tax breaks. Otherwise, there are few advantages over investing the money or keeping it in a high interest savings account.
For more about the pros and cons of the scheme, read our analysis of SRS here.
How do you open an SRS account?
You can open an 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:
How do you make SRS contributions?
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.
Before you start trying to deposit your windfall from your en bloc sale in your SRS account, know that there are annual contribution limits to stop people from using the scheme to avoid taxes. Here are the latest SRS caps as of 2018:
|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. There is a cap of $80,000 for personal income tax relief from SRS contributions.
Can you use your funds for SRS investments?
Yes. Instead of letting the cash in your SRS account twiddle its thumbs and lose value due to inflation, you can use SRS to make investments, and 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
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 an 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.
Withdrawals can be made in cash, or in the form of investments.
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 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…
So… should you take part in the SRS?
Tax breaks aside, there is no real reason you should need to participate in the SRS scheme. You can simply open another bank account and deposit your retirement savings there for investment purposes.
So if you participate in the SRS, it should be because you wish to lower your tax liabilities. Make sure you do the math beforehand to figure out just how much money the tax relief will save you.
The penalties for early withdrawal are not to be sniffed at, so you should factor that in when considering whether it’s worth having your money locked up in an SRS account.
Do you plan to participate in the SRS scheme? Tell us why or why not in the comments!
Keep updated with all the news!
Get the latest personal finance tips and tricks delivered to your inbox!
We promise never to spam you!