Supplementary Retirement Scheme (SRS)

Saving for our golden years is something we should prioritise in our income-earning years. However, as most people at this stage also have more immediate financial goals, retirement planning often gets delayed. That’s where the SRS comes in.

Maximum Yearly Contribution

Amount in SGD

Singaporean / Singapore PR:

S$15,300

Foreigners:

S$35,700

What is SRS?

The SRS is an initiative by the Singapore government to give Singaporeans and residents a pathway to enjoy near-term tangible benefits while they save towards their retirement years.

With SRS, you can enjoy tax savings on your next assessment year. At the same time, your fund can be

Run by the private sector, SRS complements the Central Provident Fund (CPF) which is meant to provide for your housing and medical needs and for basic living needs after retirement. Unlike the CPF scheme, participation in the SRS is voluntary. SRS accounts receive dollar-for-dollar tax relief up to $15,300 for citizens and PRs and $35,700 for foreigners. In addition, your contributions can be put to work when you use your funds to purchase a range of quality investment instruments.

As an incentive, SRS contributions are eligible for tax relief the following year. Thus, if you do decide to contribute to your SRS account by 31 Dec 2020, you may be eligible for a tax relief in Year of Assessment 2020 (which is filed in 2021).

How Much Can You Save as Singaporean / Singapore PR?

An illustration of how the SRS helps a Singaporean / Singapore PR save base on annual income of SGD $120,000:

Employment Income

Less Personal Reliefs

(Earned Income, CPF, Qualifying Child, Parent, etc.)

S$120,000
S$30,000

Without SRS Contribution

With SRS Contribution

SRS Contribution

–

S$15,300

Total Relief

S$30,000

S$45,300

Chargeable Income

S$90,000

S$74,700

Total Tax Payable

S$4,500

S$2,979

Potential Tax Savings

S$1,521

You save 33% by contributing less to taxes tax this year.

The above table is for illustration purpose only.

An illustration of how the SRS helps a Singaporean / Singapore PR save base on annual income of SGD $240,000:

Employment Income

Less Personal Reliefs

(Earned Income, CPF, Qualifying Child, Parent, etc.)

S$240,000

S$50,000

Without SRS Contribution

With SRS Contribution

SRS Contribution

–

S$15,300

Total Relief

S$50,000

S$65,300

Chargeable Income

S$190,000

S$174,700

Total Tax Payable

S$19,350

S$16,596

Potential Tax Savings

S$2,754

You save 14% by contributing less to taxes tax this year.

The above table is for illustration purpose only.

How Much Can You Save as foreigner?

An illustration of how the SRS helps a foreigner save base on annual income of SGD $200,000:

Employment Income

Less Personal Reliefs

(Earned Income, CPF, Qualifying Child, Parent, etc.)

S$200,000
S$30,000

Without SRS Contribution

With SRS Contribution

SRS Contribution

–

S$35,700

Total Relief

S$30,000

S$65,700

Chargeable Income

S$170,000

S$134,300

Total Tax Payable

S$15,750

S$10,095

Potential Tax Savings

S$5,655

You save 35% by contributing less to taxes tax this year.

The above table is for illustration purpose only.

How SRS Makes Your
Savings Work Doubly Hard for You

1. The main benefit of SRS contribution is tax-relief.

Based on the illustration, as a Singaporean or PR, you can save $1,521 in taxes each year by contributing at the maximum of $15,300 to SRS. Every dollar put into the SRS account will enable one to reduce the taxable income by a dollar, subjected to a cap of $15,300 a year.

2. SRS funds can be used for further investments.

Who Benefits the Most from SRS?

More than half of SRS account holders in 2014 were between the ages of 36 and 55. And these are the people who probably earn over S$40,000 a year, the tax savings earned will be significant.

A Good Scheme but What Is the Downside?

When the funds in the SRS account are not invested, it only generates an interest rate of 0.05%. Over time, the funds in the SRS account will lose value as the return of 0.05% is lesser than Singapore’s inflation rate. In fact, 1 in 3 people who contribute to their SRS account are not taking advantage of the opportunity to invest their funds and grow their portfolio. So while the SRS is a good scheme, it is important that your funds are invested for the opportunity to earn more favourable returns. Also, for any early withdrawals before retirement age of 62, all 100% of withdrawal sum will be taxed. In additional, 5% penalty will be applicable on the withdrawal sum as well.

Types of Withdrawals

After age 62, you can withdraw your funds for up to 10 years, and only 50% of each withdrawal is taxable. So, if in a given year you withdraw $40,000 SGD, $20,000 SGD is subject to tax; if you do not have any other personal income, this would be tax-free, as the first $20,000 SGD of personal income in Singapore is not taxable as shown below:

Resident Tax Rates

From Year of Assessment 2017 onwards (Including Year 2020)

Chargeable Income

Income Tax Rate (%)

Gross Tax Payable ($)

First $20,000
Next $10,000

0
2

0
200

First $30,000
Next $10,000

–
3.5

200
350

First $40,000
Next $40,000

–
7

550
2800

First $80,000
Next $40,000

–
11.5

3,350
4,600

First $120,000
Next $40,000

–
15

7,950
6,000

First $160,000
Next $40,000

–
18

13,950
7,200

First $200,000
Next $40,000

–
19

21,150
7,600

First $240,000
Next $40,000

–
19.5

28,750
7,800

Refer to IRAS for full tax rates table.
Note that for each Year of Assessment (YA), a personal income tax relief cap of $80,000 applies to the total amount of all tax reliefs claimed (including relief on SRS contributions).

Best strategy for withdrawal

Currently, resident tax rates begin getting taxed after annual income of $20,000 SGD. This means that, if you do not have any other taxable personal income, you can withdraw up to $40,000 SGD per year tax-free from your SRS account, for 10 years.

Therefore, is to minimise any income tax during those 10 years by spreading the withdrawals out if you do not have any other income or if you have steady other income, or by withdrawing less in the years when you receive additional income.

Type of withdrawal

Amount subject to tax

5% penalty imposed?

Penalty-Free withdrawal

Withdrawal on or after prescribed retirement age of 62
(withdrawal can be spread over 10 years from the date of first penalty-free withdrawal)

50% of withdrawal sum

Other Withdrawals

Early withdrawals before retirement age 62

100% of withdrawal sum

Yes

What Can You Invest in Using Your SRS Funds?

Investing your SRS contributions is a great way to grow your retirement savings. One could choose from a wide range of financial products including:

Bonds
Singapore Government Securities (SGS)/
Singapore Savings Bonds (SSB)
Fixed Deposits
Shares
Single Premium Retirement Plan
Unit Trusts
Real Estate Investment Trusts (REITs)

Everyone has different financial goals and retirement needs. At IPP, our experienced advisers can help you better understand how SRS can be aligned to help you meet your goals.

Our advisers can help you develop your wealth strategies whether your goals are to protect, accumulate, manage, grow or distribute your wealth. Working closely with you to understand your financial needs, priorities and even challenges, we aim to be your trusted adviser, who will advise and inform you of what you need to know, even if the truth might be less pleasant to one’s ear.

Source: Ministry of Finance Singapore

APEX ADVISORY GROUP

Alex Ang

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Alex’s goal is to nurture the next generation of leaders in the financial planning industry. Always willing to share his knowledge and expertise with his team as well as new advisors, he is also known for his outstanding leadership capabilities.

The passionate mentor is adept in identifying talents and guiding them through learning programmes he tailors to their unique personalities. His ability to see the hidden strengths and talents of his mentees, has been key in helping them achieve their fullest potential. Under his tutelage, many of his mentees have achieved successes of their own within short time frames.