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Should I Top Up My Singapore Retirement Scheme (SRS) Account? Here’s Everything You Must Know

As young adults in Singapore, the thought of retirement may seem distant or irrelevant. However, starting your retirement planning early can significantly impact your financial security and lifestyle in your later years. With the upcoming changes in the Central Provident Fund (CPF) system in 2025, now is the perfect time to take charge of your financial future.

Understanding the SRS

central provident fund board logo
The Singapore government launched the Supplementary Retirement Scheme (SRS) in 2001 to motivate individuals to save for their retirement. It complements the Central Provident Fund (CPF) and is entirely voluntary. The SRS is designed to provide additional savings for retirement, enabling individuals to enjoy a more comfortable lifestyle in their later years.

 

Key Features of the SRS

Voluntary Contributions: Participation in the SRS is optional, and individuals have the flexibility to decide how much they wish to contribute, within the set limits.

Tax Relief: Contributions to the SRS account are eligible for tax relief, reducing taxable income.

Investment Options: Funds in an SRS account can be invested in various instruments, including stocks, bonds, and unit trusts.

Contribution Limits

The maximum annual contribution limits for the SRS are as follows:

  • Singapore Citizens and Permanent Residents: Up to S$15,300 per year.
  • Foreigners: Up to S$35,700 per year.

These contributions can be made at any time during the year but must be completed by December 31 to qualify for tax relief in that Year of Assessment (YA).

Tax Relief Benefits

tax relief benefit
Making contributions to your SRS account effectively lowers your taxable income. For example, if you have a taxable income of S$72,000 and contribute the maximum amount of S$15,300 to your SRS account, your new taxable income would be S$56,700. This reduction can lead to substantial tax savings based on Singapore’s progressive tax rates.

Considerations Before Contributing

Assess Financial Situation: Evaluate your current financial status to determine how much you can contribute without straining your finances.

Understand Tax Position: Consider how much tax relief you need and whether topping up your SRS account will significantly impact your taxable income.

Plan for Withdrawals: Think ahead about when you will need access to these funds and plan your contributions accordingly.

Pros of Topping Up Your SRS Account

Tax Relief: Contributions reduce taxable income, potentially lowering overall tax liability.

Tax-Free Investment Growth: Returns on investments made through the SRS account grow tax-free until withdrawal.

Flexible Withdrawal Options: After reaching retirement age, only 50% of withdrawals are subject to tax.

Diverse Investment Choices: Funds can be invested in various instruments tailored to individual risk appetites.

Death and Terminal Illness Benefits: In cases of death or terminal illness, funds can be withdrawn without penalties or taxes up to a certain limit.

Cons of Topping Up Your SRS Account

Penalties for Early Withdrawal: Withdrawals before statutory retirement age incur a 5% penalty, and the entire amount is fully taxable.

Contribution Limits: Annual caps on contributions may limit how much you can save compared to other investment vehicles.

Investment Risks: Unlike CPF contributions that offer guaranteed returns, investments made with SRS funds can fluctuate in value.

Long-Term Commitment Required: Contributions should be viewed as long-term savings due to penalties associated with early withdrawals.

Withdrawal Options Without Penalties or Taxes

Understanding when and how you can withdraw funds from your SRS account without incurring penalties or taxes is crucial for effective financial planning.

1. Withdrawal at Retirement Age

 

Individuals can begin withdrawing from their SRS accounts at age 63 (increasing to 64 from July 1, 2026).

Withdrawals can be spread over a period of up to 10 years, allowing for manageable income during retirement.

Only 50% of the withdrawn amount is subject to income tax.

 

2. Withdrawals Due to Medical Grounds

 

If diagnosed with a terminal illness or incapacitated, individuals may withdraw funds without penalties at any time.

For partial withdrawals due to medical grounds, only 50% of the withdrawn amount will be subject to tax.

Full withdrawals due to terminal illness are exempt from tax up to S$400,000, meaning only amounts exceeding this threshold are taxed at 50%.

 

3. Deemed Withdrawals Upon Death

 

If an individual passes away, funds in their SRS account are deemed withdrawn as of the date of death.

Beneficiaries can access these funds without penalties or taxes up to S$400,000, similar to terminal illness withdrawals.

 

4. Withdrawal After Ten Years for Foreigners

 

Foreigners can withdraw their SRS funds without penalties after maintaining their accounts for 10 years from their first contribution.

Upon reaching retirement age, similar tax rules apply—only 50% of withdrawals are subject to taxes.

 

 

Implications of Early Withdrawals

Withdrawing funds before reaching the statutory retirement age or before the ten-year mark for foreigners results in significant penalties:

A 5% penalty on the withdrawal amount applies.

The entire amount withdrawn will be fully taxable as income.

This penalty undermines the benefits of using the SRS as a retirement savings tool if you anticipate needing access to your funds sooner than expected.

 

 

Investment Options Within Your SRS Account

illustration of investment options within singapore retirement scheme
After contributing to your SRS account, consider how you want to invest those funds:

Stocks: Investing in individual stocks offers potential high returns but comes with higher risk.

Bonds: Bonds provide fixed returns and are generally considered safer than stocks.

Unit Trusts: These allow diversification across various assets managed by professionals.

Singapore Savings Bonds (SSBs): These are low-risk government bonds that provide steady returns over time.

Fixed Deposits: Offer guaranteed returns but typically lower than other investment options.

 

 

Diversification Strategy

pie chart of diversification strategy
It’s essential to diversify investments within your SRS account according to your risk appetite and financial goals. A well-balanced portfolio can help mitigate risks while maximizing potential returns.

Conclusion

Topping up your Supplementary Retirement Scheme (SRS) account can significantly enhance your retirement savings while providing valuable tax benefits. However, it’s crucial to weigh both the pros and cons carefully before making a decision. By understanding how the scheme works and considering your financial situation and goals, you can make informed choices that best suit your retirement needs.
The article above should not be taken as financial advice. Investments and their corresponding products have risks. Please seek advice from a financial adviser representative before making any investment decisions. In the event that you choose not to seek advice from a financial adviser representative, you should consider whether the investment or product in question is suitable for you.

IPP Financial Advisers Pte Ltd

78 Shenton Way #30-01 Singapore 079120Tel: +65 6511 8888 enquiry@ippfa.com