The Singapore government’s Supplementary Retirement Scheme (SRS) is a tax relief and tax deferral plan that’s designed to encourage individuals to save towards retirement. The scheme is entirely voluntary, unlike the CPF (Central Provident Fund) contributions you have to make every month.
In short, the income tax benefits you get with SRS:
- When you contribute to your SRS account, it reduces how much of your income is taxable for the year.
- When you retire and withdraw from your SRS funds, only 50% of that withdrawal is taxable.
Here’s how it works
Singaporeans and PRs can contribute up to the maximum of S$15,300 each year towards their SRS accounts, while foreigners can contribute up to S$35,700 each year.
Source: IRAS
If you make the maximum contribution of S$15,300, this is how your tax savings will look like based on YA2022 tax rates.
This figure could go as high as 71% depending on your income and other reliefs.
For foreigners, you could pay no taxes at all — again depending on income bracket, of course.
Wait, that’s not all — invest your SRS contributions
After contributing to your SRS account, you should definitely look at investing the sum. Unlike CPF funds which earn interest of 2.5% – 5% per annum, the interest rate on SRS funds is fixed at 0.05% per annum. So you should instead use the funds for a variety of investment vehicles, including stocks and bonds, to grow your nest egg, and not leave the money stashed away and forgotten.
These charts will illustrate how your SRS funds can grow.
For Singaporeans and PRs:
For foreigners:
Check out: Options you can invest your SRS funds into.
What happens if I need to withdraw the funds?
The ideal time to withdraw your funds is when you reach the set retirement age. That’s set at 63 right now. But it’s still possible to withdraw the money before that.
a. At and after retirement age
Upon reaching the retirement age, you can withdraw your funds without any penalty. Each time you withdraw, 50% of the amount is subject to income tax rates.
Spread out your SRS fund withdrawals over a 10 year period after retirement, because at the end of the 10 years, you’ll get taxed on 50% of the entire sum left in your SRS account.
Based on today’s rates, personal income starts getting taxed at S$20,000. So withdraw under that, and you get to enjoy tax-free withdrawals if you don’t have any other taxable personal income.
b. Before you reach retirement
As the tax benefits under the SRS are given to incentivise people to save for their retirement, withdrawals made before the prescribed retirement age will result in penalties being imposed except under exceptional circumstances as follows:
- Death
- Medical grounds
- Bankruptcy
- Full withdrawal of the SRS balance by a foreigner (subject to conditions).
If you wish to withdraw the money before the retirement age outside of those exceptional circumstances, you may do so with a 5% penalty and you will be taxed on 100% of the withdrawal.
Source: IRAS
How do I set up an SRS account?
SRS accounts are managed by only 3 bank operators and you may open an account with any of these:
Overseas-Chinese Banking Corporation (OCBC) Ltd
United Overseas Bank (UOB) Ltd
You may approach the banks listed above to open an SRS account and start contributing. It is often as easy as performing a bank transfer between bank accounts.
You can only have 1 SRS account at a time, because it is an offence to open SRS accounts with more than 1 operator.
Want to learn more about investing your SRS funds or need help to get started? Drop Planner Bee a message via WhatsApp here.
