The Supplementary Retirement Scheme (SRS) is a voluntary savings program that was introduced in Singapore in 2001. The scheme aims to encourage individuals to save for their retirement by providing tax benefits on contributions made to an SRS account. The SRS account complements the Central Provident Fund (CPF) system, which is the primary retirement savings vehicle in Singapore.
The SRS is a tax-efficient way to save for retirement, as the contributions enjoy tax relief, the investment returns are tax-free, and the withdrawals are taxed at a lower rate than regular income. The scheme allows individuals to invest in a wide range of financial products, including stocks, bonds, unit trusts, and fixed deposits. This enables individuals to tailor their investments to suit their risk appetite and investment objectives.
Any investment returns earned on SRS investments will remain tax-free until funds are withdrawn from the account. This means that individuals can compound their returns over time without being taxed on the investment gains. However, if an individual withdraws his SRS funds before the retirement age of 62, he will need to pay a 5% penalty on the funds withdrawn. Once an individual reaches the retirement age of 62, he can withdraw his SRS funds at any time. The withdrawals will be taxed at the prevailing tax rates, but only half of the withdrawn amount will be subject to tax.
The SRS scheme has been successful in encouraging individuals to save for their retirement. According to the Ministry of Finance, the total amount of SRS contributions received in 2019 was S$1.72 billion, a 14% increase over the previous year. The scheme has been particularly popular among higher-income earners, who are the ones contributing the maximum amounts to their SRS accounts.
What Are The Benefits Of An Supplementary Retirement Scheme (SRS) Account?
Provides Savings For Specific Expenses
One of the key benefits of the SRS is that individuals can use the savings to pay for specific expenses such as medical expenses, insurance premiums, and children’s education fees. This feature allows individuals to benefit from the tax relief on their contributions, even though they are not exclusively saving for their retirement.
Encourages All To Save For Retirement Regardless Of The Level Of Income
Another significant benefit of the SRS is that it encourages higher-income earners to save for their retirement while reducing their overall tax burden. The tax relief on contributions allows individuals to reduce their taxable income, thereby reducing their tax liability.
Ability To Contribute To Both SRS And CPF Systems
The SRS also offers other benefits for individuals. For example, SRS contributions are not subject to the limitations in CPF contribution rates, which means that individuals can contribute to both the SRS and CPF systems simultaneously. Additionally, SRS funds are not counted as assets for means-tested government schemes such as the Public Assistance Scheme and the ComCare Assistance Scheme. This means that individuals can benefit from these schemes without their SRS savings having to be limited in any way.
Offers Flexibility
The SRS scheme is also flexible, as individuals can choose to spread their contributions over a period of time. For example, if an individual cannot afford to contribute the maximum amount in a single year, they can spread the contributions over a period of several years.
Who Is Eligible?
If you are a Singapore Citizen, Singapore Permanent Resident or a Foreigner who is earning an income, you can contribute to the SRS in the current year.
There are certain requirements which must be met, such as:
- You must be at least 18 years or older,
- Not be an undischarged bankrupt,
- Not suffering from any form of mental disorder, and
- Be capable of managing yourself and your financial affairs.
Apart from that, your employer can also make contributions to your SRS account on your behalf.
The benefits of the SRS scheme are not limited to those earning higher incomes. Anyone can participate in the scheme and enjoy the tax benefits and flexibility it provides.
How Does Supplementary Retirement Scheme (SRS) Work?
Many might understand the Supplementary Retirement Scheme to be a specific tool for a reduction in tax. It can be broken down into three simple parts:
- Contributions
- Tax relief
- Withdrawals
So let’s explain these three simple parts:
Contributions
- All contributions can only be made in cash.
- The contributions you make add to your tax relief benefits.
- There is a maximum yearly contribution limit. Taxpayers can contribute up to S$15,300 per annum (for Singapore citizens and permanent residents) to their SRS accounts, while foreign residents can contribute up to S$35,700 per year. For example, if an individual contributes S$15,300 to their SRS account, they can claim tax relief of S$15,300, thereby reducing their taxable income by the same amount.
- Contributions must be made by 31 December of each year or as your operator requires.
Tax Relief
When you make a contribution to Supplementary Retirement Scheme, your total personal reliefs increase, which then reduces your total taxable income. And when your total taxable income decreases, the amount of taxes you need to pay decreases as well.
So let’s have a look at what that looks like:
| How SRS Works? | ||
| Earned Income | S$120,000 | |
| Less: Personal Tax Reliefs
(Earned Income, CPF, Qualifying child, etc.) |
S$31,500 |
|
| Without SRS | With SRS | |
| SRS Contribution | – | S$15,300 |
| Total relief | S$31,500 | S$46,800 |
| Chargeable Income | S$88,500 | S$73,200 |
| Tax payable | S$4,327.50 | S$2,874.00 |
| Tax Savings: S$1,453.50 (You’ll save 33.59% in taxes.) | ||
Now, let’s have a look at how these figures would differ for each income level, assuming the income earners currently have S$0 in personal reliefs:
| Annual Income | Income Tax
(before S$15,300 SRS Contribution) |
Income Tax
(after S$15,300 SRS Contribution) |
Tax Savings |
| S$20,000 | S$$0 | S$0 | S$0 |
| S$40,000 | S$550 | S$94 | S$456 |
| S$60,000 | S$1,950 | S$879 | S$1,071 |
| S$80,000 | S$3,350 | S$2,279 | S$1,071 |
| S$100,000 | S$5,650 | S$3,890.50 | S$1,759.50 |
| S$150,000 | S$12,450 | S$10,155 | S$2,295 |
| S$200,000 | S$21,150 | S$18,396 | S$2,754 |
From the above table, you are able to see that the greater the income, the higher your absolute tax savings are. It also means that for each dollar of SRS contribution, the positive impact on higher-income earners is greater. In addition, it is important to note that there is a Personal Relief Cap of S$80,000 applicable to the total amount of all tax reliefs claimed, which includes that on SRS contributions.
Withdrawals
Currently, the prescribed retirement age for Supplementary Retirement Scheme is 62 years old, although there are talks of the government wanting to increase the retirement age to 65 years old by 2030.
You can withdraw funds before the retirement age of 62 years old, but however, early withdrawals are 100% taxable and will also incur a 5% withdrawal penalty on the amount. Therefore, if your intention is to access your funds before you turn 62 years old, then the SRS may not make sense for you.
Withdrawals are meant to take place after the age of 62 years old and can be done in a lump sum or regular withdrawals. In most cases, it is not advisable to withdraw the funds in one lump sum unless you absolutely need the money. The lump sum withdrawal is 50% taxable.
The government allows regular withdrawals over a period of 10 years, which starts when the first withdrawal is made. If you have no other income and you withdraw S$40,000 per year for 10 years, you will not be liable to pay any taxes. However, if you have more than S$400,000 in your SRS account, you can still gain an advantage by spreading out your withdrawals to pay lesser overall taxes.
Conclusion
In conclusion, the Supplementary Retirement Scheme (SRS) is a voluntary savings program designed to encourage individuals to save for their retirement. The scheme provides tax benefits on contributions made to an SRS account, tax-free investment returns, and tax-efficient withdrawal options. The SRS scheme enables individuals to tap into a wide range of financial products, making it a flexible and convenient way to save for retirement.
The SRS scheme complements the CPF system by providing an additional source of retirement income for Singaporeans. The Supplementary Retirement Scheme is accessible to all individuals, regardless of their income level, and encourages them to save for their retirement while reducing their overall tax burden.
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