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What is it?
The Supplementary Retirement Scheme (SRS) was established on 1st April 2001 to encourage individuals to save for their retirement by offering tax incentives.
The SRS is open to all Singaporeans, Singapore Permanent Residents (PRs) and foreigners who are at least 21 years of age. However the individual must not be a bankrupt or of unsound mind.
Each individual is allowed only one account. As long as the individual has an earned income in the preceding year, whether in the capacity of employment or self-employment, the person is entitled to contribute to SRS. Passive incomes such as interest, dividend or rental are not eligible to be considered as earned income.
Benefits
Other than the benefit of having a larger pool of savings upon retirement, members can also claim tax relief for contributions made to the SRS.
Investment gains in the SRS are tax free with the exception of Singapore dividends received, which are taxable.
Tax will be payable only when SRS savings are withdrawn. If savings are withdrawn in its entirety upon retirement, only 50% will be subject to tax. Withdrawals may also be staggered over 10 years to enjoy greater tax savings.
How does it work? Making contributions
All SRS contributions are to be made in cash at any time before 31st December each year.
To make a contribution, an SRS account must first be opened. Through finatiQ you can open an SRS account with OCBC Bank.
The amount of contribution is subject to a cap. The SRS contribution cap is no longer based on the individual’s actual earned income but on a common absolute cap of $76,500 i.e. 17 months of the prevailing CPF salary ceiling of $4,500. This amount is 15% of $76,500 or $11,475 for Singaporeans and Permanent Residents, and 35% of $76,500 or $26,775 for foreigners.
The contribution caps are summarized in the table below:
SRS Contribution Rate
SRS Contribution Cap
Singaporeans/PRs
15%
15% X 17 X $4,500 = $11,475
Foreigners
35%
35% X 17 X $4,500 = $26,775
Making withdrawals from your SRS Account
Withdrawals can be made in any amounts, at any time. However, if the withdrawal is made before the statutory retirement age, 100% of the sum withdrawn will be subjected to the individual's marginal tax rate. On top of that, a 5% penalty will be imposed.
On the other hand, only 50% of the withdrawals will be taxed if withdrawals are made under the following conditions:
on or after the statutory retirement age prevailing at the time of first contribution medical grounds death
Withdrawals made upon retirement or on medical grounds can be spread over a maximum of 10 years for optimal tax management.
What type of investments can I invest my SRS funds in?
Funds in the SRS account may be invested in a range of financial products. This includes fixed deposits, insurance products and unit trusts. Investments in direct property are not allowed. As for life insurance products, only single premiums with life cover of not more than three times the single premium will be allowed. Critical illness, healthcare and long term care products are excluded from this scheme. All proceeds from the realisation of SRS investments must be returned to the SRS account.
How much tax will I save?
The examples below illustrate the tax savings based on the SRS contribution cap of $11,475 for Singaporeans regardless of the individual’s actual earned income in the preceding years. Example 1
A single Singaporean man who earns $50,000 a year (which is below $76,500) and goes for reservist training. He can contribute up to a cap of $11,475.
Scenario 1: He contributes to CPF only
Scenario 2: He contributes to both CPF and SRS.
Scenario 1
Scenario 2
Salary
Bonus
$45,000
$5,000
$45,000
$5,000
Total earned income
$50,000
$50,000
Less Personal Reliefs
Earned income
($1,000)
($1,000)
CPF
($10,000)
($10,000)
NS Man
($3,000)
($3,000)
SRS Contribution
Nil
($11,475)
Chargeable Income
$36,000
$24,525
Computation of tax:
Tax on the first $30,000/$20,000
$350
$0
Next $6,000@5.5%/$4,525@3.5%
$330
$158.37
$680
$158.37
Tax Savings with SRS
$521.63
Example 2
A single Singaporean man who earns $100,000 a year (which is above $76,500) and goes for reservist training. He can contribute up to a cap of $11,425
Scenario 1: He contributes to CPF only
Scenario 2: He contributes to both CPF and SRS.
Scenario 1
Scenario 2
Salary
Bonus
$85,000
$15,000
$85,000
$15,000
Total earned income
$100,000
$100,000
Less Personal Reliefs
Earned income
($1,000)
($1,000)
CPF
($13,800)
($13,800)
NS Man
($3,000)
($3,000)
SRS Contribution
NIL
($11,425)
Chargeable Income
$82,200
$70,725
Computation of tax:
Tax on the first $80,000/$40,000
$4,300
$900
Next $2,200@14%/$30,725@8.5%
$308
$2,611.63
$4,608
$3,511.63
Tax Savings
$1,096.38
How to get the best deal? Before you start saving under the SRS scheme, it is advisable to do a simple cost-benefit analysis to review the potential tax benefits as well as earnings from investing your SRS funds. This should be weighed against the opportunity cost of tying down your funds till retirement age. There is a chance that if SRS savings are withdrawn in its entirety on retirement, you will end up paying more income tax on the withdrawals than what was gained in tax savings. However this may be mitigated by staggering withdrawals over a period of 10 years.
This document is published for general information only. It does not have any regard to any specific objective, financial situation or the particular needs of any specific person who may receive this document. This is also not intended to provide any recommendation or advice on personal investing or to be relied upon as financial planning advice. It is not designed as a substitute for professional advice. You may wish to seek advice from your financial advisor before making any decision. Any opinion, view or estimate presented is subject to change without notice and is made on a general basis and is not to be relied on by you other than for general information purposes. Any reference to any specific company, investment product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the company, investment product or asset class. While all reasonable care has been taken in preparing this document, no warranty whatsoever is given and no responsibility or liability is accepted for any loss arising directly or indirectly in connection with or as a result of any person acting on any information, opinion or statement expressed in this document.
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on or after the statutory retirement age prevailing at the time of first contribution