Supplementary Retirement Scheme (SRS) Complete Guide [2023]

What happened?

It’s the time of the year to do your tax calculations again.

If you are keen to tap on the Supplementary Retirement Scheme (SRS) to enjoy tax relief, don’t forget to do so by 31 December 2023. 

In this comprehensive guide to the SRS, we are going to share more about how the SRS works, and what you should consider before you top up your SRS. 

Read on to find out how you can use the SRS to reduce your tax bill and plan for your retirement at the same time. 

What is the Supplementary Retirement Scheme (SRS)? How does the SRS work?

The Supplementary Retirement Scheme, or SRS, is a voluntary savings scheme that encourages you to save for retirement while reducing taxable income.

It is basically a complementary scheme to the Central Provident Fund (CPF) system open to Singaporeans, PRs, or foreigners residing in Singapore.

The voluntary contributions made to your SRS account are eligible for tax relief, and the funds within your SRS account can be invested in a wide range of financial instruments such as stocks, unit trusts, and exchange-traded funds (ETFs). 

What are the advantages of the SRS?

One of the key benefits for using SRS is the tax relief when you top up to SRS. 

For Singaporeans and PRs, you can claim up to $15,300 in income tax relief when you contribute to your SRS account. 

For foreigners, the yearly maximum SRS contribution is S$35,700. 

Since you are going to save the money for retirement anyway, why not take advantage of the tax savings while you are at it? 

We share how much tax savings you can enjoy based on your income bracket and all the details you need to know about SRS here.

Is it worth putting money in SRS?

The higher your income, the more income tax you will have to pay, and the more tax savings you can potentially enjoy by contributing to the SRS. 

For example, if your chargeable income is S$40,000, you will need to pay an income tax of S$550. 

If you were to contribute S$10,000 to your SRS, you will be able to enjoy a tax relief on the S$10,000 contribution, effectively lowering your tax bill by S$350. 

However, if your chargeable income is S$320,000, you will need to pay an income tax of $44,550.

If you were to contribute S$10,000 to your SRS, you will be able to enjoy a tax relief on the S$10,000 contribution, effectively lowering your tax bill by $2,000.

The illustration above is based on the prevailing income tax for Singaporeans and Permanent Reisdents (PRs) for the year of assessment 2023 (YA 2023), and assumes $0 for current eligible tax relief. 

Do note that the personal income tax relief cap of S$80,000 applies for each year, including relief on SRS contributions. 

To calculate out how much you can save on your tax bill, check out our SRS tax savings calculator.

With the tax relief offered, it is not a surprise that more and more people are opting into the Supplementary Retirement Scheme (SRS).

There were 387,377 SRS account holders as of December 2022, an increase from less than 100,000 prior to 2013, according to figures from the Ministry of Finance (MOF).

With a total of 4.2 million CPF members, this means that approximately one out of every 11 CPF members has a SRS account. 

What are the cons of SRS top-ups?

Note that SRS is ultimately meant for retirement. There are penalties if you were to withdraw before the retirement age.

Early withdrawals are fully subject to tax and will incur a 5% penalty. 

Of course, there will be no penalties if you withdraw on reasonable reasons such as medical grounds, terminal illness and bankruptcy. 

Hence, you should make sure that the funds you are contributing towards your SRS are not needed for emergency use or near-term needs such as buying a property. 

How do I perform SRS withdrawals at withdrawal age without paying taxes?

When you withdraw on or after the retirement age from your SRS accounts, only 50% of the withdrawals are taxed.

Here’s an illustration on what this would mean for how much you would have to pay in taxes at withdrawal. 

If you put aside $7,000 each year into SRS and use it for investment, after 30 years you will have about $408,000 in your SRS account assuming an average return of 4% per annum. 

Based on the income tax rate for Year of Assessment (2024), the first $20,000 of your chargeable income is tax-free. 

This would mean that we can withdraw up to $40,000 per year from our SRS account each year tax-free on or after our retirement age. 

The maximum period over which you can spread your withdrawals is 10 years. The 10-year period will start from the date of your first such withdrawal. 

This means that you can safely withdraw S$400,000 of your SRS funds tax-free over the maximum period of 10 years.

The amount in excess of $400,000 is still taxable. In this case, 50% of the remaining S$8,000 would be subject to the prevailing income tax rate. 

Hence, the Ministry of Finance considers the SRS to be a tax deferral scheme. This is because up to $400,000 withdrawal is tax free based on current tax brackets but you are required to pay tax for your withdrawal amount beyond $400,000 at a lower tax bracket in the future. 

The withdrawal amount that is subject to tax comprises your capital, dividend/interest/distribution and any capital gains, all of which are currently not taxable for individuals under non-SRS scheme.

However, you will not be worse off compared to if your SRS contributions were taxed upfront and all subsequent capital gains were exempt from tax. 

What should you do after contributing to your SRS account?

Now before you start thinking that SRS is going to automatically grow your money for you, it isn’t. 

Unlike your CPF ordinary account (OA) which offers an interest rate of 2.5% p.a., your SRS account only earns you 0.05% interest per annum.

Unfortunately, this means that the return is unlikely to be sufficient to help you combat inflation over the long term.

If you have $100,000 sitting in your SRS account for 20 years, this will just turn into a modest $101,004.76 at the end of the period.

Therefore, you can consider various options to earn a potentially higher return after you contribute to your SRS. 

What are the SRS investment options available?

There are various investment options available for you to invest the money in your SRS account, including

• Shares, REITs and ETFs
• Endowment insurance plans
• Unit trusts
• Singapore Government Securities (bonds and T-bills)

Shares, REITs and ETFs are the most popular option amongst SRS investors, representing 26% of all investments as of December 2022.

This is followed by Insurance, which represents 25% of all investments as of December 2022.

Close to 21% of all SRS funds are kept as cash, earning a return of just 0.05% p.a.

Learn more about how to choose the best investment option for your SRS funds here.

Who is eligible for SRS?

You are eligible to sign up for an SRS account if you fulfill the following requirements:

• You are a Singaporean, Permanent Resident (PR) or foreigner; 
• At least 18 years old and not an undischarged bankrupt
• Have no existing or pending SRS account or account application with any bank
• Can contribute varying amounts, subjected to a cap

How do I set up a SRS account? 

You can apply for a SRS account with any of the three SRS operators – DBS/POSB, UOB and OCBC. 

• Apply for a SRS account with DBS
• Apply for a SRS account with UOB
• Apply for a SRS account with OCBC

You will need the following documents to open a SRS account:

• Identity card/Passport
• Completed Declaration Form for SRS (For Foreigners) 

How do I invest with my SRS funds? 

Before you start investing using your SRS funds, you’ll need to satisfy the following criteria

• At least 18 years old,
• Not an undischarged bankrupt, and
• Not mentally disordered and therefore capable of managing yourself and your affairs.

Thereafter, you can invest your SRS funds with a few simple steps:

• Apply for a SRS account
• Link your SRS account and trading account
• Execute your trade

Where can I learn more about SRS?

• Learn more about how to use SRS for tax relief
• Learn more about SRS investment options
• Learn more about investing in ETFs using your SRS funds