supplementary retirement scheme

Supplementary Retirement Scheme (SRS): Should You Have It?

If you have started looking into your retirement, you might have already come across the SRS or the Supplementary Retirement Scheme. The SRS is a retirement scheme set up by the Singapore government to help them retire comfortably. The scheme may not be ideal for everybody since it is very restrictive.

However, it is essential to learn all you can about the retirement schemes available to help you choose the best one that suits your needs. This article will look at the SRS and the retirement age, among other things. Here is the ultimate Supplementary Retirement Scheme.

What Is a Supplementary Retirement Scheme?

The SRS is a Singapore government voluntary savings scheme designed to help you prepare better for retirement. It is different from the CPF since it is an optional saving scheme. 

The CPF is mandatory for every Singapore resident, but it might not be enough to sustain the lifestyle fully. Most residents also drain their CPFs by buying condos and BTOs, so it is essential for most people not to rely on CPFs only.

In simple terms, the supplementary retirement scheme is a savings account that you can open with OCBC. DBS/POSB and UOB. The contributions to this account are eligible for tax relief in the following year. If you contribute to your account by 31st December 2022, you qualify for tax relief in the Year of Assessment 2022.

It is important to note that you can only deposit S15,300 per year for permanent residents and Singaporeans and $35,700 per year for foreigners. You cannot deposit your income in an SRS account to get tax relief. Additionally, you can withdraw your funds from the SRS account anytime you want, unlike with a CPF fund. However, there is an early withdrawal 5% penalty if you withdraw before retirement, and the amount will also be taxed.

 

SRS vs CPF

CPF and SRs are national schemes by the Singapore government to help residents and foreigners plan for retirement. They both act as savings account for retirement. The CPF is mandatory for every Singapore resident, while the SRS is voluntary and designed to help supplement the CPF. Additionally, the CPF board manages the CPF investment, while various approved financial institutions can manage the SRS funds. 

Here is a look at how the SRS and CPF compare.

RS vs CPF

Supplementary Retirement Scheme (SRS)

CPF Special Account

(CPF SA)

Interest Rate

0.05% p.a.* 4% p.a.

Yearly Contribution Cap for Tax Relief from the taxable income

$15,300 (Personal) $16,000 ($8,000 Personal + $8,000 Family)

Tax Deductible?

Yes

Yes

Withdrawal Conditions At 62 years old (statutory retirement age)**

At 65 years old (default retirement age)

At 55 years old ($5,000 if you have not met Full Retirement Sum FRS or Basic Retirement Sum BRS with pledging of property. If you have met either one, you can withdraw any amount above the sums)

How to Start Open with DBS, OCBC, or UOB

Automatically enrolled for Citizens or PR

*Note: Returns can be higher depending on what you choose to invest in
**Note: if withdraw before, subject to a 5% penalty

Who Is Eligible for SRS Account?

Here is a look at the eligibility criteria for an SRS bank account in Singapore:

  • Be a Singaporean, PR (Permanent Resident), or Foreigner.
  • Over 18 years old.
  • Not an undischarged bankrupt.
  • No existing or pending SRS account in any bank.
  • Contribute varying amounts, but it will be subjected to a cap.

You can contribute to your SRS account as often as possible, but only to a maximum of S$15,300 for PRs and Singapore Residents and S$35,700 for foreigners. An SRS account will help you increase your retirement savings if you have already reached the limit on the CPF account.

SRS contributions are great for mid to high income earners, those who do not plan to withdraw the money anytime soon, and those who plan to invest their SRS funds.

Can I Use My Funds for SRS Investments?

Yes, you can. The money you put in your SRS account will remain idle till you decide to do something with it. Instead of letting your funds lose value in an account due to inflations, it would be best to invest the money since the gains will not be taxed.

It is, however, essential to note that you can only invest the funds in your SRS funds in an investment approved by the government. These investments include:

The bank you open your SRS account in will help you choose the most suitable financial instrument.

How Much Can I Save With SRS Tax Relief?

With a Supplementary Retirement SRS account, you can save a maximum yearly contribution of S$15,300 for Singapore Residents and PRs and S$35,700 for foreigners, which is not subject to taxation. You are required to lock in your savings till the statutory retirement age of 62. 

It is important to note that you can withdraw your money if you have some financial needs, but with a 5% penalty fee, all SRS withdrawals will be subject to personal income taxation.

However, opening an SRS bank account is advised if you earn more than S$40,000 in taxable income every year. It is a great way to make tax savings and save significantly.

asian family taking elderly on a stroll in the park

What Are the Benefits of Contributing to An SRS Account?

Here are some of the advantages of having an SRS account:

1. The Contributions are Eligible for Tax Reliefs

There are many retirement accounts available for Singapore citizen, but most still choose an SRS account thanks to their tax relief benefits. For every contribution you make to your SRS account, you will be eligible for tax relief in the following years.

The tax relief is great for anyone who would like to reduce their chargeable income since your tax bracket determines the payable tax amount every year. There is a significant increase in tax deducted for individuals earning S$40,000 and above in taxable income. Therefore, contributing a considerable amount to your SRS account will significantly reduce the amount of income charged.

2. You Can Invest Your Retirement Fund

You can also grow your retirement fund by investing the funds in your SRS account. An SRS account is an excellent addition to your CDF when you retire. You can increase your savings by investing the SRS contribution in SRS-approved financial instruments like the Singapore Savings Bond (SSB), Fixed Deposit, or Single Premium Insurance Savings Plans to help hedge your savings against inflation.

3. Gains from the Investments Are Tax-Free

Investments are crucial in growing your retirement funds because the un-invested funds only earn a 0.05% p.a. That is why it is strongly advised to reinvest your funds. You can choose your ideal financial instruments based on risk tolerance or preferences.

The best part about investing is that the returns are tax-free until you decide to withdraw them. This means all the gains from your SRS investments will not be taxed. This way, you can maximize your savings, reinvest your returns, and take advantage of the compound interest.

4. Only 50% of Your Withdrawals Are Taxed at Retirement

As your retirement savings grow exponentially over the years, you get to withdraw your funds once you reach the current statutory retirement age of 62. Once you withdraw your money, only 50% of your SRS funds will be subject to taxation.

What Are the Disadvantages of Contributing to an SRS Account?

Here are the disadvantages of contributing to an SRS account:

1. Very Low-Interest Rates If You Do Not Invest Your Funds

The SRS account has an interest rate of 0.05% p.a. if you do not invest your funds. If you decide not to invest your funds, leaving your money in a bank account is better than having it in an SRs account.

2. 100% Taxation on Early Withdrawals and a 5% Penalty Fee

It is important to note that your SRS contributions are not refundable, and there is a statutory withdrawal age on the funds. The statutory retirement age is 62 years old. If you decide to withdraw before you hit the age, your funds will be subject to 100% taxation and an early withdrawal penalty of 5%.

This will potentially cancel out all the tax benefits you could have previously gained. However, under exceptional circumstances such as bankruptcy, medical grounds, or you pass away, your funds will not be subject to the penalty.

3. SRS Accounts Only Accept Cash Contributions

You can only make your contributions in cash. This might disadvantage investors who prefer to take advantage of the slow interest rates to finance their retirement funds.

What Are the Best SRS Accounts to Open?

You can apply for a supplementary retirement scheme (SRS) account in either of the following local banks:

  • OCBC
  • DBS
  • UOB

To open an account, you must have your passport or NRIC, apply online, or show up in person at any bank branch.

Contributing towards your SRS accounts is similar to depositing money in your bank account. However, the exact procedure may vary from one bank to another/ You can either fund your account through:

  • Internet or mobile banking.
  • Depositing money at the branch.
  • Contributing via a cheque and indicating the SRS savings number at the back of the cheque.
  • You can also ask your employer to contribute money towards your SRS account. It is important to note that all the contributions are made in cash, and you cannot use your Central Provident Fund (CPF) to fund your SRS account.

Should I Open My SRS Account? Is It Worth It?

An SRS account is an excellent supplement to your CPF account. Unlike applying for a credit card from your bank, an SRS account will help you save in the long run. It is designed to help make your retirement easier. If you open an SRS account, you should ensure you invest your funds to hedge them against inflations.

The SRS is not the only way you can save for retirement, but it is a great way to enjoy personal income tax relief on the part of your income. Tax savings is essentially the main incentive for opening an SRS account. To know if the scheme is worthwhile, you must do your math before opening an account.

Closing

The Supplementary Retirement Scheme (SRS) account greatly adds to the mandatory CPF. The main incentive for the SRS is tax relief for Singaporeans, PRs, and Foreigners. It is important to note that you need to invest your SRS contribution to hedge them against inflation but only in financial instruments approved by the government.

Key Takeaways

  •  You can apply for an SRS account from any approved bank, including DBS, OCBS, or UOB.
  •  The main incentive to open an SRS account is personal income tax relief on retirement savings.
  • You can use your SRS funds to invest in SRS-approved financial instruments.
  • Investment returns from the SRS- approved financial investments are not eligible for tax.
  • You can only fund your SRS account with cash.

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