Should You Have a Supplementary Retirement Scheme (SRS) Account?

Michele Ferrario

Co-founder and CEO

The Singapore government started the Supplementary Retirement Scheme (SRS) to complement the Central Provident Fund (CPF) to help Singaporeans meet their retirement needs. Unlike CPF, participation in SRS is entirely voluntary. The scheme is designed to be an effective tax relief tool while saving up for retirement. 

So, should you be contributing to an SRS account? 

What are the benefits of contributing to SRS?

More retirement savings

When you contibute to SRS, you'll get significant tax incentives. Plus, you'll also be putting more towards your retirement.

Retirement will be one of the biggest expenses we have in our lives. After all, living for decades without work requires a significant amount of money.

So, when it comes to preparing for retirement, is CPF, a house, and some cash enough to live the retirement of your dreams? For most people, those assets won’t fully cover the bills through retirement. And for those who want to travel and make the most of their golden years, the expenses will be even larger. Here's how you can find out how much you'd need to save for retirement.

CPF is a great retirement program, and in fact, Singapore was recently ranked as having the top Asian retirement system in the 2020 Global Pension Index. CPF is designed to provide a foundation for Singaporeans’ retirement, paired with personal savings. But, particularly for individuals with salaries above $100,000 SGD per year and commensurate lifestyles, CPF alone is probably not sufficient if they want to maintain a similar quality of life to which they were accustomed to during their working years.

Why would CPF not necessarily be enough? Let’s dive into an example:

Take a married couple that started their careers with salaries of $3,000 SGD per month per person.

  • Over 40 years, they get to a salary of $9,500 SGD per month per person. During this time, they've also used CPF to pay for a $500,000 SGD property downpayment and mortgage in their 30s or 40s.
  • At the age of 65, they would have combined CPF balances equivalent to approximately 4 times their annual salaries. This amount is calculated after their CPF Life Enhanced Retirement Sum and Medisave accounts have been deducted.

In this case, the sum of their CPF Life Enhanced Retirement monthly pay-out and the income generating from the remaining CPF balances would be able to fund a combined income approximately only equal to 40% of pre-retirement income for 20 years, or 25% for 30 years. SRS is one the ways to make up for the difference. 

Immediate and long-term tax savings

Tax reliefs are the most notable of SRS' benefits. Every year, Singaporeans and PRs can deduct from their taxable income up to $15,300 SGD by contributing the amount to an SRS account. The cap is $35,700 SGD per annum for foreigners.

When you withdraw the funds upon or after you reach retirement age, half of the amount you withdraw will be subject to tax. So, if in a given year you withdraw $40,000 SGD, $20,000 SGD is subject to tax. And if you don't have any other personal income, this would be tax-free, as the first $20,000 SGD of personal income in Singapore isn't taxable.

At contribution, over a period of 30 years, you can save more than $100,000 SGD on taxes as a Singapore Citizen or Permanent Resident. Learn more about the tax benefits of SRS.

Are there any disadvantages to SRS?

Withdrawal restrictions

In exchange for the tax advantages, the Singapore government expects citizens and permanent residents to keep their money in their SRS account until at least age 62. 

Foreigners can withdraw before the retirement age without early withdrawal penalties, as long as they have had the SRS account open for at least 10 years and they withdraw the entire SRS amount in one lump sum.

Withdrawal penalties are strict, yet straightforward, with SRS. Here's what you need to know:

  • You can only withdraw penalty-free if you're withdrawing at the statutory retirement age set when you make your first contribution. If you withdraw before then, you'll pay a 5% penalty on the withdrawn amount and taxes on 100% of the withdrawal (not 50%!).
  • Once you start withdrawing at or after the statutory retirement age, or if you withdraw for medical reasons, you won't be allowed to contribute to your SRS account again.
  • You can withdraw without paying the penalty only if you plan to use the money for medical reasons, if you declare bankruptcy, or if you pass away. In the case that you pass away, your SRS funds will go to your estate or the government.

That said, you can open an SRS account and deposit just $1 SGD to kickstart the lock-in period, which can bring forward your eligible withdrawal date. Here's how both foreigners and Singaporeans & PRs can benefit from opening an account early:

  • For foreigners, the sooner you open an account and make a deposit, the sooner the 10-year lock-in period starts. That means that the sooner you deposit, the sooner you'll be able to withdraw.
  • For Singaporeans and PRs, opening an SRS account today will allow you to withdraw your funds at the current statutory minimum retirement age of 62. This protects you from future possible raises to the retirement age.

If you open an SRS account, just make sure you’re confident enough with your financial wellbeing that you won’t need to withdraw the funds early.

Low interest rates

SRS accounts have very low interest rates - if you keep it in the SRS account. When we say incredibly low, we’re saying they’re fixed at just 0.05%.

But, these low interest rates are only a disadvantage if you don’t invest the funds. If you don’t invest the funds, you’d be in better shape to keep the money in cash and avoid tying them up for decades.

So, if you open an SRS account, just make sure you invest it. If you contribute $15,000 SGD per annum and you keep it in cash, you’ll have $300,000 SGD after 20 years; but if  you instead invest the savings at 6% net returns per annum, you'll have $550,000+ SGD after the same 20 years.

Investments can be taxed at withdrawal

If you were to invest your contributions, but your investments incurred a loss, you won't be able to top up the account to make up for the difference.

With that said, it’s crucial that you invest intelligently so that you can make the most of your contributions for tax relief and retirement purposes. Further, if your investments earn profits, those profits will be subject to tax at withdrawal, as they're treated as part of your SRS withdrawal amount. So at withdrawal, 50% of each withdrawal you make will be taxed, and this includes the returns on your investments.

As Singapore doesn't tax capital gains, dividends, and interest on financial investments, SRS is actually a worse tax treatment. However, due to the tax advantages at deposit, the math still works, and from a tax perspective it makes sense to use SRS.

Additionally, you can strategise your withdrawals to reduce your tax exposure, as you're allowed to withdraw over a maximum period of 10 years. So, you can withdraw your funds in those years where you expect to have an overall lower taxable income.

Should you open an SRS bank account?

Opening an SRS bank account may suit you if:

  • you're a a middle- to high-income earner;
  • you know you won’t need to withdraw the funds early; and
  • you plan to invest the money.

If you fit the above criteria, contributing to SRS can upsize your retirement stash. 

You can open an SRS account with any of the 3 managers of the programme: DBS, UOB, or OCBC.

But, when it comes to investing the funds, don’t stop at the ones offered by your bank, as their list of funds won't be complete. Do your homework and look at fees and management strategies. If in doubt, ask your preferred fund manager or financial advisor if they can invest your SRS. Or, invest your SRS with StashAway.

Invest your SRS →


Get 6 months' free investing on your next SRS deposit

Just invest your SRS funds in the StashAway app, and then enter the voucher code: SGSRS2021. 

  • To enter the code on desktop, go to Settings > Enter Promotion Code
  • To enter the code on mobile app, go to More > Promotions > Enter Promotion Code

You'll need to apply your voucher before scheduling your SRS deposit. Then, we’ll activate your voucher 1 to 2 business days after we receive your SRS deposit.

Terms and conditions:

  • You can apply the voucher code only once.
  • To redeem your voucher, you'll need to apply your voucher and schedule your SRS deposit before 31 December 2021.
  • You’ll receive 6 months of free investing for the deposit amount used to activate the voucher.

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