Should You Have a Supplementary Retirement Scheme Account?

Michele Ferrario

Co-founder and CEO

The Singapore government started the Supplementary Retirement Scheme (SRS) to complement the Central Provident Fund (CPF) in helping 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?

Benefits of contributing to SRS

More retirement savings

The tax incentives that come with SRS are enough to contribute, and on top of that, you're also contributing 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.

CPF is a great retirement program, and in fact, Singapore was recently ranked as having the top Asian retirement system for the fourth consecutive year in the Melbourne Mercer Global Pension Index. However, CPF is designed to provide a foundation for Singaporeans’ retirement, and to then be paired with personal savings. But, particularly for individuals with salaries above $100,000 SGD per year and commensurate lifestyles, CPF alone is likely not sufficient if those individuals want to maintain a similar quality of life to which they were accustomed 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 and over 40 years get to $9,500 SGD per month per person, and that have used CPF to pay for a $500,000 SGD property downpayment and mortgage in their 30s or 40s. At age 65, and after CPF Life Enhanced Retirement Sum and Medisave accounts are deducted, they would have combined CPF balances equivalent to approximately four annual salaries. In this case, the sum of 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 its 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 is subject to tax. So, if in a given year you withdraw $40,000 SGD, $20,000 SGD is subject to tax; if you do not have any other personal income, this would be tax-free as the first $20,000 SGD of personal income in Singapore is not taxable.

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

Are there disadvantages to SRS?

Withdrawal restrictions

In exchange for the tax advantages, the Singapore government expects you to keep the money in an SRS account until at least age 62. Withdrawal penalties are strict, yet straightforward, with SRS. You can only withdraw penalty-free if you are withdrawing at the statutory retirement age set when you make your first contribution. If you withdraw before then, you will pay a 5% penalty on the amount withdrawn and you will pay 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 are prohibited from contributing again to your SRS account.

You can withdraw without paying the penalty only if the money is to be used for medical reasons, death (goes to your estate or government), or bankruptcy. Foreigners can withdraw before 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.

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

Low interest rates

SRS accounts have incredibly 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%. 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; if instead you invest the savings at 6% net returns per annum, you will 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 cannot 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 are subject to tax at withdrawal, as they are treated as part of the sum of the SRS withdrawal. At withdrawal, 50% of each withdrawal you make will be taxed. This includes the returns on your investments. As Singapore doesn't tax capital gains or dividends/interest on financial investments, this 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 use SRS. Additionally, you can strategise your withdrawals to reduce your tax exposure, as you are allowed to withdraw over a period of maximum ten years, and you should withdraw in years where you have as little as possible other taxable income.

Will you open an SRS bank account?

As long as you are a middle-to-high income earner, and you know you won’t need to withdraw the funds before retirement age, and you plan to invest the money, contributing to SRS can upsize your retirement stash. 

To open an SRS account, you need to do so with DBS, UOB, or OCBC, the three managers of the program. 

But then when it comes to investing the funds, don’t stop at the ones offered by your bank, as the list will not 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’re eligible for investments with SRS. StashAway accepts SRS funds for investment.


Want to learn more about investing your SRS funds with StashAway? WhatsApp us here.