Which to Choose: CPF SA vs SRS Top-Ups

11 August 2023

Navigating the road to retirement can be a complex endeavour, given the vast array of financial strategies at one’s disposal. Two primary methods that stand out, particularly for those residing in Singapore, are the Central Provident Fund Special Account (CPF SA) and the Supplementary Retirement Scheme (SRS). Both are government-backed retirement schemes aimed at enabling individuals to accumulate savings for their golden years.

Understanding what CPF SA and SRS account is

Before you decide where to park your funds, it’s crucial to understand what these two options entail. 

Alongside the obligatory CPF contributions directly drawn from our salary, you have the Retirement Sum Topping-Up (RSTU) Scheme allowing additional cash top-ups to your Special Account (SA) or Retirement Account (RA) if you're over the age of 55 years old.

On the other hand, the SRS account is a voluntary retirement savings scheme that Singaporeans, Permanent Residents (PRs) and foreigners can participate in. You have the flexibility to decide the amount you wish to contribute to your SRS account up to a set limit. The funds in your SRS account can then be invested to earn higher returns, making SRS investments an attractive option for many.

Factors to consider when choosing between CPF SA and SRS

When choosing between CPF SA and SRS, consider the following factors:

1. Nationality

For starters, your nationality plays a significant role in your investment options. For Singapore Citizens and PRs, both CPF SA and SRS are accessible. However, for foreigners working in Singapore, only the SRS account is available, making it a suitable retirement savings plan that also offers tax relief benefits. 

You can sign up for an SRS account with DBS, OCBC or UOB if you meet the following criteria: 

  • At least 18 years old
  • Not an undischarged bankrupt
  • Not having a mental disorder
  • Capable of managing yourself and your affairs
  • Do not have an existing SRS account

2. Method of contribution

There's a distinct difference in the contribution methods for CPF SA and SRS. Top-ups and transfers to your CPF account can be made conveniently using the CPF Mobile app or CPF online services. As for payment options, you can choose from PayNow or GIRO. If you're planning on making regular contributions, the GIRO method allows for smaller, constant top-ups.

On the other hand, contributions to an SRS account are generally made via transfering from a cash/savings account to the SRS account with one of the aforementioned banks. This direct, straightforward approach is beneficial for individuals who prefer to set aside cash amounts periodically.

3. Tax relief

The CPF SA offers tax relief for top-ups up to $8,000 annually under the RSTU Scheme. Bear in mind that any contributions exceeding the initial $8,000 won’t qualify for additional tax relief. It is, however, possible to continue topping up beyond these limits up to the Full Retirement Sum (FRS). 

On the other hand, if you are a Singapore citizen or PR, you can boost your SRS account with multiple top-ups throughout the year, with a contribution cap of $15,300 annually. Each dollar contributed to your SRS account results in a dollar-for-dollar tax deduction. 

The same applies to foreigners, only that the annual cap is higher at $35,700. Given its potential to enhance your retirement savings and its attractive tax benefits, the SRS account serves as a viable option to explore, especially if you've already hit the contribution ceiling on your CPF account.

4. Use of top-ups

The primary use of top-ups to the CPF SA is to augment your retirement savings. With a guaranteed annual interest rate of 4% on the SA, your savings can grow over time, enabling you to accumulate a larger retirement nest egg.

With an SRS account, your top-ups earn little interest on their own. Therefore, to see any substantial growth and make the most of your SRS account, you would need to use these funds to make investments. You can venture into equities, bonds, fixed deposits, and other SRS investment options with trusted robo-advisory platforms like StashAway.

5. Returns

In terms of returns, CPF SA has a fixed interest rate of 4% per annum, which is considerably high for a virtually risk-free investment. This allows you to build your retirement savings in a safe and predictable manner. Additionally, if you accumulate a combined balance of $60,000 or more in your Ordinary Account (OA) and SA, an additional 1% interest applies. And if you're 55 or older, the first $30,000 of your combined balances earn an extra 2% interest. 

Meanwhile, returns via your SRS account will depend on the specific investment products you choose. While they come with varying degrees of risk, the real opportunity for growth with SRS funds lies in investing them in various SRS-approved financial instruments, such as stocks, bonds, or fixed deposits. 

6. Fees

Another factor to consider is the fees involved. CPF SA top-ups do not incur any charges, but for SRS, certain banks may charge account maintenance or transaction fees. It's essential to be aware of these potential costs when considering your options.

7. Withdrawals

While both CPF SA and SRS are designed as retirement savings schemes, their withdrawal rules differ. For CPF SA, the money is primarily meant for retirement and can be withdrawn from age 55 if you've met the FRS. Before that, the money is largely untouchable unless it is used for specific approved uses, such as paying for medical expenses.

For SRS, withdrawals are penalty-free once you have reached the statutory retirement age, which is presently set at 63 years. If made before this age, a 5% penalty is imposed and the total amount withdrawn is taxable. After you’ve crossed the retirement age threshold, only 50% of the withdrawals are subject to tax. Foreigners in Singapore may withdraw without penalty after the completion of a 10-year term. 

Deciding between CPF SA and SRS: A comparative review

Overall, both CPF SA and SRS serve as pillars for a secure retirement in Singapore, but they cater to different requirements and risk tolerances.

CPF SA is a powerful retirement savings tool, with guaranteed interest rates that can provide a solid and predictable growth path for your money. This plan may be particularly beneficial for individuals nearing retirement age, as the interest rates of CPF SA can provide a substantial boost to your accumulated savings.

On the flip side, the SRS presents a more flexible option, allowing you to choose where to invest your money. This flexibility comes with an inherent risk, as your returns are tied to your chosen investments' performance. However, if you're a savvy investor or willing to take on more risk for potentially higher returns, SRS might be a better fit. Moreover, SRS offers significant tax relief on contributions, making it an attractive option for individuals in high tax brackets or foreigners who aren't eligible for CPF. To get started, you can explore how to make SRS investments with StashAway

The hybrid approach: Harnessing the power of both

While it's essential to weigh the advantages and disadvantages of each scheme, it's also important to note that you're not restricted to choosing one over the other. If your financial situation permits, you could enjoy the best of both worlds by contributing to both CPF SA and SRS.

By opting for this approach, you leverage the stability of CPF SA's guaranteed returns and simultaneously enjoy the flexibility and tax benefits offered by the SRS. This can enhance the resilience of your retirement planning by spreading the risks associated with your savings and guaranteeing a consistent income stream during your retirement years.

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