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Getting the most out of your SRS account

Have you set up a Supplementary Retirement Scheme (SRS) account as a part of your retirement planning? That may be a crucial first step. Now, here is how you can maximise your returns.

What is SRS?

What is SRS?

For the uninitiated, the Supplementary Retirement Scheme (SRS) is a part of Singapore government’s multi-pronged strategy to assist the population to be financially independent in their golden years. Led and operated by Singapore-based banking institutions, the SRS complements the mandatory Central Provident Fund (CPF) saving scheme. Contributions to SRS are eligible for *tax relief up to S$80,000 and can be used to invest (and enjoy tax-free investment gains) in a pool of pre-approved financial products. Unlike your CPF funds, your SRS savings can be withdrawn before you reach the statutory retirement age should there be urgent needs for the money.

Aiming to invest

Aiming to invest

You may think, “Shouldn’t I just maintain my retirement savings and save for rainy days ahead?” But have you thought about the impact that inflation over time would have on your nest egg? Unlike CPF funds which earn 2.5% interest per annum, the interest rate on SFS funds is fixed at 0.05% per annum. Thus, it’s crucial that you invest your funds to stay ahead of the inflation.

There are many investment products that you can explore, including bonds, unit trusts, local and foreign currency fixed deposits, single premium insurance, shares and Exchange Traded Funds. For the more conservative investor, consider unit trusts or single premium insurance products, where the overall risks are relatively lower. Even placing funds in a fixed deposit and earning 0.35%-a-year interest could turn out to be a better option than letting your contributions sit idle. For more diverse investments, you can consider Exchange Traded Funds or REITs. As all investments carry an inherent risk, you should be prudent about what to invest or you can seek professional advice.

Unsure of how investing can potentially grow your SRS contributions? Use this SRS calculator to gauge your expected returns through the years, and check how much tax savings you can enjoy when you regularly contribute to the account.

Starting to invest with your SRS

Starting to invest with your SRS

It is easy to invest with your SRS money, but first you need to be clear about what you want to invest in. If you’re unfamiliar with investment products, read up on the many types of investments permitted for SRS and understand their advantages and disadvantages.

Be sure that you are educated on basic investment concepts, such as risks vs returns; simple financial ratios; passive vs active investing and diversification. A good financial advisor will be able to explain them to you and help work out your risk profile.

Consider fees which may come with the investment as different banks/firms may charge different brokerage and transaction fees, or offer different incentives and promotions. Should you choose to invest in stocks using your SRS account contributions, consider starting a DBS Vickers account with us.

Know that all profits made from investing your SRS contributions will return to your SRS account. Make use of your SRS account contributions prudently.

Strike a balance

Strike a balance

While it is wise not to let your SRS money lay stagnant, understand that contributing to your SRS account is a regular, stretched-out process and there are other priorities you may want to consider, such as saving on taxes. Striking a balance between how much you put into your SRS account and your earned income is important.

It helps to know your tax bracket, as Singapore’s system of tax is progressive. You may like to contribute up to your SRS annual contribution limit.

SRS Annual Contribution^

Singapore/Permanent Resident Foreigners
S$15,300 S$35,700

If you fall into the higher income brackets, the tax reduction from maxing out the SRS contribution for the year can be significant. For example:

Annual Income Typical tax bill without SRS contribution Tax after max $15,300 SRS contribution Tax Savings
$40,000 $550 $94 $456
$80,000 $3,350 $2,279 $1,071
$120,000 $7,950 $6,190.50 $1,759.50

* Simplified example above assumes that you do not have any tax reliefs. Personal income tax relief cap of S$80,000 will apply from Year of Assessment 2018 to SRS contributions made on or after 1 Jan 2017. This cap applies to the total amount of all tax reliefs claimed, including any relief on SRS contributions.

Knowing when to withdraw

Knowing when to withdraw

Another consideration when it comes to maximising the benefits of your SRS account is the time of withdrawal.

Only 50% of withdrawals (post statutory retirement age) are taxable, so to reduce your tax burden, carefully plan your withdrawals. For example, for a Singapore Resident:

  • If you withdraw $40,000 per annum, 50% of that amount ($20,000) will be taxable each year.
  • Should you have no other source of taxable income, you will not be liable for any income tax (first $20,000 of total annual income is tax-exempted).

Do note that this reduced-taxation is only valid for withdrawals over a 10-year window. Also, bear in mind that any contributions or gains will be maintained in your SRS account – any early withdrawal will incur a 5% penalty, and the amount withdrawn is fully taxable.

With careful planning of your contributions and your withdrawals, you can maximise your SRS contributions and actively build your retirement funds.

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