SRS: All you need to know about the Supplementary Retirement Scheme

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Last Updated on by Tree of Wealth

Do you agree that when it comes to Singaporean’s financial stability after retirement, the government has increasingly showed concerns in that area? Several programs have been launched to this effect such as the CPF, RSS and SRS among others.

In this article, we want to talk about a very useful instrument when it comes to retirement. It is not compulsory like the CPF, it even saves you tax, yet few people know about it.

We are talking about the Supplementary Retirement Scheme.

The SRS retirement plan began in 2001 and was designed to complement the Central Provident Fund (CPF). Operated by the private sector, participation in SRS is voluntary unlike CPF. Also, while CPF savings are geared toward providing basic living needs i.e. housing, medical, etc. among others after retirement, SRS can be used to purchase various investment and endowment instruments.

Who is Eligible to Open SRS Account?

There are a couple of requirements for opening an SRS account though. The person must be

  •  Singaporean, Permanent Resident & Foreign Work Pass Holders
  •  At least 18 years old,
  •  Not be bankrupt 
  • Mentally healthy

Maximum Contribution for Singaporean/PR – $15,300
Maximum Contribution for Work Pass Holder – $35,700

Every individual is entitled to open only one account. There is, however, a cap to contributions made by SRS members and this is because the system was designed to help individuals save ahead of their retirement and not to serve as a shelter for the rich or high-income individuals because of its tax benefits.

Benefits of the SRS contribution

SRS has a number of benefits which includes:

  • Unrestricted Access: Opening an SRS is not only open to Singaporeans, permanent residents of Singapore (SPR) and foreigners can also open an SRS account. A foreigner qualifies for an additional concession with conditions that allow them to withdraw from the SRS account Examples of the concessions are:
  •  They must not be a Singaporean citizen or resident at the date of withdrawal for a continuous period of 10 years preceding this date.
  • They must have maintained the account for at least ten years.
  • All Income Earners Can Contribute to an SRS account: When SRS was founded, only individuals with employment income could contribute to SRS. However, effective from 1st Oct, 2008 all restrictions were lifted and all income earners were allowed access.
  •  Only 50% of SRS contributions are taxable: Under SRS, taxes are only deducted upon withdrawal and only 50% of the savings is taxable. Contribution to an SRS account is capped at $15,300 per annum for Singaporeans and SPRs and $35,700 for foreigners.

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Tax Savings At a Glance

Annual Employment Income

$80,000

 

Without SRS

With SRS

SRS Contribution

$15,300

Chargeable Income

$80,000

$64,700 ($80,000 – $15,300)

Total Tax

$3,350

$2,279

Potential Tax Savings

$1,071

SRS personal income relief cap
source: IRAS

Check out this article for more ways to reduce your tax: Reduce Your Income Tax: 4 Easy and Risk Free Ways

  • There is no Age Limit: There is no age ceiling for contributions to the SRS.
  • Investment gains are non-taxable: All investment gains made on the contributions in the SRS account are tax-free. The tax on an SRS account is calculated at withdrawal on 50% of the total savings.
  • Contributions are flexible: There is no specified amount that is required for savings monthly. All SRS members can contribute as much or as little they want. They must only be mindful of their yearly contribution cap. The SRS contribution rate for Singaporeans and residents is 15% of the income base while it is 35% for foreigners.
  • Grow Your SRS: Perhaps one of the most important factor is that, the money in the SRS not only saves you tax, but it is for Retirement (afterall the R in SRS means Retirement). SRS is a Scheme that Supplements your Retirement. One way to put into Retirement is to save it in a Retirement Plan.

Want to know more? In this article we explore the different options: Best Retirement Plans Singapore 2020 – The Ultimate Guide

Instruments to Grow Your SRS

Statutory Retirement Age in Singapore

Year

Age

2020

62

2022

63

2030

65

When it comes to Retirement using monies in SRS account, they are Single Premium and the break-even is usually faster and interests compounded faster as Insurer receives the sum needed to grow for you at the very beginning (compared to a 20 years premium term, it takes well, 20 years for Insurers to receive the amount hence break-even takes longer and interests accumulates slower).

Find out more: Best Single Premium Retirement Plan Using Cash & SRS [Comparison Review]

Interested to learn more?

Fill in the form below and we will get back to you!

How to make SRS contribution

To participate in SRS contributions, you must first open an SRS account. You can open an account with any of the three SRS operators available:

  • Development Bank of Singapore (DBS) Ltd
  • United Overseas Bank (UOB) Ltd
  • Overseas-Chinese Banking Corporation (OCBC) Ltd.

An SRS member can contribute any amount up to their yearly contribution cap which is pegged at $15,300. The contribution cap is calculated by multiplying the rate SRS contribution rate by the income base i.e. $102,000.

SRS contributions are to be made in cash. This payment can be made individually, or by an employer. However, for your employer to contribute to your SRS account, you must provide an authorization letter. Also, for employees that receive payment via checks, they may deposit their pay check. It is, however, note that SRS contributions cannot be made in form of investments.

An SRS member won’t be allowed to make contributions to their account if they have passed the statutory retirement age or have medical issues. Once above the statutory retirement age, you are only allowed to withdraw your money. Foreigners who become permanent residents along the line are expected to see their SRS operator so that their contribution rate can be adjusted for the forthcoming year.

How to make SRS withdrawal

Singaporean/PR

An SRS member can perform a withdrawal action at any time. However, since the tax benefits (i.e. 50% taxable savings) are applicable having passed the statutory retirement age, any withdrawal made before then is subject to tax. Also, a 5% penalty fee is imposed for premature withdrawal except for death, medical-related issues or bankruptcy.

SRS withdraw over 10 years
source: IRAS

To perform withdrawal actions, you will have to submit an application with your SRS operator. There is no specified limit to which you can withdraw from your savings. Withdrawals can be made in cash or transferred to the owners personal Central Depository account (CDP). However, the latter withdrawal action – a transfer to the CDP – is not available for premature withdrawals.

Withdrawals can only spread only for a maximum of ten years after the first withdrawal made at or after the statutory retirement age. Do note 50% of the withdrawn amount will be subjected to prevailing rate taxes.

Statutory Retirement Age in Singapore

Year

Age

2020

62

2022

63

2030

65

Foreigner

Foreigners can withdraw their SRS monies anytime 10 years after their first contribution.

When a foreigner or Singapore Permanent Resident (SPR) withdraws from his SRS account, the withdrawal is subject to withholding tax.

The SRS operator will:

  1. Withhold an amount of tax at the prevailing non-resident tax rate of 22% at the point of withdrawal. This amount will be remitted to IRAS. (Prior to 1 Jan 2016, the withholding tax rate was 20%.)
  2. Deduct a 5% penalty on premature withdrawals. The 5% penalty is non-refundable and is separate from the withholding tax.
  3. Electronically transmit the information on the withdrawal to IRAS.

source: IRAS

Prevailing withholding tax is 22% Flat

e.g. withdraw $201,000 (22% of $100,500 (50% of withdrawn amount $201,000) will be taxable) = $22,110

Concessionary withholding tax is 15% if the following conditions are met

  • Cumulative amount withdrawn by the foreigner/SPR SRS account holder in the calendar year does not exceed $200,000; and
  • The foreigner/SPR SRS member does not have any other income besides the SRS withdrawal(s) during the calendar year when the withdrawal(s) is/are made.

e.g. if withdraw $200,000 (15% of $100,000 (50% of withdrawn amount $200,000) will be taxable) = $15,000

source: IRAS

Conclusion

At the end of the day, should you make SRS contributions? If you haven’t opened your SRS Account yet, do note that the statutory retirement age is increasing (age 62 in 2020, 63 in 2022 and increasing) this is probably your last chance of locking in your SRS penalty free withdrawal at age 62. If you have opened and yet to contribute before the end of the year, SRS can help you save and pay lower taxes next year.

Given the fact that the amount is going to be saved inside the SRS account, there are endowment plans that actually help grow your SRS savings even more. 

They are definitely a smart way for you to use your SRS contribution to not only enjoy tax savings but also embark on a principal guaranteed savings scheme that will potentially double your returns during your retirement years and best of all, you may not even be taxed on your returns at all.

Now you know the benefits of SRS, but not sure how to better optimise it? Drop us a message and our Financial Expert will get in touch with you:

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