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Guide on Singapore’s Supplementary Retirement Scheme (SRS) for Expatriates

Singapore's Supplementary Retirement Scheme (SRS) for Expatriates

Last Updated on by Tree of Wealth

Singapore’s Supplementary Retirement Scheme (SRS) for Expatriates

The Supplementary Retirement Scheme (SRS) was launched to motivate individuals to voluntarily put aside a portion of their income for retirement. Under SRS, members can contribute varying amounts (within a defined limit) to their SRS account, which can then be used to invest in a broad range of financial instruments.

Even though foreign nationals residing in Singapore are unable to take advantage of the Central Provident Fund (CPF) system, the Supplementary Retirement Scheme (SRS) stands as a viable alternative for them.

The SRS forms a key component of the multi-tiered approach adopted by the Singapore government to cater to the retirement necessities of its populace. It is not restricted to only Singaporean citizens and Permanent Residents (PRs), but extends to include expatriates working in the country.

Distinct from the CPF, which is obligatory and only for citizens and PRs, the SRS opens its doors to all expatriates employed in Singapore.

To be eligible to establish an SRS account, one must approach any of the three local banks (DBS, OCBC, UOB) in Singapore and satisfy the following criteria:

– Be 18 years or older;

– Not be under any bankruptcy proceedings; and

– Be mentally fit, demonstrating ability to manage personal and financial matters.

You can establish an SRS account with the following participating operators:

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

Why Opt For An SRS Account?

Unlike their Singaporean counterparts and PRs, foreign employees in Singapore are not entitled to CPF contributions, hence, they’re left without any pre-existing retirement plan.

SRS offers such individuals a unique platform to engage in. Through contributions to the SRS account, they stand to gain tax relief benefits, capped at a maximum personal income tax relief of $80,000 per annum.

For instance, if you earned $100,000 in 2021 and contributed $20,000 to your SRS account, your taxable income for that year would decrease to $80,000.

In essence, it is beneficial to contribute to your SRS account only if you are subject to income tax. If you are not under the income tax slab post factoring in tax relief, there’s no incentive to make SRS contributions for that year.

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As An Expatriate, How Much Can I Contribute To My SRS Account?

Since foreigners don’t receive CPF contributions, foreign employees are granted the provision to contribute a larger sum to their SRS account each year than their local and PR counterparts. This amount is capped at $35,700 annually for foreigners, compared to $15,300 per annum for locals and PRs.

Keep in mind that contributions to the SRS account can be made only if you have generated some form of income in the same year.

What Amount Of Tax Savings Can I Reap From My SRS Account Contributions?

Your personal income tax rate determines the savings you can accrue from each dollar contributed to your SRS account.

For those in the highest income tax bracket (exceeding $320,000), where the tax rates stand at 22%, a contribution of $10,000 to the SRS account results in a tax saving of $2,200.

Conversely, for those falling in the lowest tax bracket (between $20,000 and $30,000), with a 2% tax rate, a contribution of $1,000 to your SRS account yields a tax saving of $20.

Understanding SRS Withdrawal Norms & Limits Expatriates need to acquaint themselves with the withdrawal regulations linked to the SRS.

In a nutshell, before initiating contributions to the SRS account, it is essential to familiarize oneself with three major categories of SRS withdrawal norms.

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Universal Withdrawal Guidelines for All SRS Account Holders

Singaporeans, PRs & Expatriates

Withdrawing funds post-retirement age (currently 62): Starting at age 62, you are entitled to withdraw funds from your SRS account without incurring any penalties. Upon doing so, only 50% of the withdrawn amount for that calendar year will be subject to taxation. Following your initial withdrawal, a ten-year window is available for completing your withdrawals.

Withdrawing funds pre-retirement age: Withdrawals from your SRS account can be made whenever desired. However, a penalty of 5% applies to withdrawals made prior to the prescribed retirement age (presently 62), which was applicable when your first contribution was made. Furthermore, the total amount withdrawn is liable to income tax.

Withdrawals Triggered by Exceptional Conditions

Applicable to Singaporeans, PRs & Expatriates

Under certain exceptional circumstances, the 5% penalty for early withdrawals is waived.

  • In case of death, 50% of the withdrawal amount is taxed.
  • On medical grounds, 50% of the withdrawal amount is taxed.
  • In the event of bankruptcy, 100% of the withdrawal amount is taxed.

Guidelines for Withdrawals by Expatriates

For foreign nationals (non-Singaporean, non-PR), the 5% penalty can be avoided during SRS withdrawals under the following conditions:

  • Neither a Singaporean citizen nor a Permanent Resident at the time of withdrawal, and this status has been maintained for an uninterrupted period of 10 years prior to withdrawal;
  • Have maintained the SRS account for at least 10 years from the date of the initial contribution; and
  • Make a one-time, complete withdrawal from your SRS account.

In such instances, 50% of the withdrawal amount will be subjected to tax. Keep in mind that only a full withdrawal is permitted, partial withdrawals are not allowed.

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It’s crucial to understand that once you’ve made a withdrawal from your SRS account, be it partial or full, you will not be permitted to make any future contributions to the SRS.

If the above conditions aren’t met, you can still access your SRS funds, but the full amount withdrawn will be subject to 100% taxation, along with a 5% penalty for early withdrawal.

It’s worth noting that if you’re an expatriate who is no longer employed in Singapore, you’ll be taxed at the non-resident rate, which is currently 15% in Singapore.

Here are a couple of illustrative scenarios:

Scenario A: An expatriate aged 55, who has worked in Singapore for two decades, decides to return to his home country. He has maintained his SRS account for 15 years, accumulating $100,000. He opts for a one-time complete withdrawal of $100,000.

Given that he 1) has kept his SRS account for over 10 years, and 2) neither held Singaporean citizenship nor PR status at the time of withdrawal or during the 10 years leading up to it, he is eligible for the expatriate withdrawal exemption.

5% early withdrawal penalty – Not applicable.

15% non-resident tax rate (since he’s no longer a resident of Singapore) – $15,000.

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Scenario B: A 35-year-old expatriate, who has worked in Singapore for 5 years, plans to return to her home country. Over the course of 5 years, she has accrued $30,000 in her SRS account. She decides to make a one-time withdrawal of $30,000.

In this situation, she incurs a 5% early withdrawal penalty due to her SRS account being active for only 5 years. This means she would be charged $1,500, and her withdrawal amount of $30,000 would be added to her annual employment income, which would then be subject to taxation.

If she wishes to avoid the 5% early withdrawal penalty, she needs to maintain her account for an additional 5 years (totaling 10 years). Under these circumstances, she would then evade the 5% penalty and only 50% of her withdrawal amount – $15,000 – would be taxed.

Needless to say, she can’t become a Singaporean citizen or PR within the next 5 years to be eligible for this. If she has moved back to her home country by then, she will also be taxed at the 15% non-resident rate (as she is no longer a resident of Singapore).

What penalties apply for premature withdrawals?

Although SRS members can withdraw their SRS funds at any time, premature withdrawals are fully taxable and subject to a 5% penalty. For instance, if your taxable income for 2021 was $40,000 and you made an early withdrawal of $10,000 from your SRS account, your taxable income for that year would be $50,000. Additionally, after applying the 5% penalty, you would only receive $9,500 from your SRS withdrawal.

How can I utilize my SRS contributions?

Given that the interest rate for SRS accounts is merely 0.05% per annum, it could be beneficial to invest your SRS funds. A plethora of financial instruments is at your disposal, ranging from life insurance to unit trusts. We advise consulting with our partnered financial advisors to help identify the products that align best with your financial goals!

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Navigating the complexities of the Supplementary Retirement Scheme as a foreigner in Singapore can be challenging. However, it’s a feasible solution to the lack of CPF contributions, providing an effective avenue to save for retirement and offering potential tax benefits. Despite the various rules and conditions, it’s important to evaluate whether the SRS suits your individual financial circumstances. For expert guidance, our experienced financial advisors are just a call away. They can offer personalized strategies to optimize your financial planning, taking into consideration the SRS and other possible options. Get in touch today, and take the first step towards securing your future!

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