“Why do I need SRS when I already have CPF?”
The Central Provident Fund (CPF) is an involuntary savings scheme that can only give you a basic retirement income, which is an ideal retirement supplement if you wish to live a more elaborate lifestyle after retirement. The Supplementary Retirement Scheme (SRS), on the other hand, is a voluntary savings scheme that helps you boost your retirement savings while giving you tax relief. Let’s find out more…
What is a Supplementary Retirement Scheme (SRS)?
SRS is a voluntary savings scheme that encourages you to save more for retirement. How it works is that you choose to contribute to SRS every year and get tax relief. The following year, the entire SRS contribution is tax-deductible.
As of now, the maximum amount you can contribute to SRS each year is $15,300 for Singapore Citizens and PRs and $35,700 for foreigners.
One of the most attractive components of having an SRS is to enjoy tax reliefs. What’s more, you can use the money you have contributed to SRS to invest in shares, REITs, ETFs, insurance, and unit trusts for potentially higher returns.
Unlike CPF, you get to withdraw the funds you have in your SRS account whenever you want. However, you will be subjected to a 5% penalty if you withdraw before your retirement age and you will also be made to pay taxes on 100% of the withdrawn amount.
SRS Eligibility:
- Singaporean, PR or foreigner who is at least 18 years old
- Not an undischarged bankrupt
- Have no existing or pending SRS account or account application with any bank
- Can contribute varying amounts, subject to a cap
How can SRS benefit you?
1) Tax Breaks
People usually get started with SRS to enjoy tax breaks. Because for those who are earning more than $40,000 a year, the savings can be quite significant.
| Annual Income | Income Tax Rate |
| Up to $20,000 | 0% |
| $20,001 to $30,000 | 2% |
| $30,001 to $40,000 | 3.5% |
| $40,001 to $80,000 | 7% |
| $80,001 to $120,000 | 11.5% |
| $120,001 to $160,000 | 15% |
| $160,001 to $200,000 | 18% |
| $200,001 to $240,000 | 19% |
| $240,001 to $280,000 | 19.5% |
| $280,001 to $320,000 | 20% |
| Any income above $320,000 | 22% |
Source: IRAS
Let us paint you a picture to explain how SRS tax relief works. If you are working with an annual salary of $40,000, you only need to pay $550 in income tax. Take $40,000 multiplied by 3.5% and you will get $550. Now you got a new job or a promotion and your annual salary has increased to $50,000. Great news! But what happens to the tax you would be paying now? You will need to pay $550 for the first $40,000 of income and pay another $700, which is 7% of $10,000 ($50,000 -$40,000).
And that total amount of $1,250 in income tax is more than double the amount that you had to pay originally. However, you can open an SRS account and deposit $10,000 there. This will bring your income bracket down to $40,000 again, thus reducing your income tax back to $550.
By doing this, you get to save $700 on income tax. And you also don’t have to indicate your tax return to get SRS tax relief because the bank administering your SRS account will report directly to the government and your tax relief will be computed automatically.
2) Investing your SRS funds
SRS funds can also be used for investments. Your investment gains will accumulate tax-free and you will only be taxed 50% of the withdrawal amount as taxable income when you withdraw your money once you reach the retirement age.
Instead of putting your money into SRS and not doing anything about it, it is recommended that you invest them. However, you can only invest your SRS funds in government-approved methods:
- Unit trusts
- Index funds
- Blue chip shares
- Endowment insurance plans
- SGD fixed deposits
- Singapore Savings Bonds
Contributing to your SRS account can greatly benefit you in getting tax relief and save more for your retirement. And the process is as easy as depositing money in any other bank account. You can also have your employer contribute to your SRS account.
If you are interested in getting started with an SRS account, get in touch with us and one of our financial advisors will assist you.