Your Complete Guide to Tax Savings with Supplementary Retirement Scheme (SRS)

It's time to start looking at ways to achieve tax relief as the year draws to a close, and that's where the Supplementary Retirement Scheme (SRS) comes into the picture. This guide will help you understand how SRS works, how to get started, and how you can take advantage of the benefits it offers.

Despite its many advantages, the SRS is often overlooked as it can be confusing for some. This guide aims to make SRS simple and show you how it can help you save for retirement while gaining tax relief.

In a nutshell, the SRS is a voluntary savings program to help you set aside more for retirement, over and above your CPF contributions. Every dollar you contribute to your SRS account reduces your taxable income by the same amount in the next Year of Assessment (YA).

What is the Supplementary Retirement Scheme (SRS)?

The Supplementary Retirement Scheme (SRS) is a voluntary savings scheme that encourages individuals to save for retirement while also enjoying tax benefits. It serves as a complementary scheme to the Central Provident Fund (CPF), providing an additional way to set aside funds for retirement.

Unlike the mandatory CPF contributions, SRS contributions are voluntary, allowing you greater flexibility in your retirement planning.

The SRS is open to Singaporeans, Permanent Residents (PRs), and foreigners residing in Singapore. Contribution limits differ based on residency status: 

• Singaporeans and PRs can contribute up to S$15,300 per year
• Foreigners have a higher cap of S$ 35,700

These voluntary contributions to the SRS account are eligible for tax relief, which reduces your taxable income for the year.

Besides that, you can also invest your SRS contributions in a wide range of financial instruments, such as stocks, unit trusts, bonds, and exchange-traded funds (ETFs). Investment gains within the SRS account accumulate tax-free until withdrawal.

When it comes time to withdraw your SRS funds during retirement, only 50% of the withdrawn amount is subject to tax. This partial taxation can significantly reduce your tax burden, especially if your income is lower during retirement. Additionally, the maximum withdrawal period is 10 years, giving you the flexibility to manage your withdrawals in a tax-efficient manner.

In summary, the SRS has the following key features:

• Contributions are eligible for tax relief.
• Funds can be invested in various financial instruments.
• Investment gains are tax-free before withdrawal.
• Only 50% of withdrawals are taxable at retirement.
• The maximum withdrawal period is 10 years.

Let’s look at how much tax savings you can get with SRS

Before diving into how much you can save through SRS, let’s take a look at the current income tax rates in Singapore:

Source: IRAS

Now that you understand the tax rates, let's explore how SRS contributions can help you save on taxes. By contributing to SRS, you can reduce your taxable income, which directly impacts the amount of tax you need to pay.

Let’s consider the maximum contribution of $15,300 for Singaporeans and PRs, and see how it impacts different tax brackets:

As shown in the table, contributing $15,300 to your SRS can lead to substantial tax savings, depending on your income level. The higher your income, the more significant the tax relief you can enjoy by reducing your taxable income through SRS contributions.

It’s also important to note that there is a personal income tax relief cap of S$80,000 per year, which includes SRS contributions. Be sure to evaluate other tax relief options available to maximise your overall savings. 

Calculate how much tax savings and growth in your investment using this SRS calculator.

Beyond tax savings: using your SRS for investments

Besides reducing your tax liabilities, the Supplementary Retirement Scheme (SRS) can be a powerful tool for growing your retirement savings through investments. While the funds in your SRS account earn a nominal interest of 0.05% per annum, you can unlock much greater potential by investing your contributions into a variety of investment products that align with your financial goals.

The flexibility of the SRS allows you to invest in a broad range of financial products to help grow your retirement funds. Some of the investment options include:

• Stocks and Real Estate Investment Trusts (REITs) listed on the Singapore Exchange (SGX)
• Singapore Government Securities (SGS), Singapore Savings Bonds (SSB), and Treasury Bills (T-bills).
• Unit Trusts/Mutual Funds
• Exchange-Traded Funds (ETFs)
• Single Premium Insurance
• Fixed Deposits (both SGD and foreign currency)
• Robo-Advisors like StashAway

Why You Shouldn’t Let Your SRS Funds Sit Idle

It's important to actively manage your SRS contributions. While keeping funds as cash may seem safe, the reality is that inflation will erode the value of your money, especially with the minimal 0.05% interest rate.

As of December 2023, around 19% of SRS funds were still held in cash. Diversifying your portfolio into higher-return assets can greatly enhance the growth of your retirement savings.

Investment Strategies for Your SRS Account

To maximise your SRS funds, it's crucial to adopt a diversified investment strategy tailored to your risk tolerance and retirement goals:

• Long-Term Growth with Equities: If you have a longer investment horizon, focusing on stocks or equity-based ETFs can provide higher returns over time. Platforms like StashAway allow you to allocate your SRS funds toward equity-focused portfolios designed to grow your wealth.
• Balancing Risk with Bonds and Fixed Deposits: For those seeking lower risk, government bonds, fixed deposits, and insurance products offer stable returns. However, be mindful of the trade-off between security and the lower potential for growth.
• Diversifying Globally: Investing in global markets through unit trusts or ETFs can help mitigate the risks of being overexposed to one region or sector.

Read more: Choosing the Best SRS Investments for Higher Returns

SRS withdrawal rules and guidelines

Singaporeans and PRs can begin withdrawing from their SRS accounts from the statutory retirement age of 63 (which will be raised to 64 from 1 July 2026 for those born on or after 1 July 1963). These withdrawals can be spread over a period of up to 10 years from the first withdrawal. 

However, early withdrawals before reaching the statutory retirement age are costly. They incur a 5% penalty on the withdrawn amount, and the entire withdrawal will be subject to tax, which significantly reduces the benefits of SRS if you need access to your funds earlier than planned.

Foreigners on the other hand can withdraw from their SRS accounts without penalties after 10 years from the date of opening the account. Upon reaching retirement age, similar to Singaporeans/PRs, only 50% of each withdrawal amount is subject to tax.

In summary, 

How do I perform SRS withdrawals at withdrawal age without paying taxes?

Singaporeans and PRs can start withdrawing from their SRS accounts from age 63 (rising to 64 in 2026) over a period of up to 10 years, while foreigners can withdraw without penalties after 10 years of opening an SRS account. 

Since only 50% of each withdrawal is taxable, here's how much you would pay in tax, assuming no other income sources:

Tip: For Singaporeans and PRs at retirement age, withdrawing in smaller increments over 10 years can reduce the amount of tax they pay per year, given that the first $40,000 is tax exempt.

Is it still worthwhile to use SRS for tax relief if capital gains are taxable?

While capital gains within an SRS account are indeed subject to tax upon withdrawal, it’s important to consider the structure of SRS taxation. The key benefit is the deferment of taxes until you start withdrawing the funds.

When withdrawals are made, only 50% of the amount is taxable, and this creates an opportunity to significantly reduce your overall tax burden.

Here’s why it’s still advantageous:

1. Tax Deferral Benefits: By contributing to your SRS account, you can immediately reduce your taxable income, potentially lowering your tax bracket in the short term. This upfront tax relief is a powerful benefit, especially for those in higher tax brackets.
2. Partial Taxation at Withdrawal: Unlike many other investment accounts where the entire amount withdrawn is taxable, SRS only taxes 50% of your withdrawals. As a result, the effective tax rate on your retirement withdrawals can be substantially lower, especially if your income during retirement is less than your working years.
3. Compounding Returns: Since taxes are deferred until withdrawal, your investments have more time to grow, allowing compounding to work its magic. Over time, the growth of your investments, especially in higher-return assets like equities or ETFs, can outpace the eventual tax liability.
4. Flexible Withdrawal Strategy: You can choose how to withdraw your SRS funds after the statutory retirement age (currently 63), allowing you to manage your taxable income in retirement. By spacing out your withdrawals, you can minimise the tax hit in any given year.

Ultimately, while capital gains are taxable at withdrawal, the combination of immediate tax relief, deferred taxation, and compounding returns makes SRS a highly effective tool for both tax savings and long-term wealth accumulation.

What you need to know after using SRS for tax relief

Once you’ve used the Supplementary Retirement Scheme (SRS) for tax relief, it’s important to be aware of the following key details to make the most out of your SRS account:

1. Contribution Deadline: To benefit from tax relief in any given year, ensure that your SRS contributions are made by 31 December of that year. 
2. Withdrawals After Retirement Age: After you start withdrawing from your SRS account upon reaching the statutory retirement age, further contributions are no longer allowed. 
3. Employer Contributions and Taxation: If your employer contributes to your SRS account, those contributions are considered part of your taxable income. However, you’ll still receive tax relief for the contributed amount, effectively lowering your tax liability.
4. Change of Residential Status: If you become a Singapore Citizen or PR during the year, update your SRS bank operator so that your contribution cap can be recalculated. Providing incorrect information may lead to penalties for excess contributions.

How does contributing to SRS compare to a CPF top-up for tax relief?

Both the Supplementary Retirement Scheme (SRS) contribution and CPF Special Account (SA) top-up provide valuable tax relief in Singapore. However, they cater to different financial strategies, making it essential to understand their differences before deciding which one works best for your retirement planning.

The key comparison points between the two are based on tax relief limits, investment options, interest returns, and withdrawal rules.

SRS allows for greater flexibility with a broader range of investment products, while CPF offers guaranteed, stable returns but with stricter withdrawal restrictions. Here’s how the two options stack up:

How does an SRS contribution compare to a charity donation for tax relief?

Charitable donations to approved Institutions of a Public Character (IPCs) in Singapore qualify for a 250% tax deduction, allowing every dollar donated to reduce taxable income by $2.50. While donations don’t offer investment growth like SRS contributions, the high deduction rate makes them attractive for tax relief. 

Tax-deductible donations include cash contributions to IPCs, SGX-listed shares, artefacts, land, public art, and naming donations. Specific overseas humanitarian and philanthropic causes also qualify under certain schemes. For more details, visit IRAS - Donations Tax Deductions.

How to open an SRS account?

You can open an SRS account with any of Singapore’s three local banks: DBS, OCBC, or UOB. If you're already an existing client of these banks, opening an account is a seamless process that can be done online through their platforms:

• DBS clients can open an SRS account here.
• OCBC clients can open an SRS account here.
• UOB clients can open an SRS account here.

Once your SRS account is opened, remember to link it to your StashAway account to start investing. You can find the steps to link your SRS account here.

Ensure you don’t already have an existing SRS account with another bank before applying, as you're only allowed to have one SRS account at any given time.

Who is eligible to open an SRS account?

To be eligible to open a Supplementary Retirement Scheme (SRS) account in Singapore, you must meet the following criteria:

• Are a Singapore Citizen, PR, or foreigner;
• Are at least 18 years old;
• Are not an undischarged bankrupt;
• Are not suffering from a mental disorder and can manage your own affairs;
• Do not already have an SRS account with another operator;
• Do not have a pending application with another operator for an SRS account; and
• Have not previously had an SRS account from which all funds were withdrawn due to medical reasons or after reaching the statutory retirement age.

It’s important to note that holding multiple SRS accounts with different operators is prohibited and may result in penalties.

How to change your SRS bank operator?

To change your bank operator for your SRS account, you can follow these steps:

1. Choose your new SRS operator: You can select from DBS, OCBC, or UOB as your new SRS operator.
2. Visit a branch of the new bank
3. Complete the necessary forms: At the branch, you'll need to fill out and sign the following documents:
4. Account Transfer form
5. SRS Account Application form
6. Declaration form
7. Provide identification: Bring along your original identification documents for verification.
8. Submit the documents: The branch staff will submit these documents for processing on your behalf.
9. Wait for the transfer to complete: The standard time frame to complete the inter-bank transfer process is typically 7 working days.

Important notes:

• You can only have one SRS account at any given time.
• There may be a cut-off date for SRS interbank account transfers near the end of the year. For example, DBS had a cut-off date of 11 December 2023, with the service resuming on 2 January 2024..
• If your transfer involves shares, be aware that there may be additional fees, such as a CDP settlement fee and a share transfer charge.
• After the transfer is complete, make sure to update your tax reference number with the new SRS operator to ensure your contributions are correctly reported to IRAS

How to qualify for SRS tax relief?

To qualify for SRS tax relief, you must be a tax resident in Singapore, and the contributions must be made by 31 December of the relevant year. The tax relief will apply in the Year of Assessment following the year of contribution. Note that the overall tax relief cap is S$80,000, which includes SRS contributions along with other reliefs.

However, you will not qualify for tax relief if your SRS account is suspended on 31 December or if the contribution is withdrawn within the same year. It’s essential to keep your account active and follow the rules for tax relief to apply.

How to claim SRS tax relief?

Claiming SRS tax relief is an automatic process. When you contribute to your SRS account, the bank managing your account will provide the necessary information to IRAS. This means you do not need to manually claim the relief when filing your Income Tax Return. It will automatically be reflected in your Income, Deductions, and Reliefs Statement during e-Filing.

If you are a foreigner or PR leaving Singapore, you’ll need to obtain an SRS statement for tax clearance to claim relief on contributions made in the year of your departure.

Investing your SRS funds with robo advisor

Robo-advisors are designed to simplify investing by using algorithms to tailor portfolios to your specific financial goals and risk tolerance. They provide an affordable and hands-off approach, making them ideal for those who prefer automated, data-driven decisions without the need for constant monitoring. With robo-advisors, you can diversify your investments across asset classes and rebalance effortlessly, giving you the advantage of professional management at a lower cost.

StashAway stands out among robo-advisors for several reasons. First, it offers a wide range of investment products tailored to your SRS funds, allowing you to grow your retirement savings based on your preferred risk level and financial goals. Whether you’re aiming for long-term growth or a balanced portfolio, StashAway provides customizable options.

Additionally, StashAway is regulated by the Monetary Authority of Singapore (MAS), ensuring that your investments are compliant and secure. It also offers low management fees (0.2% to 0.8%), with no hidden charges, making it a cost-effective way to optimise your SRS investments. The platform’s tax advantages also allow you to reinvest savings and accelerate the growth of your retirement fund.

Investing with StashAway means combining expert advice, flexibility, and low fees to secure a better financial future.

Read more: Why Should You Invest Your SRS Funds with StashAway?