All about SRS Supplementary Retirement Scheme

[Dennis Ng]

Saving money via the SRS

By Dennis Ng

More than three years after it has been introduced on 1 April 2001, the Supplementary Retirement Scheme (SRS) still isn’t getting the credit it deserves from investors and financial planners.

(Note: this article is written in year 2004)

In fact, judging from its poor take-up rate and the comments that people have been making in the media, it is clear that there are lots of misconceptions about the voluntary savings programme, which was launched on 1 April 2001 by the Ministry of Finance to complement the mandatory CPF scheme. As at September 2004, only about 25,400 SRS accounts had been opened. That’s less than 4% of the 698,000 taxpayers in Singapore who could potentially enjoy some tax savings under the scheme.

The SRS has several merits, in my view. For starters, it doesn’t add to business costs because it doesn’t involve any employer contributions. It also offers attractive tax benefits in order to encourage people to save and invest. And, the SRS allows for a wide choice of investments, with the notable exclusion of real estate – which makes sense since most Singaporeans are already in an “asset rich, cash poor” situation.

Below are some commonly held perceptions about the SRS, and why I think they are wrong:

Myth 1: SRS is not attractive
Truth: SRS not perfect, but it is the only savings programme that gives you additional tax savings. If you have excess money to invest, you can either do so directly, via the CPF Investment Scheme (CPFIS), or under the SRS. If you do so under cash or under the CPFIS, you don’t enjoy any tax savings. However, if you save and invest under the SRS, you will enjoy upfront tax savings. Basically, you will get one dollar of tax relief for every dollar you put into SRS account. So, a person with a personal income tax rate of 12% who invests S$10,000 under the SRS, will reduce his income tax by S$1,200. This “extra” tax saving of $1,200 is only available to him if he saves under the SRS.

The table below illustrates the tax savings that a 35-year old single male with earned income tax relief of $1,000 would enjoy under different income scenarios. As you can see, by contributing to SRS account, the person would be able to reduce his tax bill by between 28.3% and 46%. That’s not bad at all, in my view.

Scenario A Scenario B Scenario C
Salary (OW) $48,000 $66,000 $72,000
Bonus (AW) $8,000 $30,000 $30,000
Total (TW) $56,000 $96,000 $102,000
SRS contribution cap $8,400 $14,025 $14,025

Total tax reliefs $12,200 $19,700 $19,700
Tax before SRS $1,342 $4,267 $4,945
Tax after SRS $724 $3,005 $3,545
Tax Savings $618 (46%) $1,262 (30%) $1,400 (28.3%)


Myth 2: There’s 5% penalty for early withdrawal before age 62, so why bother?
Truth: The 5% penalty is actually a good thing. After years of reviewing the financial situation of many clients, I have discovered that most people lack discipline when it comes to saving money. Once they see their savings increasing, they are tempted to blow it on a new car or some pointless new toy like a blue-tooth mobile phone or a plasma TV. To be sure, dipping into one’s savings is sometimes unavoidable. But the key to avoid being hit with the 5% penalty on early withdrawal of funds saved under the SRS is set aside some “emergency money” to cope with these unexpected expenses. Generally, three to six months of your average expenses should be sufficient. So, should you be suddenly faced with an urgent need for cash, you can just draw on this fund, without the need to touch your SRS savings.

Myth 3: My money will be stuck in SRS until age 62, that’s too long a time period!
Truth: SRS is meant for your retirement, and age 62 matches the current statutory retirement age nicely. If you withdraw your retirement savings before you retire, you’re working against your original objective. Thus, it is only reasonable and right that you should keep your SRS savings till the statutory retirement age.

Myth 4: SRS is only a tax deferment scheme, and under the worst case is you might end up paying even higher taxes when you reach age 62.
Truth: This concern often reflects the incompetence of some financial planners rather than any shortcomings with the SRS. You can significantly reduce the chances of paying tax after you are 62 by choosing to withdraw your SRS savings via monthly installments spread over 10 years instead of withdrawing in one lump sum.

Assume, for instance, that you have accumulated a total of $500,000 in your SRS account when you reach age 62. If you withdraw $500,000 from SRS in one lump sum, this will be treated as adding $250,000 (50% of what you withdraw) to your annual income at age 62. Under current tax rates, you need to pay 19% or about $47,500 in income taxes assuming you have no other tax reliefs. However, if you choose to withdraw this $500,000 evenly over a period of 10 years, only $25,000 (half of $50,000 withdrawn) is added to your income each year. If you do not have any other income and also do not enjoy any other tax reliefs, under current tax rates, you will only have to pay 4% or $200 in income tax each year. Remember that you would have already enjoyed upfront tax relief when he put money in your SRS account. So if your personal income tax rate is higher than 4%, you would still enjoy a net tax savings.

Of course, everyone’s financial circumstances and needs are different. The key therefore is to get a competent financial planner who is able to advise you on how much to save via the SRS so as to maximize its benefits yet minimize the risk of paying income tax when you reach the age of 62.

Myth 5: SRS is only meant for Singapore citizens and permanent residents, not foreigners.
Truth: Unlike CPF, SRS is a scheme that’s open to non-Singaporeans without permanent residency status as well. Even if you have only been posted to Singapore to work for a few years, as long you are a tax resident in Singapore, it could be worthwhile for you to consider saving money via an SRS account. In fact, the SRS terms for foreigners are better in some ways. For one thing, foreigners’ contributions to SRS are capped at 35% of their annual income (subject to an annual income ceiling of $93,500) compared to a 15% cap for Singaporeans. That means foreigners can contribute more to SRS, and cut their income tax bill by more. Furthermore, foreigners need not wait until they are 62 before withdrawing their savings. They only have to maintain their account for 10 years before they become eligible to withdraw their funds.

Myth 6: SRS only makes sense to people who are in their 40s or 50s.
Truth: The sooner you start contributing to SRS, the sooner you enjoy tax savings. The amount of tax savings you enjoy depends on your annual income. Age has nothing to do with it. If you haven’t already opened a SRS account, you have effectively already missed out on three years of tax savings compared to someone who opened SRS account in year 2001. Assuming your income tax rate is 12% and you had contributed $10,000 each year to an SRS account over the last 3 years, by April 2005, you would have already benefited from $3,600 in tax savings.

In my view, the best financial solutions for the majority of people are often the simplest ones. The SRS is one such programme. It is designed simply to provide tax breaks to people who save voluntarily for their retirement. Why not take advantage of it?


Dennis Ng is sought after as an Expert in Personal Finance and regularly speaks and writes on personal financial planning issues.

[moneyisfreedom]

Saving money via the SRS

By Dennis Ng

More than three years after it has been introduced on 1 April 2001, the Supplementary Retirement Scheme (SRS) still isn’t getting the credit it deserves from investors and financial planners.

(Note: this article is written in year 2004)

In fact, judging from its poor take-up rate and the comments that people have been making in the media, it is clear that there are lots of misconceptions about the voluntary savings programme, which was launched on 1 April 2001 by the Ministry of Finance to complement the mandatory CPF scheme. As at September 2004, only about 25,400 SRS accounts had been opened. That’s less than 4% of the 698,000 taxpayers in Singapore who could potentially enjoy some tax savings under the scheme.

The SRS has several merits, in my view. For starters, it doesn’t add to business costs because it doesn’t involve any employer contributions. It also offers attractive tax benefits in order to encourage people to save and invest. And, the SRS allows for a wide choice of investments, with the notable exclusion of real estate – which makes sense since most Singaporeans are already in an “asset rich, cash poor” situation.

Below are some commonly held perceptions about the SRS, and why I think they are wrong:

Myth 1: SRS is not attractive
Truth: SRS not perfect, but it is the only savings programme that gives you additional tax savings. If you have excess money to invest, you can either do so directly, via the CPF Investment Scheme (CPFIS), or under the SRS. If you do so under cash or under the CPFIS, you don’t enjoy any tax savings. However, if you save and invest under the SRS, you will enjoy upfront tax savings. Basically, you will get one dollar of tax relief for every dollar you put into SRS account. So, a person with a personal income tax rate of 12% who invests S$10,000 under the SRS, will reduce his income tax by S$1,200. This “extra” tax saving of $1,200 is only available to him if he saves under the SRS.

The table below illustrates the tax savings that a 35-year old single male with earned income tax relief of $1,000 would enjoy under different income scenarios. As you can see, by contributing to SRS account, the person would be able to reduce his tax bill by between 28.3% and 46%. That’s not bad at all, in my view.

Scenario A Scenario B Scenario C
Salary (OW) $48,000 $66,000 $72,000
Bonus (AW) $8,000 $30,000 $30,000
Total (TW) $56,000 $96,000 $102,000
SRS contribution cap $8,400 $14,025 $14,025

Total tax reliefs $12,200 $19,700 $19,700
Tax before SRS $1,342 $4,267 $4,945
Tax after SRS $724 $3,005 $3,545
Tax Savings $618 (46%) $1,262 (30%) $1,400 (28.3%)


Myth 2: There’s 5% penalty for early withdrawal before age 62, so why bother?
Truth: The 5% penalty is actually a good thing. After years of reviewing the financial situation of many clients, I have discovered that most people lack discipline when it comes to saving money. Once they see their savings increasing, they are tempted to blow it on a new car or some pointless new toy like a blue-tooth mobile phone or a plasma TV. To be sure, dipping into one’s savings is sometimes unavoidable. But the key to avoid being hit with the 5% penalty on early withdrawal of funds saved under the SRS is set aside some “emergency money” to cope with these unexpected expenses. Generally, three to six months of your average expenses should be sufficient. So, should you be suddenly faced with an urgent need for cash, you can just draw on this fund, without the need to touch your SRS savings.

Myth 3: My money will be stuck in SRS until age 62, that’s too long a time period!
Truth: SRS is meant for your retirement, and age 62 matches the current statutory retirement age nicely. If you withdraw your retirement savings before you retire, you’re working against your original objective. Thus, it is only reasonable and right that you should keep your SRS savings till the statutory retirement age.

Myth 4: SRS is only a tax deferment scheme, and under the worst case is you might end up paying even higher taxes when you reach age 62.
Truth: This concern often reflects the incompetence of some financial planners rather than any shortcomings with the SRS. You can significantly reduce the chances of paying tax after you are 62 by choosing to withdraw your SRS savings via monthly installments spread over 10 years instead of withdrawing in one lump sum.

Assume, for instance, that you have accumulated a total of $500,000 in your SRS account when you reach age 62. If you withdraw $500,000 from SRS in one lump sum, this will be treated as adding $250,000 (50% of what you withdraw) to your annual income at age 62. Under current tax rates, you need to pay 19% or about $47,500 in income taxes assuming you have no other tax reliefs. However, if you choose to withdraw this $500,000 evenly over a period of 10 years, only $25,000 (half of $50,000 withdrawn) is added to your income each year. If you do not have any other income and also do not enjoy any other tax reliefs, under current tax rates, you will only have to pay 4% or $200 in income tax each year. Remember that you would have already enjoyed upfront tax relief when he put money in your SRS account. So if your personal income tax rate is higher than 4%, you would still enjoy a net tax savings.

Of course, everyone’s financial circumstances and needs are different. The key therefore is to get a competent financial planner who is able to advise you on how much to save via the SRS so as to maximize its benefits yet minimize the risk of paying income tax when you reach the age of 62.

Myth 5: SRS is only meant for Singapore citizens and permanent residents, not foreigners.
Truth: Unlike CPF, SRS is a scheme that’s open to non-Singaporeans without permanent residency status as well. Even if you have only been posted to Singapore to work for a few years, as long you are a tax resident in Singapore, it could be worthwhile for you to consider saving money via an SRS account. In fact, the SRS terms for foreigners are better in some ways. For one thing, foreigners’ contributions to SRS are capped at 35% of their annual income (subject to an annual income ceiling of $93,500) compared to a 15% cap for Singaporeans. That means foreigners can contribute more to SRS, and cut their income tax bill by more. Furthermore, foreigners need not wait until they are 62 before withdrawing their savings. They only have to maintain their account for 10 years before they become eligible to withdraw their funds.

Myth 6: SRS only makes sense to people who are in their 40s or 50s.
Truth: The sooner you start contributing to SRS, the sooner you enjoy tax savings. The amount of tax savings you enjoy depends on your annual income. Age has nothing to do with it. If you haven’t already opened a SRS account, you have effectively already missed out on three years of tax savings compared to someone who opened SRS account in year 2001. Assuming your income tax rate is 12% and you had contributed $10,000 each year to an SRS account over the last 3 years, by April 2005, you would have already benefited from $3,600 in tax savings.

In my view, the best financial solutions for the majority of people are often the simplest ones. The SRS is one such programme. It is designed simply to provide tax breaks to people who save voluntarily for their retirement. Why not take advantage of it?


Dennis Ng is sought after as an Expert in Personal Finance and regularly speaks and writes on personal financial planning issues.

[moneyisfreedom]

Hi Dennis:

I have been contributing to SRS since its inception. I agree with you that it is a good scheme, primarily because of the tax savings.

This year, I believe that the contribution limit will be increased, although details have not been released. This makes the scheme even more attractive, since the taxable component will be reduced if the contribution is maxed out.

My only question is what does one do with the money in the SRS ? Seeing that it is meant for retirement, presumably the type of investments should be safer ones. Any views on what are good uses of the money in the SRS account ?

Saving money via the SRS

By Dennis Ng

More than three years after it has been introduced on 1 April 2001, the Supplementary Retirement Scheme (SRS) still isn’t getting the credit it deserves from investors and financial planners.

(Note: this article is written in year 2004)

In fact, judging from its poor take-up rate and the comments that people have been making in the media, it is clear that there are lots of misconceptions about the voluntary savings programme, which was launched on 1 April 2001 by the Ministry of Finance to complement the mandatory CPF scheme. As at September 2004, only about 25,400 SRS accounts had been opened. That’s less than 4% of the 698,000 taxpayers in Singapore who could potentially enjoy some tax savings under the scheme.

The SRS has several merits, in my view. For starters, it doesn’t add to business costs because it doesn’t involve any employer contributions. It also offers attractive tax benefits in order to encourage people to save and invest. And, the SRS allows for a wide choice of investments, with the notable exclusion of real estate – which makes sense since most Singaporeans are already in an “asset rich, cash poor” situation.

Below are some commonly held perceptions about the SRS, and why I think they are wrong:

Myth 1: SRS is not attractive
Truth: SRS not perfect, but it is the only savings programme that gives you additional tax savings. If you have excess money to invest, you can either do so directly, via the CPF Investment Scheme (CPFIS), or under the SRS. If you do so under cash or under the CPFIS, you don’t enjoy any tax savings. However, if you save and invest under the SRS, you will enjoy upfront tax savings. Basically, you will get one dollar of tax relief for every dollar you put into SRS account. So, a person with a personal income tax rate of 12% who invests S$10,000 under the SRS, will reduce his income tax by S$1,200. This “extra” tax saving of $1,200 is only available to him if he saves under the SRS.

The table below illustrates the tax savings that a 35-year old single male with earned income tax relief of $1,000 would enjoy under different income scenarios. As you can see, by contributing to SRS account, the person would be able to reduce his tax bill by between 28.3% and 46%. That’s not bad at all, in my view.

Scenario A Scenario B Scenario C
Salary (OW) $48,000 $66,000 $72,000
Bonus (AW) $8,000 $30,000 $30,000
Total (TW) $56,000 $96,000 $102,000
SRS contribution cap $8,400 $14,025 $14,025

Total tax reliefs $12,200 $19,700 $19,700
Tax before SRS $1,342 $4,267 $4,945
Tax after SRS $724 $3,005 $3,545
Tax Savings $618 (46%) $1,262 (30%) $1,400 (28.3%)


Myth 2: There’s 5% penalty for early withdrawal before age 62, so why bother?
Truth: The 5% penalty is actually a good thing. After years of reviewing the financial situation of many clients, I have discovered that most people lack discipline when it comes to saving money. Once they see their savings increasing, they are tempted to blow it on a new car or some pointless new toy like a blue-tooth mobile phone or a plasma TV. To be sure, dipping into one’s savings is sometimes unavoidable. But the key to avoid being hit with the 5% penalty on early withdrawal of funds saved under the SRS is set aside some “emergency money” to cope with these unexpected expenses. Generally, three to six months of your average expenses should be sufficient. So, should you be suddenly faced with an urgent need for cash, you can just draw on this fund, without the need to touch your SRS savings.

Myth 3: My money will be stuck in SRS until age 62, that’s too long a time period!
Truth: SRS is meant for your retirement, and age 62 matches the current statutory retirement age nicely. If you withdraw your retirement savings before you retire, you’re working against your original objective. Thus, it is only reasonable and right that you should keep your SRS savings till the statutory retirement age.

Myth 4: SRS is only a tax deferment scheme, and under the worst case is you might end up paying even higher taxes when you reach age 62.
Truth: This concern often reflects the incompetence of some financial planners rather than any shortcomings with the SRS. You can significantly reduce the chances of paying tax after you are 62 by choosing to withdraw your SRS savings via monthly installments spread over 10 years instead of withdrawing in one lump sum.

Assume, for instance, that you have accumulated a total of $500,000 in your SRS account when you reach age 62. If you withdraw $500,000 from SRS in one lump sum, this will be treated as adding $250,000 (50% of what you withdraw) to your annual income at age 62. Under current tax rates, you need to pay 19% or about $47,500 in income taxes assuming you have no other tax reliefs. However, if you choose to withdraw this $500,000 evenly over a period of 10 years, only $25,000 (half of $50,000 withdrawn) is added to your income each year. If you do not have any other income and also do not enjoy any other tax reliefs, under current tax rates, you will only have to pay 4% or $200 in income tax each year. Remember that you would have already enjoyed upfront tax relief when he put money in your SRS account. So if your personal income tax rate is higher than 4%, you would still enjoy a net tax savings.

Of course, everyone’s financial circumstances and needs are different. The key therefore is to get a competent financial planner who is able to advise you on how much to save via the SRS so as to maximize its benefits yet minimize the risk of paying income tax when you reach the age of 62.

Myth 5: SRS is only meant for Singapore citizens and permanent residents, not foreigners.
Truth: Unlike CPF, SRS is a scheme that’s open to non-Singaporeans without permanent residency status as well. Even if you have only been posted to Singapore to work for a few years, as long you are a tax resident in Singapore, it could be worthwhile for you to consider saving money via an SRS account. In fact, the SRS terms for foreigners are better in some ways. For one thing, foreigners’ contributions to SRS are capped at 35% of their annual income (subject to an annual income ceiling of $93,500) compared to a 15% cap for Singaporeans. That means foreigners can contribute more to SRS, and cut their income tax bill by more. Furthermore, foreigners need not wait until they are 62 before withdrawing their savings. They only have to maintain their account for 10 years before they become eligible to withdraw their funds.

Myth 6: SRS only makes sense to people who are in their 40s or 50s.
Truth: The sooner you start contributing to SRS, the sooner you enjoy tax savings. The amount of tax savings you enjoy depends on your annual income. Age has nothing to do with it. If you haven’t already opened a SRS account, you have effectively already missed out on three years of tax savings compared to someone who opened SRS account in year 2001. Assuming your income tax rate is 12% and you had contributed $10,000 each year to an SRS account over the last 3 years, by April 2005, you would have already benefited from $3,600 in tax savings.

In my view, the best financial solutions for the majority of people are often the simplest ones. The SRS is one such programme. It is designed simply to provide tax breaks to people who save voluntarily for their retirement. Why not take advantage of it?


Dennis Ng is sought after as an Expert in Personal Finance and regularly speaks and writes on personal financial planning issues.

[Dennis Ng]

Hi Dennis:

I have been contributing to SRS since its inception. I agree with you that it is a good scheme, primarily because of the tax savings.

This year, I believe that the contribution limit will be increased, although details have not been released. This makes the scheme even more attractive, since the taxable component will be reduced if the contribution is maxed out.

My only question is what does one do with the money in the SRS ? Seeing that it is meant for retirement, presumably the type of investments should be safer ones. Any views on what are good uses of the money in the SRS account ?

Hi moneyisfreedom,
what is high risk? What is low risk?

Well, I personally think if one buys stocks worth S$1 and pays 70 cents or less for the share price is considered low risk.

Money in SRS can be invested in many choices, from Stocks in Singapore, to ETFs, to Unit Trust (ETFs are better deals than Unit Trust)....so it is very much up to you to "make the money grow."

If the money is left sitting in SRS account, I think you only earn interest similar to savings account, which is about 0.25% or less. (With inflation now at 5.5%, means you lose 5.25% per year, that's all.

[kelly wee]

Hi Dennis,

How to open an SRS account. Do we need to contribute by cash or via cpf. Do we need to put a fixed monthly amount or as and when there is spare cash to put into.

Thanks in advance.

[kelly wee]

Hi Dennis,

Pls disregard my earlier posting. Already saw your post on the previous page which have mentioned.

[ein55]

Will SRS contribution cap of $11475/year be increased in next year, from the last budget announcement?

[Dennis Ng]

Will SRS contribution cap of $11475/year be increased in next year, from the last budget announcement?

guess so, since the salary ceiling for CPF contribution will be raised from S$4,500 to S$5,000. Detailed changes need to wait for Ministry of Finance to announce since SRS is directly under the Ministry of Finance.

[boonseah]

Will SRS contribution cap of $11475/year be increased in next year, from the last budget announcement?

SRS cap has increased from $11,475 to $12,750.

http://app.mof.gov.sg/supplementary_ret ... cheme.aspx

[Dennis Ng]

Will SRS contribution cap of $11475/year be increased in next year, from the last budget announcement?

SRS cap has increased from $11,475 to $12,750.

http://app.mof.gov.sg/supplementary_ret ... cheme.aspx

Good News for the increase in contribution cap. Actually once upon a time, one can contribute as much as S$30,000 to SRS...

[XP2011]

If we use money in SRS account to buy stock and the stock pays dividend. Where does the dividend go? Does it go back to SRS account or do we have other options?

[ngtfook]

If we use money in SRS account to buy stock and the stock pays dividend. Where does the dividend go? Does it go back to SRS account or do we have other options?

All proceed goes back into your SRS account.

[redlipstick]

SRS is not suitable for me. Firstly, I don't earn that high income - just above the minimum to pay IRAS. Secondly, I don't see how I can buy and hold shares for the next 20 years. If I bought shares 2 months ago I will be making great capital losses now and for the next 12 months or so. If I cut loss then I have to pay another sum of penalty to SRS. So I am not willing to stress myself with the SRS lock-up and penalty.

My personal point of view.

[Darren Lee]

SRS is not suitable for me. Firstly, I don't earn that high income - just above the minimum to pay IRAS. Secondly, I don't see how I can buy and hold shares for the next 20 years. If I bought shares 2 months ago I will be making great capital losses now and for the next 12 months or so. If I cut loss then I have to pay another sum of penalty to SRS. So I am not willing to stress myself with the SRS lock-up and penalty.

My personal point of view.

Hi redlipstick,

Singapore in general does not have very complex tax system compared to countries like US.
Like what is mentioned earlier, SRS can be used to save on taxes for those whose income surpass the CPF contrb limit of $4.5k and are paying a fair bit of tax. For biz-owners like Dennis, SRS is prehaps the last resort to save tax.
If one doesn't not need to contrib too much to nation building, SRS might be irrelevant.


From what I understd, if you buy shares using SRS funds, when you sell them the proceeds goes back to SRS ac. You will only suffer a penalty if you withdraw the funds prematurely.

thats my 2cents worth.

[vlink75]

I remember that I have read before that SRS account can use to pay insurance premium. I did check with my financial planner and he told me that there is no such product that enable SRS to pay the premium, is that true?