SRS Essential Tips for your 20s & 30s
In this post we outline the step-by-step guide on how to maximise your Supplementary Retirement Scheme (SRS)
If you are in your 20s and 30s, mastering the Central Provident Fund (CPF) is one of the most important steps you can take to secure a comfortable retirement. A crucial pillar is the Supplementary Retirement Scheme (SRS).
Despite what the name suggests, it’s not just for those nearing retirement. It’s designed to provide an additional retirement safety net beyond CPF savings — with tax relief as the main incentive to save up
What is the Supplementary Retirement Scheme (SRS)?
- The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings.
- Contributions to SRS are eligible for tax relief.
Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.
The main benefit: you’ll get a dollar-for-dollar tax discount for the amount added to your SRS account.
How does the SRS work?
Singaporeans are allowed to deposit up to $15,300 into the account each year.
You can set up an SRS account at any of the three local banks — DBS, OCBC and UOB.
This can be used to invest in products including unit trusts, robo-advisors, SGX-listed stocks, REITs, and ETFs. You can also invest in lower-risk products like Endowment Insurance Plans, fixed deposits, and Singapore Government Securities.
Here is an illustration of the tax savings at work.
Topping up your SRS is generally only recommended if you’re above the 7% tax bracket when the tax savings are more substantial relative to the amount you top up. They become more tax efficient the higher up the tax bracket, as illustrated below.
But deciding whether to put money into your account is a personal decision and varies based on your circumstance.
Consideration for SRS top-ups
Personal income tax relief cap
Take note that the cap on personal income tax relief is $80,000. This applies across all tax relief claimed for each year of assessment, which includes Earned Income Relief and CPF Cash Top-Up Relief.
Ability to commit for the long term.
As such, make sure this is money you can set aside for the long term and is not essential funds. Treat it as buying an endowment or Investment-Linked Plan (ILP). This is money that you are willing to part ways with for a long time.
This is an especially difficult balance to strike in your 20s and 30s. This is a period full of big financial commitments like paying for a wedding and buying a house. Make sure your cash flow doesn’t suffer in pursuit of tax savings.
Top Up By 31 December
Don’t forget to top up by 31 December if you want to enjoy the tax relief.
Make sure to deploy your cash
While the tax relief of SRS is the main draw, remember that cash in your SRS account only earns 0.05%. If you’re not investing your SRS savings, you’re losing money to inflation!
According to MOF, 21% of SRS monies are sitting idle in cash, so this is not as uncommon as you’d think.
Where you can invest your SRS funds
From Feb 2019, application for Singapore Savings Bonds, SGS Bonds, and T-Bills can be made through the internet banking portal of SRS Operators
Why you should top up $1 into your SRS account today
The simple reason why – is that the Statutory Retirement Age for purposes of your SRS account is locked in on the day you make your first SRS contribution
Withdrawals are penalty-free only if they take place on or after the statutory retirement age (63 effective from 1 Jul 2022) that was prevailing at the time of your first SRS contribution (i.e. prescribed retirement age). If you have already opened an SRS account and made your first contribution, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you.
Common Misconceptions About SRS
There is a perception that the SRS is only useful for high income earners. To some extent, this is true since high income earners pay the most tax and hence, are able to save the most on their income tax when they contribute to their SRS. However, we should not ignore the fact that it can also be useful for those of us who are earning a salary which is closer to the median income range in Singapore.
Consider the immediate tax savings depending on your tax bracket
Contributing to our CPF Cash Top-up allows us to enjoy tax relief of up to S$8,000 each year. Contributing to our SRS account allows us to enjoy tax relief of up to S$15,300 each year.
Some people may think that they should choose one over the other. That’s not true. If we want, we can choose to utilise both schemes in order to enjoy a maximum tax relief of up to S$23,300 each year, from these two schemes.
Young professionals who do not yet have children will find these top-ups useful for them while they are young. Moreover, as they are still young, the money which they have set aside for their retirement, be it through their CPF or SRS account, will have a longer time to grow and compound itself.
One perception people have is that there are significant limitations when it comes to what you can invest your SRS monies in. This isn’t true. By and large, most common investments that we would like to make for our retirement can be funded using our SRS account.
From Feb 2019, application for Singapore Savings Bonds, SGS Bonds, and T-Bills can be made through the internet banking portal of SRS Operators
Since it’s meant for our retirement, some people mistakenly think that the SRS is part of the CPF scheme. It’s not. Though they serve similar purposes – helping people plan for their retirement in Singapore – the CPF and the SRS schemes are entirely separate schemes. CPF is a compulsory scheme for all Singaporeans and PRs while the SRS is purely voluntary, and both locals and foreigners are eligible for it. The SRS is administered by Singapore’s local banks. It’s important to note that these banks are operators of the SRS and not fund managers. This means they do not direct where your SRS contributions should be invested. Account holders are responsible and have the full discretion of deciding how they want their SRS monies to be invested. These investments must be SRS-approved.
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