An SRS account: A financial tool for all Singapore residents

Despite its significant benefits, the SRS is often misunderstood or overlooked, particularly by expatriates (expats) who may assume it's exclusively for locals. In reality, the scheme is available to all Singapore residents — both locals and foreigners — and offers compelling advantages for everyone looking to build a more resilient financial future. This article will help you understand how the SRS works, its key benefits for different types of contributors and how you can leverage it to save for your retirement.

What is the Supplementary Retirement Scheme (SRS)?

The SRS is a voluntary retirement savings plan available to both locals and foreigners working in Singapore. It boasts a number of key features that are designed to provide you with control and flexibility, such as:

− Voluntary and flexible contributions: You have full discretion over if and when you contribute, allowing you to align your contributions with your financial situation each year.

− Immediate tax relief on contributions: Every dollar you contribute to your SRS account is deducted from your taxable income for that year, helping to reduce your overall tax bill.

− Tax-deferred growth on investments: Any returns you earn from investments made through your SRS account accumulate tax-free until you begin to make withdrawals.

− Preferential tax treatment on withdrawals after retirement: When you withdraw your funds at the statutory retirement age, only 50% of the amount is subject to tax, which can lead to significant tax savings.

− Access to a wide range of approved investments: The funds in your SRS account can be used to invest in a variety of financial instruments, such as unit trusts and stocks, allowing your savings to grow beyond the low interest earned from cash.

Why Singaporean residents should consider contributing to the SRS

Many residents in Singapore often overlook the SRS, missing out on significant financial advantages. Contributing to an SRS account helps you to actively reduce your chargeable income, which in turn lowers your overall tax payable. This makes it a particularly useful tool for certain groups of people.

For instance, high-income earners in the 11.5% to 24% tax brackets who have already maximised other personal reliefs stand to benefit greatly. Consider a foreign resident with an annual income of S$160,000. By making the maximum SRS contribution of S$35,700, they could potentially reduce their tax bill by over S$5,000 for that year.
Essentially, the SRS offers unique advantages tailored to different financial goals and contributor profiles, such as:

− For high-income earners: The SRS provides immediate tax relief, giving you a straightforward way to reduce your taxable income and keep more of your earnings.

− For foreign residents: The scheme offers a smart way to save for your eventual retirement. When you later withdraw your funds — often after you have left Singapore — only 50% of the amount is taxable. Plus, if you reside in a low-tax country during withdrawal, this can result in significant savings.

− For long-term investors: Since SRS funds can be invested, they provide an avenue for long-term, tax-deferred growth. For those starting early, this allows for decades of compounded, untaxed returns to build a substantial retirement fund.

How much can you contribute to the SRS?

Understanding the contribution limits is a key step in leveraging the SRS to your advantage. Here is a breakdown of the current annual contribution caps:

− Singaporeans and Permanent Residents: Up to S$15,300 per year

− Foreigners: Up to S$35,700 per year

Additionally, while the scheme is flexible and voluntary, allowing you to contribute any amount up to your personal cap whenever you choose, it is important to remember that your contributions must be made by 31 December to qualify for tax relief in the current year.

What can you invest in using the SRS account funds?

Your SRS account functions as more than just a savings vehicle; it also serves as an investment account. While funds can be held in cash, which earns a minimal interest of 0.05% p.a., it is widely recommended to invest them to counter the effects of inflation.

Some of the approved investment instruments you can consider include:

− Singapore-listed and overseas stocks and ETFs: You can invest in Exchange Traded Funds (ETFs) and shares listed on the Singapore Exchange (SGX), and in certain instances, gain access to overseas markets.

− Unit trusts and mutual funds: These professionally managed funds allow for instant diversification across different asset classes, countries and sectors.

− Other approved structured products: These are more complex financial instruments — such as bonds and structured deposits — that can offer higher potential returns.

With such a wide array of options, navigating the investment landscape can be complex. Financial advisers from St. James's Place can provide invaluable guidance, helping you choose the right options to fit your goals and risk tolerance, and ensuring your SRS funds work as hard as they can for your future.

Planning your SRS withdrawals

Understanding the rules for SRS withdrawals is crucial, as they differ for both Singaporeans and expats. Here’s what to keep in mind:

For Singaporeans

− Early withdrawal penalties: If you withdraw your funds before the statutory retirement age, you will incur a 5% penalty on the withdrawn amount, and the full amount will be subject to tax.

− Penalty-free withdrawals at retirement: When you withdraw your SRS funds at or after the statutory retirement age, only 50% of the amount is taxable. This significantly reduces your tax liability in retirement.

− Maximising tax savings: You can further minimise your tax exposure by spreading your withdrawals over a period of 10 years. By keeping your annual withdrawals below the tax-free threshold, you may end up paying little to no income tax on your SRS funds.

For expats

To be eligible for a penalty-free withdrawal, you must:

− Not have been a Singapore Citizen or Permanent Resident on the date of withdrawal and for 10 continuous years prior.

− Have maintained your SRS account for at least 10 years from the date of your first contribution.

When these conditions are met, a one-time full withdrawal can be made. In this case, only 50% of the withdrawn amount is subject to tax.

A financial tool for everyone in Singapore

Ultimately, the SRS is a powerful and underused financial tool for both locals and expats in Singapore. It offers a unique combination of short-term tax relief and long-term investment flexibility, allowing you to bolster your retirement planning and secure your financial future. 

To find out if the SRS fits into your broader financial goals or to get started, reach out to St. James's Place and let our financial advisers in Singapore provide you with personalised guidance today.

This article is a general communication that is provided for informational purposes only. It should not be relied upon as financial advice, and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

The value of an investment will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.