If there is one thing that everyone wants to achieve in life is a good retirement life. As they say, “All’s well that ends well.” When you have accomplished everything you want and are finally ready to retire, the only thing you could ever dream of is having a financially secure retirement that you will benefit from and your loved ones. All’s well that ends well, but it will be even better when you are prepared for your future.

From your current standpoint, not everything is all too well if you are still not ready for your retirement. Worry not because Supplementary Retirement Scheme or SRS is here–one of the few retirement insurance schemes that the government offers.

But, the question is, is it worth it? With the different retirement insurance schemes that exist, it can be overwhelming to weigh whether an insurance scheme is worth it for your needs. However, we are here to answer that for you.

What is the Supplementary Retirement Scheme or SRS?

In simplest terms, the Supplementary Retirement Scheme or SRS is a savings scheme that lets its participants prepare for retirement. The payment for the insurance scheme is voluntary, meaning you can stash your money in your SRS account whenever you want (with a cap).

The main goal of SRS is to aid the greying population in their financial needs. The Singaporean government recognizes that the CPF is not enough alone to finance the older population’s needs, which is why they decided to create SRS.

Speaking of CPF, I already have one. Do I need SRS?

Well, as we have said, depending on your lifestyle, CPF alone may not be enough to sustain your financial needs once you get older. In hindsight, the main goal of CPF is to give you a basic retirement income.

Additionally, CPF is an involuntary savings scheme, which means you cannot control the money you are putting in CPF. At least with SRS, the funds you are putting there are controlled by you, and you can even plan on where to use the savings you accumulated there later on.

Another fantastic benefit of SRS is that all contributions to SRS are eligible for tax relief the following year. For example, if you are going to contribute at the end of 2021, you are guaranteed to get tax relief in the Year of Assessment 2021, which will be effective in 2022.

What are the Benefits of SRS?

The primary and reasonable benefit the SRS gives is tax relief. And let’s be honest, who doesn’t want that?

When you put your money in SRS, it doesn’t do anything aside from saving it for later use and, of course, the tax relief. So, SRS is for you if you are really after that tax relief and lessen your tax liabilities. If you earn less than $40,000 per annum, the tax relief may not be that significant, but if you earn more than $40,000 per annum, the amount of money you save can be pretty drastic.

Other than this, you can use your accumulated SRS funds to invest in different shares like REITs, ETFs, insurance schemes, and unit trusts. This benefit is quite similar to CPF funds. However, if you wish to use your funds for another purpose, all your returns in your investment funded by SRS will return to your SRS account.

Another good thing about this is that your investment profits will grow tax-free, and you will only be taxed 50% of your withdrawal amount as taxable income if you withdraw your savings once you reach the prescribed retirement age of 62 years old.

The limitations of SRS

While the benefits of SRS are a pretty good deal, there are still limitations to the schemes.

1.  The contribution is subject to a cap.

For one, there is a cap on the amount of contribution that you give to your SRS. Each year the cap is $15,300 for Singapore citizens and Permanent Residents and $35,700 for foreigners.

2.  The tax relief is also subject to a cap.

There is also a cap on the tax relief that you will get. The maximum tax relief you can get is $80,000, including SRS contributions and anything else that entitles you to tax relief.

3.  The funds are 100% taxable and penalized if you withdraw early

Another limitation that can be detrimental to your final decision to get one is the withdrawal of the funds and their conditions. In SRS, you can withdraw your funds anytime, but if you withdraw earlier than the prescribed retirement age (at 62 years old), your withdrawal will be 100% taxable, and you will be charged with a 5% penalty for withdrawing early.

While this can be a turn-off to some, this is a measure the Ministry of Finance (MOF) made to ensure that all participants included in the scheme will not touch their funds until their retirement.

And in hindsight, the primary purpose of the SRS is to support your needs on your retirement, so there should be no reason for you to use the funds in SRS unless there is an emergency.

When can I start withdrawing funds on SRS?

You can only touch your fund and withdraw once you reach the retirement age of 62. Remember that this is the standard, and if you do not adhere to this, you will be penalized. You can also start to claim withdrawal if there is a medical emergency or because of bankruptcy.

Even if you reach the age of 62, you are still not safe from tax. If you withdraw after the age of retirement, you will be taxed 50% of the withdrawal amount.

However, 50% is not bad compared to the 100% tax and a penalty if you withdraw early. So, if I were you, you would have to be disciplined and responsible about your finances when you get an SRS.

How do I sign up for SRS?

There are qualifications to meet if you want to open an SRS account. A good thing to note is that SRS is open for all Singapore Citizens, Permanent Residents, and even foreigners. The qualifications are:

1. You must be at least 18 years of age.
2. You shouldn’t be bankrupt.
3. You shouldn’t have any mental disorder.
4. You must be capable of managing yourself, your finances, and your affairs.

If you meet these criteria, you are free to open your SRS account on their partner bank operators, which are:

1. DBS Group Holdings
2. Overseas-China Banking Corporation (OCBC)
3. United Overseas Bank (UOB)

Our Overall Take

It would be best if you do not cram on planning your retirement, and SRS is a reasonable measure that you can do to prepare for the future and retirement that you want. However, take note that SRS shouldn’t be your only end goal.

Realistically speaking, you still have to plan for other matters that can happen when you retire. So, if you are financially capable of doing so, there are more retirement plans that you can research.

But if you are looking for a no-brainer retirement scheme that offers tax relief, then SRS is for you. Additionally, you may want to look for a supporting insurance scheme that can aid your other needs in the future, such as CPF LIFE.

The future can be scary, but you can always plan for it. Visit our website and sign up for our future events for more financial advice.

Important notes:

The views and opinions expressed in this article are solely that of the author and do not reflect the opinion of Professional Investment Advisory Services Pte Ltd. The information contained in this article is for general information only and does not constitute the provision of financial advisory services. The precise terms, conditions and exclusions of any services or products mentioned are specified in their respective policy contracts. For customized advice to suit your specific needs, consult an Apex Financial Advisor Representative

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

References

¹ Central Provident Fund Board. (n.d.). CPFB | What is Supplementary Retirement Scheme? CPF. Retrieved February 8, 2022, from https://www.cpf.gov.sg/member/faq/general-information—useful-tips/general-information-on-other-government-agencies/what-is-supplementary-retirement-scheme-

² Ferrario, M. (n.d.). Should You Have a Supplementary Retirement Scheme Account? StashAway. Retrieved February 8, 2022, from https://www.stashaway.sg/r/should-you-have-a-supplementary-retirement-scheme-account

³ Lin, P. (2017, November 14). Is the Supplementary Retirement Scheme (SRS) Worth Your While? MoneySmart blog. Retrieved February 8, 2022, from https://blog.moneysmart.sg/budgeting/supplementary-retirement-scheme-srs/

⁴ Ministry of Finance. (2021, April 21). MOF | Supplementary Retirement Scheme. Ministry of Finance, Singapore. Retrieved February 8, 2022, from https://www.mof.gov.sg/schemes/individuals/supplementary-retirement-scheme

⁵ Poh, J. (2022, January 12). Guide to Supplementary Retirement Scheme + SRS Account Promotions. MoneySmart blog. Retrieved February 8, 2022, from https://blog.moneysmart.sg/budgeting/srs-account-supplementary-retirement-scheme/

Apex Private Wealth Management is an authorised group of Financial Adviser representatives from Professional Investment Advisory Services Pte Ltd