How to maximise your Supplementary Retirement Scheme fund

Many people dream of retiring from work, but not all plan for it. Are you familiar with the Supplementary Retirement Scheme (SRS), and do you know how to maximise it?

You may be paying more tax than you should

You may be paying more tax than you should

For years, you may have set aside a portion of your salary in a regular savings account as a part of your retirement planning. In this case, you would have paid more tax than if you had saved the money in an SRS account while deciding how to invest your money for retirement.

What is SRS and how it works

SRS is a voluntary savings scheme, so you can contribute amounts at your own discretion, subject to an annual contribution cap of S$15,300 for Singaporeans/Singapore PRs and S$35,700 for foreigners as of 2018.

Making use of the SRS is simple: you will just need to open an SRS account with a bank that offers it, such as DBS Bank and start contributing funds to the account.

Each dollar deposited in an SRS account reduces taxable* income by 1 dollar. Funds in the SRS account can be used to invest in various instruments such as stocks, bonds, unit trusts and more. Gains from investments made through SRS are not taxed before withdrawal, and only 50% of the withdrawn amount is subject to taxation.

Upon reaching retirement age, you will have up to 10 years to fully withdraw your SRS funds.

You can also choose to withdraw SRS funds before retirement age. But an early withdrawal is subject to a 5% penalty and the amount withdrawn is fully taxable.

*Personal income tax relief cap of S$80,000 will apply from Year of Assessment 2018 to SRS contributions made on or after 1 Jan 2017. This cap applies to the total amount of all tax reliefs claimed, including any relief on SRS contributions.

Maximise your retirement fund with SRS

Now that we know how it works, let’s have a look at the following example to understand how you can maximise your gains.

Maximise your retirement fund with SRS

Assuming you earn S$50,000 in a year and is below age 55, you will have S$11,000 in Earned Income and CPF relief. Assuming no other relief claims such as parent/child relief, you would have to pay S$515 in tax without SRS contributions.

As explained earlier, each dollar contributed to SRS reduces your taxable income by S$1. With a full contribution of S$15,300 to SRS for the year, your chargeable income drops to S$23,700 – effectively lowering a whole tax bracket. Your tax payable then becomes S$74 instead of S$515, saving you a total of S$441 in taxes.

Sustained over 20 years, this translates into S$8,820 in tax savings per annum.

If you manage your withdrawals carefully at retirement, you may be able to avoid paying taxes on your retirement funds altogether.

Ready to open an SRS account?

Find out how you can do so completely online.

Open an SRS account

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