Supplementary Retirement Scheme (SRS): How It Works, Inheritance & More
Updated: Jun 13, 2022
Supplementary Retirement Scheme (SRS) is a tax deferral and benefit scheme applicable to both Singaporeans and foreigners working in Singapore. But what exactly is it? What's the difference between CPF and SRS? How does the tax work for SRS? What happens to your SRS if you pass away or are terminally ill?
In Part 6 of this CPF, SRS x Inheritance series, we look into these issues and help you demystify the basics of SRS.
What is the Supplementary Retirement Scheme (SRS)?
SRS is a voluntary scheme that encourages people to save for retirement over and above their CPF savings. Participants can contribute any amount to SRS, subject to a cap, at their own discretion. Contributions will accumulate at an interest rate of 0.05% or can be used to purchase various investment instruments.
What is the difference between CPF and SRS?
CPF is a tax-exempt scheme (you don't need to pay tax) whereas SRS is a tax deferral scheme (you pay tax later).
Most parts of CPF are protected from creditors while your SRS account is not.
Interest rate on SRS is lower compared to CPF saving rates.
Note that CPF savings are locked up for a long period whereas you can withdraw your SRS anytime (subject to penalty and restrictions) and thus, with greater liquidity, you should expect a lower interest rate on SRS. Below is an overview of the CPF and SRS interest rates.
Ordinary Account - At least 2.5% p.a.
Special Account - At least 4% p.a.
MediSave Account - At least 4% p.a.
Retirement Account - At least 4% p.a.
CPF LIFE - Same as RA
Supplementary Retirement Scheme - 0.05%
Why do people put money in SRS?
The key draw of SRS is the tax deferral/benefit. SRS contributions are eligible for tax relief, investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement.
Who can open an SRS account?
Singapore Citizens (SC), Permanent Residents (PR) and foreigners who derive any form of income in Singapore can make SRS contributions in that year as long as you are:
At least 18 years old;
Not an undischarged bankrupt;
Not having a mental disorder; and
Capable of managing yourself and your affairs
You can only have 1 SRS account at any point in time
You can change your SRS provider
How much can I put in SRS?
You or your employer can contribute any time and as often as you like, subjected to the cap on SRS contribution for the year (currently at S$15,300 for SC and PR, S$35,700 for foreigners). Contributions have to be made in cash and there is no refund for SRS contributions made.
Contributions to your SRS account by your employer constitutes your remuneration and so, are taxable and have to be reported. You will be given tax relief for the contribution.
Your tax relief for SRS contributions and other tax relief claims that you may have will be capped at the personal income tax relief limit of S$80,000.
All proceeds from the sale of your SRS investment instruments must be returned to your SRS account.
As long as you don’t withdraw after your statutory retirement age, you can continue to make contributions. Withdrawals made before statutory retirement age don’t count.
We will explain more on withdrawals and statutory retirement age next.
Can I withdraw from SRS?
Yes, you can withdraw anytime and in the form of cash or investments.
Tax Implications of SRS withdrawals
If you withdraw before your statutory retirement age, you may be subjected to penalty.
Your Statutory Retirement Age
YOUR statutory retirement age is the statutory retirement age set at the time of your first SRS contribution. If you have already opened an SRS account, made your first contribution and the statutory retirement age then is 62 years old, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you (i.e. you may still begin your first penalty-free SRS withdrawal when you reach age 62).
Withdrawal BEFORE your statutory retirement age
100% of the withdrawal will be subjected to income tax
Withdrawal subjected to 5% penalty (See below for exceptions)
Here are some examples to illustrate:
If you first contribute S$10,000 and then subsequently withdraw $8,000, there will be no penalty on the S$8,000 withdrawn and tax relief will only be on S$2,000 net contribution.
If you first contribute S$10,000 and then subsequently withdraw $15,000, there will be no SRS tax relief. There will be a 5% penalty on the S$5,000 net withdrawal and the S$5,000 net withdrawal will also be subjected to income tax for the year.
If you first withdraw S$15,000 and then subsequently contribute $10,000, there will be a 5% penalty on the S$15,000 withdrawal, the S$15,000 withdrawal will be subjected to income tax but you will also get the S$10,000 tax relief.
If you are withdrawing for the following circumstances, there will be no 5% penalty.
Death or Full Withdrawal Due to Terminal Illness
50% of full withdrawal sum less an exempt amount of up to $400,000 will be subjected to tax. We'll illustrate more on this in later sections.
For physical or mental incapacity and partial withdrawal on ground of terminal illness, 50% of withdrawal sum will be subjected to tax
100% of withdrawal sum subjected to tax
Full withdrawal of the SRS balance by a foreigner
50% of withdrawal sum subjected to tax if there's at least 10 year holding period. Otherwise, 100% of withdrawal sum and 5% penalty
Withdrawal AFTER your statutory retirement age
There is a 10-year penalty-free withdrawal period (ie, no 5% penalty on withdrawals).
The 10-year starts from your first penalty-free withdrawal and can happen anytime on or after your statutory retirement age.
You can withdraw a maximum of S$40,000 each year, of which 50% is tax-free and the remaining 50% will be taxable income.
At the end of the 10-years, any balance in your SRS (except life annuities) is deemed to be withdrawn immediately. Your SRS operator will report 50% of such balance to IRAS and this is subject to income tax the following year.
After the deemed withdrawal, you can actually withdraw the balance or choose to leave it with your SRS operator. Future returns will be treated and subjected to tax like any other regular investments.
Once you have withdrawn all your money and closed your SRS account on medical ground or because you have reached the statutory retirement age, you will not be permitted to open a new account.
If you have insurance policies (eg. endowment policies and term annuities), you do not need to surrender your policies. The value of the policies (i.e. based on the surrender values determined by the insurance companies) will be added to your SRS balance to be deemed as to be withdrawn.
For investments in life annuities, the 10-year withdrawal period does not apply. Before the SRS account is closed or deemed to be closed, annuity payments will be made to the SRS account and will not be taxed if no SRS withdrawal is made. After the SRS account is closed or deemed closed, 50% of the annuity payments will be subject to tax each year perpetually.
What happens to my SRS if I die or am terminally ill?
Unlike CPF, you cannot nominate your SRS. Your SRS will form part of your estate.
SRS bank operators may require the executor/administrator to produce the Grant of Probate/Grant of Letters of Administration before allowing for transfer to ensure the assets in SRS are distributed correctly.
If you are terminally ill, you can withdraw your SRS in full.
In both cases, there's no early withdrawal penalty and the tax treatment are the same - 50% of full withdrawal sum less an exempt amount of up to $400,000 will be subjected to tax.
Here are some examples to illustrate.
Scenario 1: No prior withdrawal.
J has $450,000 in SRS. J dies.
Tax exemption amount = 10* S$40,000 = S$400,000
Taxable amount = 50% of $50,000 ($450,000-$400,000) .
Scenario 2: 1 prior withdrawal
J has $450,000 in SRS
J withdrew $30,000 in Year 1. S$15,000 (50%*S$30,000) is subjected to tax.
J dies/apply full withdrawal in Year 2.
Adjusted tax exemption amount = 9*S$40,000 = S$360,000
Taxable amount in Year 2 = 50% of (S$420,000 - S$360,000) = 50% of S$60,000 = S$30,000
Scenario 3: Started prior withdrawal but didn't withdraw every year
J has $450,000 in SRS
J withdrew S$40,000 in Year 1, when J turned 62 years old (ie, no penalty withdrawal)
J didn't make withdrawal in Year 2 as J had a part-time work
J dies in Year 3
Adjusted tax exemption amount = 8*S$40,000 = S$320,000
Taxable amount in Year 3 = 50% of (S$410,000 - S$320,000) = 50% of S$90,000 = S$45,000
Is it better to withdraw SRS after statutory retirement age or keep it?
The decision to withdraw now or later requires weighing the tradeoff between:
Postponing potential tax on your SRS till later; and
Accumulating investment returns within SRS and subjecting those returns, which would otherwise not be taxable, to potential future tax.
Here are examples to explain.
(Disclaimer: Nothing in this article or site should be construed as providing legal advice, tax advice, financial advice or advice of any sort. The information provided are general in nature, opinions of the writer and may become inaccurate over time. Please consult a professional for advice.)
Potential scenario where withdrawing LATER may be optimal
If you have other taxable income now and don't need the money from your SRS, it may make sense to postpone the withdrawal to ensure you pay the least amount of tax on your SRS since 50% of withdrawals after statutory retirement age are taxable.
You may want to consider waiting till you have little or no other taxable income to withdraw your SRS to fully utilize the income tax-free thresholds.
Note: Singapore's income tax-free threshold (the annual income that doesn't get taxed) is currently at $20,000. See updates and the latest tax rates here.
Potential scenario where withdrawing NOW may be optimal
If you have no foreseeable taxable income for the next 10 years, it may make sense to withdraw and eventually close your SRS as dividends, interest and capital gains are generally not taxable in Singapore. If left in SRS and the investment returns are large enough to get you over the income tax-free threshold, the 50% taxable income after the 10th year may become an issue.
If all these seems complicated or if you just want to outsource the work, you can speak to a financial consultant to work out the math, timing and best course of action for you. You can find and compare a list of financial consultants here or speak to us here for recommendation on a financial consultant that suits your needs and style.
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What is the difference between CPF and SRS?
CPF is a tax-exempt scheme whereas SRS is a tax deferral scheme. Most parts of CPF are protected from creditors while your SRS account is not. Interest rate on SRS is lower compared to CPF saving rates.
How does SRS tax work?
Before your statutory requirement age, any withdrawals are generally subjected to 5% penalty and full income tax. After your statutory requirement age, you can withdraw up to $40,000 each year penalty-free for 10 years. After the 10th year, you will be taxed 50% on your remaining balance. There are exceptions and nuances. Check here for more detailed breakdown.
What happens to my SRS if I die or am terminally ill?
If you pass away, your SRS would be deemed as fully withdrawn on the date of death and be passed on to your estate and distributed as per your will or intestacy law. If you are terminally ill, you can withdraw your SRS in full. In both cases, there's no early withdrawal penalty and the tax treatment are the same - 50% of full withdrawal sum less an exempt amount of up to $400,000 will be subjected to tax.
Disclaimer: Nothing in this article or site should be construed as providing legal advice, financial advice or advice of any sort. The information provided are general in nature and may become inaccurate over time. Please consult a professional for advice.
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