Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) is not a part of the Central Provident Fund (CPF), but is a complementary scheme aimed at private sector employees in order to provide them with a secure post-retirement life. While CPF is a compulsory scheme, SRS is a voluntary scheme that leaves the choice of starting an SRS account and deciding how much money to the account, to the employees themselves.

Benefits Of SRS:

The 3 key advantages of joining the SRS scheme are:

  1. Retirement savings: SRS supplements savings for your job-free years. In addition to the CPF, you can make your own savings plan and see it through with the help of this scheme.
  2. Tax-saver: It is a great tax-saving tool. Contributions to SRS are eligible for tax relief, investment returns are tax-free, and only 50% of the withdrawals from SRS are taxable at retirement.
  3. Voluntary scheme: Since the scheme is voluntary, you can make your own choices about starting an account and how much money to keep aside every month or week, whatever time-frame works for you.

Eligibility Criteria:

Individuals who can join the SRS initiative are:

  • All Singaporeans, Permanent Residents and foreigners living in Singapore.
  • Someone who earns any kind of income in a calendar year, whether it is a salaried person, self-employed professional, or a businessperson.
  • Someone who is at least 18 years old.
  • Someone who is not an undischarged bankrupt.
  • Someone who has no mental illness and can handle their finances independently.

SRS Contributions:

To participate in the Supplementary Retirement Scheme, you first need to open an SRS account with one of the authorised operators:

  1. Development Bank of Singapore (DBS)
  2. Overseas-Chinese Banking Corporation (OCBC)
  3. United Overseas Bank (UOB)

A foreigner has to provide a written declaration of foreign status for computation of the SRS contribution cap. Singaporeans and SPRs do not need to provide any documents to open an account.

You are allowed to open only 1 SRS account during your lifetime, but you can transfer your account from one bank to another and continue making contributions. The SRS operators will charge a small administrative fee for operating your account. You can contribute an amount of your choice, at any frequency that you can afford. These deposits need to be made before December 31, 2016 to avail tax concessions. Different SRS operators may have different cut-off dates for the final annual deposit.

Though you are free to deposit any amount, there is a ceiling on how much you can contribute in a year. This limit is decided based on contribution rate and absolute income base.

  • SRS Contribution Rate: The contribution rate for Singaporeans and Singapore Permanent Residents (SPRs) is 15% because they enjoy tax benefits on both SRS and CPF contributions, and it is 35% for foreigners because they do not get any tax relief on CPF contributions.
  • Absolute income base: The absolute income base, from January 1, 2016, is the same as the limit for Additional Wages under CPF – S$102,000.
  • Contribution ceiling: As per the above metrics, the maximum yearly contribution that can be made by Singaporeans and SPRs is S$15,300 from January 1, 2016. The limit for foreigners is S$35,700.

Members can make contributions to their SRS account until they make a withdrawal either on medical grounds or at the legal retirement age. Once a withdrawal is made for the above reasons, fresh contributions cannot be made into an account, nor can an old account be closed and a new one opened. But if you make withdrawals before retirement, you can continue to deposit in the account. Deposits can be made only in cash, check or online cash transfer formats. Employers can also contribute to your SRS account, from October 2008. To do this, you have to give them written instruction or authorisation. This authorisation has to be revoked once the account is suspended.

SRS Investments:

You can use your SRS savings to invest in a large range of financial products such as shares, insurance, bond, unit trust and fixed deposit, as per the products offered by SRS operators. However, you do not necessarily have to buy the products of your SRS operator – you can also buy products posted by other operators. The 2 areas where investment restrictions apply are:

  • Directly buying commercial or residential property
  • Life insurance products can be bought under the following conditions:
    • Only single premium products and recurrent single premium products among both annuity and non-annuity plans can be purchased with SRS monies;
    • Life cover should not exceed 3 times the single premium amount;
    • Plans can allow for a contribution continuation feature/benefit upon disability;
    • Critical illness, health and long-term life insurance covers are not included;
    • Your nominee cannot be a Trust.

The returns/profits that you get on the investments made out of SRS savings have to be put back to the account in order to get tax benefits. Investment of SRS savings are guided by 3 principles:

  1. The money used for investment must come from the SRS account;
  2. The investment portfolio should be maintained by an SRS operator and retained within the SRS account;
  3. The returns on the investment must be returned to the SRS account.

There are no restrictions on when to buy or sell the investment products bought from your SRS account. The government does not impose any lock-in period before beginning investment, though SRS operators may have a few day’s/weeks’ time lag between actual contribution and investment.

SRS Withdrawals:

You can withdraw your savings by submitting an application to the SRS provider. You can withdraw from the SRS account in 5 conditions:

  • Withdrawal at or after statutory retirement age: You can withdraw your SRS savings at or after you attain your retirement age. The retirement age applicable to your account will be the legal age in vogue at the time you made your first contribution, and not the year in which you are making the withdrawal. For example, if you made your first contribution when the retirement age was specified as 60 years, but it was revised to 62 years thereafter, your retirement withdrawal will be after you turn 60 years old and not the prevailing 62 years.

You can either make a single withdrawal of your entire SRS sum, or space it out in a period of 10 years. For example, if you attain your retirement age in 2016 and make your first withdrawal in 2017, then you have until 2027 to completely withdraw your savings from SRS account.

  • Withdrawal for foreigners: If you are a foreigner, you can withdraw money from the SRS account and get a penalty-free withdrawal. This discount is available only if you withdraw the amount in a single lump sum. To avail the concession, the following conditions need to be adhered to:
    • You should not be a Singapore Citizen or an SPR for at least 10 continuous years before the date of withdrawal.
    • Your SRS account should have been active for at least 10 years from the date of your first contribution.

If the above conditions are met, tax will be collected only on 50% of the lump-sum withdrawal. However, to avoid any penalty you need not wait for 10 years from the starting of an SRS account if you have attained the legal retirement age in the meanwhile. For example, if you started your account at the age of 58 and the statutory retirement age is 62 years, then you can withdraw the amount without penalty and at a tax rebate on 50% of the withdrawal amount at the age of 62 years, without having to wait for 10 years of keeping the account active.

  • Premature withdrawal: This is when you withdraw the money in your SRS account before your retirement age without any reasons such as medical emergency or death. Upon premature withdrawal, the SRS operator will charge a 5% penalty on the amount taken out. In addition, you will get no tax concession: the full withdrawal amount will be subject to tax. But if the withdrawal is made before retirement age because of any of the below reasons, then the 5% penalty will not be imposed:
    • Death of the member
    • Medical emergencies
    • Bankruptcy
    • Single lump-sum withdrawal by a foreigner
  • On medical grounds: When withdrawing for medical emergencies, you need not adhere to any age limit. But once you make a withdrawal from your account because of medical reasons, you will not be allowed to continue contributing money, or start a new account. When taking out money from the SRS account on medical grounds, you need not make a lump-sum single withdrawal. You can spread out the withdrawals for up to 10 years from the first time you take an amount out of the account.

    As per a change in rules in 2016, a maximum of S$400,000 – at the rate of S$40,000 per year for up to 10 years – from the full withdrawal made by an individual due to terminal illness will not be subject to tax, but 50% of the remaining amount, if any, would be subject to tax. So if you have around S$200,000 in your SRS account that has been active for more than 10 years, the entire withdrawal will be tax-free in case of terminal illness, but if you have over S$500,000 in the account, you have to pay tax on half of the remaining S$100,000, i.e. S$50,000. However, if you have had the account for less than 10 years, then the tax exemption will be given on (S$40,000 x no. of years of account).

  • On death or disability: If you are a physically challenged person, your withdrawals, irrespective of when you withdraw money, are free from penalty or full taxation. If the SRS account-holder dies, the amount claimed by their nominees is also free from the 5% penalty. Additionally, upon death of a member, a maximum of S$400,000 is free from taxation, and 50% of any remaining amount will be subject to tax.

Tax-Treatment Of SRS Withdrawals:

There are many tax benefits associated with SRS. It is a tax deferral scheme and not a tax-free scheme, so different concessions and reliefs apply to SRS.

Tax does not have to be paid on your SRS savings in the following conditions:

  • You have to be a tax resident in Singapore. That is, you have to be a Singaporean, a Singapore Permanent Resident or a foreigner deemed to pay tax on the island. This depends on the IRAS rules for tax residency status.
  • Tax relief will be given to you during the assessment year and not the year you actually pay the money. For example, if you are making SRS payments during the calendar year 2016, you will be eligible for tax relief in the assessment year 2017.
  • Your contributions to the SRS account are exempt from taxation. The contribution amount will not be considered as part of your income when you pay income tax.
  • The returns made on investment through SRS are completely tax-free.

Partial taxation is applicable on your SRS savings when you make a withdrawal. For each withdrawal, you will need to pay tax only on 50% of the amount taken out, while the remaining half will not be taxed. If you make withdrawals over a longer period – a maximum of 10 years – then you will be able to save tax as each withdrawal will be of a smaller amount. This tax concession on 50% of the withdrawal amount is available in the following cases:

  • Withdrawal at or after the statutory retirement age;
  • Withdrawal for medical reasons;
  • Full withdrawal by a foreigner whose SRS account has been active for a minimum of 10 years from the first contribution;
  • Withdrawal on death of the member;
  • If you have invested in life annuity plans through SRS, the amount you receive under these plans every month after your retirement, even if it exceeds the 10-year limit on withdrawals, is eligible for the 50% tax concession.
  • Withdrawal in the form of investments by an SRS member or his legal representative (if he has died), after the investment in question had earlier been deemed withdrawn upon death or after the expiry of the 10-year period.

Other points of note with regard to taxation are:

  • Withdrawals by foreigners and Singapore Permanent Residents: For foreigners and permanent residents making a withdrawal, the SRS operator will withhold or collect an amount of tax as per the current non-resident tax rate. The withholding tax rate for assessment year 2016 was 20% and for assessment year 2017 it is 22%. If the total amount taken out in cash or investments by the account-holder in the calendar year during which the withdrawal is made is less than $200,000, and if the person does not have any income apart from the SRS withdrawal made in the calendar year, then the withholding tax rate will only be 15%.
  • Withholding tax for residents: You will get tax concession on half of the amount when SRS savings or the money from SRS investments is withdrawn. However, the operator will deduct the prevailing withholding tax from the remaining 50% of the amount. You can use this withholding tax as a tax credit to offset your total tax liability on withdrawals. If excess tax amount is collected by the operator and you are liable for any rebate, the IRAS will refund the excess amount to your account.
  • If you do not withdraw the SRS balance at the end of 10 years, it will be considered as withdrawn and the operator will collect tax on it. When you actually withdraw the money later, you will have to pay the tax again, but the IRAS will refund the withheld tax amount to your account.
  • If your employer is contributing to your SRS account on your behalf, it will be considered as part of your wages and will be taxable. The employer has to declare the contribution in your Form IR8A. However, you will receive tax relief on it in the following assessment year and get a refund on the tax paid on this component.
  • In actuality, SRS amount withdrawn after your retirement will be subject to tax only if the withdrawn amount is more than S$40,000. This is because of 2 reasons: a) retired persons do not have to pay tax on the first S$20,000 of their income, and b) only half of the withdrawn amount is subject to tax. So if the withdrawal amount is S$60,000, tax has to be paid only on S$10,000 as illustrated in the table below:
Amount withdrawn S$60,000
Amount after 50% tax concession on withdrawal S$30,000
Amount after first S$20,000 tax exemption for retired persons S$10,000

You do not have make any specific claims to get tax relief on SRS contributions. The IRAS will determine the tax relief and grant them to you based on inputs from the SRS operators. When opening the account, you need to authorise your SRS operator to provide information to the IRAS.  

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