Most of us living in Singapore are familiar with CPF - it’s where a large portion of our paycheck goes to every month. But we may not be as familiar with the Supplementary Retirement Scheme (SRS). Unlike our CPF, which is a mandatory social security savings scheme, participation in the SRS is voluntary. It was designed to complement our CPF savings, which are meant for housing, medical and basic income needs in retirement.
One of the main reasons why Singaporeans choose to open an SRS account is for tax relief. Singaporeans and PRs can contribute up to $15,300 in their SRS accounts each year, and the amount contributed is tax-exempt. Also, it’s important to note that SRS tax benefits are on top of your CPF top-up tax relief. You can read more here about whether you should invest for retirement using your SRS.
Here are 6 myths you may have heard – and believed – about SRS accounts:
Myth #1: SRS is only for Singaporeans
All Singaporeans, Permanent Residents and foreigners living in Singapore are eligible to open an SRS account. The only requirements are that you must be at least 10 years old, and are not an undischarged bankrupt.
You can start contributing to your SRS the moment you open an SRS account, as long as you earned any form of income (including directors’ fees) in the current year. You can contribute to the SRS up to any age, until the point where you make the first withdrawal from your SRS account.
Myth #2: SRS is part of the CPF system
SRS is not part of your CPF - it is a voluntary scheme that complements your CPF savings for retirement. You can contribute any amount to your SRS accounts and as many times as you wish within the year, subject up to to a maximum contribution cap of S$15,300 for Singaporeans and PRs, and S$35,700 for foreigners per year.
In fact, the SRS is not administered by CPF. It is operated by the three local banks (DBS, OCBC, UOB), and administered by the Inland Revenue Authority of Singapore (IRAS).
Myth #3: You can have multiple SRS accounts
Unlike brokerage accounts, you can only have one SRS account at any point in time. It’s actually an offence to open SRS accounts with more than one operator and there are penalties involved.
There are currently three SRS agent banks: DBS, OCBC and UOB. To start making contributions to the SRS, you must first open an SRS account with one of these banks. However, you can link multiple brokerage and wealth advisory platforms like Endowus to a single SRS account number.
If you previously had an SRS account, but had withdrawn all the funds in it after having attained the relevant retirement age or on medical grounds and then closed it, you will also not be permitted to open a new account.
Myth #4: Your SRS funds are locked away until the SRS retirement age
Unlike CPF, SRS funds and monies aren’t locked up. You can actually withdraw funds from your SRS account at any time prior to retirement, although this will be subject to a withdrawal penalty of 5%, and 100% of the withdrawal amount will be taxable.
This provides investors with a liquidity option if they need to use the funds in their SRS account. Although you should consider whether you require the funds in the short-term prior to contributing to your SRS account, because making premature withdrawals can leave you paying more in withdrawal penalties and taxes than you initially intended.
There are a few specific scenarios where you can withdraw your money from the SRS account with no penalty imposed, such as withdrawal on medical grounds or terminal illness, and 50% of amount withdrawn will be subject to tax, with certain exemptions. Foreigners (non-PRs) can also withdraw in one lump sum with no penalty if they have maintained the SRS account for at least 10 years from the date of the first contribution, and 50% of the withdrawal amount will be taxable.
Read more here on taxes and penalties on SRS withdrawals.
Myth #5: Only you can contribute to your SRS
Your employer can also contribute to your SRS on your behalf, provided that you have given them written instruction or authorisation to do so. Employer's contribution to your SRS account will be considered part of your remuneration and such contributions are taxable. Based on the information provided by the SRS operator, you will then be given tax relief for such contributions in the subsequent year of assessment.
For foreigners working in Singapore, this can be a good alternative to corporate pension plans.
Myth #6: Your SRS withdrawals must be in cash
The funds in your SRS account can be withdrawn in two ways: in cash and in the form of investments which go directly to your Central Depository (CDP) account. This means that you won’t need to liquidate your SRS investments when you withdraw and incur the transactions costs. You can only withdraw your SRS in the form of investments under a few scenarios which qualify for the 50% tax concession:
- Withdrawal on or after statutory retirement age;
- Withdrawal on medical grounds;
- Withdrawal in full by a foreigner, if he is neither a Singapore citizen or PR on the date of withdrawal and 10 years preceding, and maintained his SRS account for at least 10 years from the date of the first contribution.
Premature withdrawals must be made in cash, and the investments must be liquidated before the sale proceeds are withdrawn in cash from the SRS account.