The Supplementary Retirement Scheme (sRS financials) is a national scheme, like CPF, that aims to help Singaporeans save for their retirement. However, unlike CPF, SRS completely voluntary and its main draw is letting you enjoy tax benefits on your contributions.

To participate, all you have to do is open an account and make a contribution. But before you rush off to open an SRS account, first find out if this is suitable for you. Because of the way SRS is structured and the specific tax benefits it provides, you will only realise the full benefits of the scheme if you are an active investor looking to reduce your taxable income. It’s especially useful if your chargeable income is just a little over $40,000 a year.

These specific requirements also mean that SRS might not be for everyone. Find out if it is the right scheme for you as we explain all you need to know about SRS in Singapore. What is an SRS account? What are its benefits and disadvantages? How does SRS compare to CPF, and what role does it play in your retirement planning? Read on as we answer these questions and more.

What is the Supplementary Retirement Scheme (SRS)?

SRS is a voluntary savings scheme in Singapore that was introduced to encourage Singaporeans save more for retirement. It complements CPF and is another tool by the Singapore government to help residents prepare for old age.

Participating in the scheme entails opening an SRS account in Singapore, which is essentially a holding place for your retirement savings that helps you save more in the long run. There is no fixed contribution rate and you can contribute as much, or as little, as you like to your SRS account. Each SRS contribution you make lets you enjoy tax relief benefits for the following year, though subject to a limit.

Unlike a normal savings account, the SRS account is designed to help you grow your retirement funds through investment. You can invest your SRS funds into a variety of instruments that include stocks, bonds and endowment plans.

In addition, any gains you earn on your investments are tax-free before withdrawal, and only 50% of your withdrawals from SRS are taxable at retirement.

The benefit of participating in SRS is undoubtedly the tax breaks it offers, while providing you with the opportunity to grow your retirement funds at the same time.

Any Singaporean, PR or foreigner can open an SRS account as long as they are earning an income and are:

From tax reliefs on your SRS contributions to tax-free returns on your investments, the tax breaks that SRS offers allow you to save more while your SRS funds can be funneled into investments for greater gains.

SRS is primarily known as a tax-relief tool. Every dollar you contribute to your SRS account is eligible for tax reliefs, though this is subject to a cap of $15,300 per year for Singaporeans and PRs, and $35,700 for foreigners.

This personal income tax relief feature is particularly relevant if you are looking to reduce your chargeable income. How much you have to pay in taxes each year depends on your income bracket, as detailed in the table below.

From the resident tax rates listed above, you'll find that if you are earning more than $40,000 annually, your income tax increase exponentially as compared to the previous income bracket. This is where SRS might come in handy.

Imagine you have an annual income of $60,000. Without any tax reliefs, you income tax would come up to $1,950. Here's how it's calculated.

Meanwhile, if you’ve deposited the maximum amount of $15,300 into your SRS account, your taxable income is reduced to $44,700 and how much you'll have to pay in taxes falls drastically.

By participating in SRS, you can reduce your income tax from $1,950 to $879. That's more than $1,000 saved on taxes!

Boost your retirement fund

The benefits of contributing to your SRS account are clear, but it doesn’t end there. Did you know that you can also benefit from using your SRS funds? You are allowed – and in fact, encouraged – to use your SRS funds for investments.

Depending on your preference and risk tolerance, you can invest your SRS funds in a wide variety of options. This includes high yield, high risk options like stocks and unit trusts, and safer options like Singapore Savings Bond (SSB) and single premium insurance saving plans.

On top of that, the returns earned from your SRS investments will not be taxed until you withdraw them. To make the most of your SRS savings, invest them and re-invest the returns. Leverage on compound interest to grow your retirement pot. And if you have no urgent need for the funds, leave it in your SRS account until you’ve reached the retirement age. At that point, only 50% of the withdrawals are taxable.

Despite its tax-saving benefits, SRS does comes with some limitations. This includes a low base interest rate and restrictions such as withdrawal penalties.

Unlike the attractive rates in your CPF accounts or high interest deposit accounts, the SRS account interest rate is a less-than-ideal 0.05% per annum. For this reason, you’re better off investing your SRS funds instead of letting them sit there idly as their value gets eroded due to inflation.

To earn more from the cash in your SRS account, you are strongly encouraged to use them for investments. For inst