Hacking your taxes amid high inflation with SRS
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Hacking your taxes amid high inflation with SRS

Feb 2023
Sep 2022
SRS investments - tax savings - Supplementary Retirement Scheme
  • The Supplementary Retirement Scheme (SRS) allows you to postpone how much you should pay on your tax bill, and pay less tax later in your retirement years.
  • Retirement planners should invest SRS funds as the SRS account offers a meagre 0.05% interest p.a; 24% of the $14.36 billion held in SRS accounts is in cash.
  • When you invest your SRS with Endowus, you get access to globally diversified funds on our platform at a low fee.

Nothing is certain except death and taxes, so the saying goes. But you can cut your tax bill if you know where to look. 

The Supplementary Retirement Scheme (SRS) is an attractive income tax deferment scheme in Singapore that more Singaporeans and foreigners living in Singapore should take advantage of. 

SRS is meant to motivate Singaporeans and foreigners working here to save for their retirement. There are two parts to this tax incentive. Firstly, the scheme allows you to postpone how much you should pay on your tax bill now. Secondly, it allows you to pay less tax later in your retirement years. If you manage how much you withdraw from the SRS account each month for your spending needs at retirement, you can even withdraw without paying taxes on these sums annually.

The scheme may seem complicated at first glance, but let’s break down the mechanics.

Death and taxes — and SRS

Every year, every Singaporean is allowed to set aside no more than $15,300 in an SRS account — which can be set up at one of three local banks here. When you do so, $15,300 will be deducted from your personal income before your current tax bill is calculated. 

Simply put, you have reduced the base income that you pay your taxes on now.

To break it down further, Singaporeans can make their annual SRS contributions in three main ways:

  • Automatically setting aside $1,275 a month to make the full $15,300 by 31 Dec;
  • Topping up the SRS account as and when your cash flow allows, right up to the limit;
  • Putting in a lump sum of $15,300 by 31 Dec.

Here is a simple illustration to make the point.

We take the annual income based on the median monthly income (excluding employer CPF) of $4,000 as of 2021, assume zero personal relief, and a full contribution of $15,300 for a Singaporean. 

We make calculations for another two other income brackets, loosely defined by adding $48,000 per income tier (that’s $4,000 multiplied by 12 months).

Annual take-home pay* Tax payable without SRS contribution** Tax payable after full $15,300 in SRS contribution** Tax savings (dollar value) Tax savings (%)
$48,000 $1,110 $295 $815 73.4%
$96,000 $5,190 $3,431 $1,759 33.9%
$144,000 $11,550 $9,255 $2,295 19.9%

*Excluding CPF contributions.
**Assuming zero personal relief.

Source: Endowus calculations

There are realistic constraints that may prevent you from committing to a full SRS contribution each year. With that in mind, here is a second illustration that assumes just half of the SRS contribution of $15,300, or $7,650, with the rest of the factors held constant. 

Annual take-home pay* Tax payable without SRS contribution** Tax payable after $7,650 in SRS contribution** Tax savings (dollar value) Tax savings (%)
$48,000 $1,110 $575 $535 48.2%
$96,000 $5,190 $4,310 $880 17.0%
$144,000 $11,550 $10,403 $1,147 9.9%

*Excluding CPF contributions.
**Assuming zero personal relief.

Source: Endowus calculations

Point is, these tax savings are no chump change. 

Foreigners, who pay taxes under a different tax rate scheme from non-residents in Singapore, enjoy a higher SRS contribution limit of $35,700 because they do not enjoy tax relief from CPF contributions. Here's the complete guide on SRS contributions and withdrawals for expats.

To continue enjoying this tax deferment, the money must remain locked in the SRS account until retirement age. If you take that money out, you will need to pay full taxes on the sum withdrawn, and pay an additional 5% penalty on that amount. That said, the government will void penalties for exceptional cases such as on medical grounds.  

At retirement, pay zero taxes on your SRS sum

With SRS, the taxman comes a-calling at retirement age. But here’s the other attractive perk of the scheme: the taxman claims less on the withdrawals than what it would have been if you had not set aside that money in your SRS account. 

How much less? Half of the withdrawal amount, to be precise. 

When you hit retirement age — so determined by the retirement age of the year you had put in your first dollar in your SRS account — you can start withdrawing from the account freely. 

For every $2 you withdraw, the government will only tax on $1 — and you can utilise this tax concession to its fullest advantage. Because the first $20,000 of chargeable income is not taxed in Singapore, you can effectively withdraw $40,000 ($20,000 multiplied by two) each year tax-free for your retirement spending. That works out to about $3,333 a month to spend. 

Even if you’d like to withdraw more than $40,000 annually in subsequent years, the tax concession means you’d only be charged taxes on half of the withdrawal amount, making such retirement savings highly tax efficient. 

How do you open an SRS account?

You can open an SRS account with any of the 3 agent banks DBS, OCBC, or UOB. You need to be at least 18 years old to open an SRS account, and you can only have one SRS account with any bank.

  • For existing DBS digibank clients, you can open an SRS account with DBS by clicking here.
  • For existing OCBC clients, you can open an SRS account with OCBC by clicking here.
  • For existing UOB clients, you can open an SRS account with UOB by clicking here.

After your SRS account is opened, please remember to link your SRS account number to your Endowus account. Click here to find out how to link your SRS account.

You will receive an email when your account is ready to invest using your SRS funds.

Invest your SRS savings now

While SRS is a highly tax-efficient scheme, its structure should also motivate retirement planners to invest for stronger returns. This is because the funds in your SRS account earn a meagre 0.05% interest per annum. 

Given high inflation right now, the funds may be taxed less in the future, but it is losing its purchasing power if locked up and left sitting idle in the account. An increase in long-term inflation from 1% to 3% will mean a whopping 45.8% decrease in retirement savings in real terms.

As of December 2021:

  • No. of SRS account holders: 288,793
  • Total SRS contributions: $14.36 billion

SRS investments

Source: Ministry of Finance

Data from the Ministry of Finance showed that $14.36 billion was held in 288,793 SRS accounts as of December 2021. Of this amount, 24% — or $3.45 billion — were held in cash. 

With a resident labour force of about 2.4 million people here, it is reasonable to say that many more in Singapore can look to tap on SRS.

And of those who have an SRS account, more can invest their SRS savings to boost their retirement savings, rather than having their savings and purchasing power erode in value from inflation.

Endowus remains one of the few digital wealth platforms that allows investors to invest their SRS savings seamlessly. Investors can automate your monthly SRS investments to ensure that every dollar saved in your SRS account is optimised to grow for your long-term needs. 

Because of the long-term nature of such illiquid SRS savings, automating your SRS investments now allows you to ride through the ups and downs of market volatility to enjoy the compounded gains in the decades to come.

When you invest your SRS with Endowus, you get access to funds with more than 10,000 underlying securities in our global equity portfolio on our platform, at a low fee. You can find out more about Endowus' SRS offerings here

Endowus allows investors to build their wealth for long-time needs in a simple and regular way, whether you are using cash, CPF or SRS. The earlier you start, the more you can compound your wealth for a better future and peace of mind. Let time do the work for you. To get started with Endowus, follow this link.


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