A sound financial game plan isn’t just about accumulating wealth but also ensuring it’s passed down efficiently. One way to do this is by avoiding tax pitfalls. Starting in Year of Assessment 2024, top marginal personal income tax has risen to 24%, with chargeable income exceeding S$500,000 up to S$1 million taxed at 23%, and that over S$1 million taxed at 24%.¹ Effective tax management can lead to significant tax savings, ultimately maximising your legacy pot for future generations. One ally to keep close when it comes to your tax optimisation strategy is the Supplementary Retirement Scheme (SRS). In this article, you’ll learn how to leverage this scheme to maximise your income tax reliefs.

• A quick introduction to the Supplementary Retirement Scheme (SRS)
• My PACES approach to using the SRS for tax savings
• Should you put the full S$15,300 into your SRS account?
• It pays to understand how to optimise your taxes

A quick introduction to the Supplementary Retirement Scheme (SRS)

The government introduced the SRS to encourage individuals in Singapore to save more for retirement by offering tax-saving benefits – a foresighted move, considering Singaporeans’ increasing life span.

You can invest your SRS funds in various SRS-approved instruments – from low-risk bonds and fixed deposits for stable returns to stocks, unit trusts and even insurance savings plans for potentially higher returns.

The scheme has grown in popularity over the years. According to statistics from the Ministry of Finance, there were 427,188 SRS account holders by the end of December 2023, a 10% increase over the previous year. More than half were aged between 36 and 55, hinting at the scheme’s popularity among individuals at the mid- to late-career level. Total contributions stood at S$18.43 billion, with the three most common investment portfolio components being Insurance (25%), Shares, REITs, ETFs (25%) and Others e.g. Singapore Savings Bonds, Corporate Bonds, Foreign Currency Fixed Deposits and Fund Management (21%).²

The beauty of the SRS lies in its tax incentives. Annual SRS contributions of up to S$15,300 qualify for dollar-for-dollar personal income tax relief. Let’s say you earn S$120,000 a year. Not considering other deductions and tax reliefs you qualify for, your total tax payable would normally be S$7,950. However, if you make the maximum SRS contribution of S$15,300 by 31 December that year, your income tax bill drops to S$6,190.50, a saving of S$1,759.50. While this might not seem a lot initially, maximising this nifty tax-reducing tool over 10 years could save you S$17,595, or even S$52,785 over 30 years.

If you earn more, your tax savings could be substantial, as in the example below…

While you might think the SRS is only relevant to those nearing retirement, anyone aged 18 and above can contribute (here’s how to create an SRS Account). However, before doing so, always consider if you have enough liquidity for your daily needs. This is because SRS funds are designed to be withdrawn only once you reach retirement age (the prevailing retirement age when you made your first SRS contribution) and there are penalties for early withdrawals.

My PACES approach to using the SRS for tax savings

If navigating the SRS still seems overwhelming, start with my PACES guide to using the SRS for tax savings. This framework will help trim your taxes while boosting your retirement adequacy. I’ll also share my golden rule when it comes to tapping the SRS for tax savings.

Here’s what to keep in mind about the SRS:

P – Possible to reverse contributions

A – Annual cap for personal income tax reliefs

C – Choose to invest, or not

E – Early bird wins

S – Stagger withdrawals

P – Possible to reverse contributions

You’re free to withdraw funds from your SRS account at any time, but there are costs for premature withdrawals. Withdrawals before your retirement age will incur income tax and a 5% penalty. For example, withdrawing S$100,000 at age 60 instead of waiting until your retirement age of 63 will cost you S$10,650 (S$5,650 tax and S$5,000 penalty). However, as there can be unexpected events in life, premature withdrawals due to death, bankruptcy or on medical grounds such as physical or mental incapacity or terminal illness are not penalised. Premature withdrawals up to S$400,000 due to terminal illness and death are also tax-exempt.

A – Annual cap for personal income tax reliefs

The SRS gives you dollar-for-dollar tax relief up to S$15,300, but there’s an overall annual cap of S$80,000 for personal income tax reliefs. For instance, if your total tax reliefs for the year stand at S$75,000 and you make the full SRS contribution of S$15,300, you will only qualify for S$5,000 in SRS tax relief. You will be taxed on the remaining S$10,300. Therefore, it is wise to calculate your total tax obligations before deciding how much to contribute. You might be better off investing in other investment vehicles which offer greater withdrawal flexibility.

C – Choose to invest, or not

You’ll qualify for the SRS relief even if you don’t invest your savings. Putting S$1 into the scheme is all it takes to qualify for the tax incentive. However, the main purpose of the SRS is to grow your retirement nest egg. As the SRS account earns only 0.05% interest per annum, it’s better to invest your savings for potentially better returns and greater retirement adequacy. Think potential investment gain plus compound interest over 40 years or more.

E – Early bird wins

Making your first SRS contribution earlier allows you to start penalty-free withdrawals sooner. Your penalty-free withdrawal period begins at the statutory retirement age in effect when you make your first contribution. For instance, if you had made a S$1 top-up to your SRS account in 2001 when the prevailing retirement age was 62, your penalty-free withdrawal period would start when you’re 62, even if the retirement age increases. If you have yet to contribute to your SRS account, I recommend doing it before 1 July 2026, as the retirement age will go up from 63 to 64. The example below shows how Kat would have different penalty-free SRS withdrawal start dates depending on when she makes her first SRS contribution.

S – Stagger withdrawals

If you think about it, the SRS doesn't remove your income tax obligation. You will eventually pay taxes on your SRS savings when you begin making withdrawals, which will be deemed as income and hence taxable. This brings me to my golden rule when it comes to tapping the SRS for tax savings. If you do not have other large income sources, like employment or rental, during your retirement years, you could make significant tax savings by timing your withdrawals strategically as you can make penalty-free withdrawals over 10 years and withdrawals during this time are subject to 50% tax concession.

For example, if Ted has S$400,000 in SRS funds and no other income upon retirement.

If he withdraws S$400,000 in one year,

Taxed amount = S$200,000 (50% tax concession)

Tax bill = S$21,150

If he withdraws S$200,000 annually for two years,

Taxed amount = S$100,000 (50% tax concession)

Total tax bill = S$11,300

(BEST APPROACH) If he withdraws S$40,000 annually for 10 years

Taxed amount = S$20,000

Total tax bill = S$0

Note: The actual tax payable may vary depending on whether Ted has other income sources and his eligibility for other tax reliefs. For instance, if he does not have other income sources but qualifies for more tax reliefs, he could possibly make bigger annual withdrawals without having to pay taxes. On the other hand, if he opts for the 10-year withdrawal period and his savings continue to grow over this time such that he winds up having a balance at the end of the 10-year penalty-free withdrawal period, this amount will be deemed withdrawn and fully taxed in the 11th year.

Should you put the full S$15,300 into your SRS account?

If you are wondering, “Exactly how much should I contribute to my SRS? Should I go all in?”, here are some considerations.

While the maximum annual contribution is S$15,300, you shouldn’t make a full top up without careful thought. Instead, roughly calculate your total tax payable after deductions and rebates, and if you have not exceeded the S$80,000 relief cap, contribute accordingly. For this reason, SRS top-ups are best made at the end of the year, when your tax liabilities become clearer.

It pays to understand how to optimise your taxes

Singapore’s personal income tax rates are one of the lowest in the world, and the SRS is excellent for high earners seeking to minimise personal income taxes while saving for retirement. By being tactical in your contributions and withdrawals, you can optimise your financial situation and ensure efficient wealth transfer. Remember to make your first contribution early to lock in an earlier penalty-free withdrawal start date, and to spread out your retirement withdrawals to reduce your tax burden. This way, you can maximise wealth transition across generations.

^Notes

^{1. Source: Inland Revenue Authority of Singapore, Individual Income Tax Rates, accessed on 4 February 2025.}

^{2. Source: Ministry of Finance, Cumulative SRS Statistics, accessed on 4 February 2025.}

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