Understanding Singapore's Supplementary Retirement Scheme (SRS)
The SRS scheme is often pitched as an efficient means of minimising your tax burden. In fact, with a range of available investment vehicles offering exposure to different asset classes and the possibility of retirement-enhancing returns, it offers more than that.
Why was the SRS created?
Singapore’s Central Provident Fund (CPF) is a mandatory social security savings scheme for citizens and permanent residents, funded by contributions from employees and employers.
The CPF was created to help people fund their retirement, healthcare, housing, and education needs. However, as day-to-day costs rise and people live longer, relying solely on CPF savings may be insufficient. By 2023, almost 20% of Singapore citizens were over 65, versus around 12% a decade earlier1.
As a result, many CPF members are looking for ways to boost the returns on those savings and stretch their retirement funds further. To help them achieve this, the Singapore government introduced the Supplementary Retirement Scheme (SRS).
How does it work?
The SRS allows Singaporeans, permanent residents, and foreigners to tax-efficiently move some of their CPF contributions into investment funds. SRS accounts are managed by three domestic banks (DBS, OCBC, and UOB), and investments can be made through several brokers and asset managers, but individuals may only hold one SRS account at a time.
The annual contribution limits are:
Singaporeans/permanent residents – S$15,300
Foreigners – S$35,700
The SRS is growing in popularity. By the end of 2023, there were about 427,000 account holders, compared with 289,000 in 2021.
To encourage people to actively deploy their SRS capital, the interest rate on uninvested funds is unattractive, at 0.05%. In other words, if you transfer the maximum S$15,300 into the SRS and don’t invest it, the money will earn S$7.65 interest in a year, compared with S$624.24 in the main CPF account or potentially higher returns from SRS-approved investments.
Yet, according to reports, approximately 20% of SRS funds remain in cash2. This means that about S$3.5 billion in savings is not just missing out on valuable interest or investment returns but is simultaneously eroded by inflation.
What are the tax benefits of SRS?
- For Singaporeans and permanent residents, all SRS contributions are eligible for dollar-to-dollar tax relief (total tax relief is capped at SGD80,000 from all sources).
- Investment returns are tax-free while the funds are held in the SRS account.
- After you reach the statutory retirement age, 50% of withdrawals are subject to tax. Your retirement age is fixed at the time of your first contribution. For example, Singapore will raise the retirement age to 64 from 1 July 2026, but if you make your first SRS contribution before that date, you will be eligible for penalty-free withdrawals from the age of 63.
- You are free to withdraw before retirement age, but they will be subject to a 5% penalty, and 100% of the sum will be taxed (unless there are exceptional circumstances, such as on medical grounds).
What are the SRS investment options?
SRS funds can be invested in various assets, including exchange-traded funds (ETFs), individual stocks, corporate and government bonds, Real Estate Investment Trusts (REITs), fixed deposits, insurance products, and unit trusts.
About 25% of SRS funds are held in ETFs, stocks, and REITs. Among all the available investment vehicles, ETFs are among the most approachable options because they offer several benefits:
Diversification – ETFs are a simple means of allocating your capital across different sectors, which can spread risk, reduce volatility, and improve stability.
Professional management – Making investment decisions can be challenging for anyone lacking financial market experience. ETFs are professionally managed and covered by a strict regulatory framework.
Income – Many ETFs are focused on generating a steady stream of income – either through fixed-income portfolios or dividend-paying stocks – offering a relatively low-risk way to boost the value of retirement savings.
Accessibility – ETFs cover a range of asset classes, sectors and geographies, so it’s possible to find a mix of investments to suit desired levels of risk and return, all through a single investment.
Transparency – ETFs are easy to track. Under the law, fund constituents, managers, and past performance data must be publicly available, and prices must be published in real time.
What State Street Global Advisors ETFs are available under the SRS?
In 2023, State Street Global Advisors managed three of the top 10 most traded ETFs by SRS investors3:
1st: SPDR® Straits Times Index ETF – Singapore’s first locally created ETF designed to track the national stock index and offer investors diversified exposure to the country’s long-term growth.
3rd: SPDR® S&P500® ETF Trust – This ETF gives investors cost-efficient, highly liquid exposure to the S&P 500® Index – providing access to 500 of the largest publicly-traded US firms, spanning all major sectors.
5th: SPDR® Gold Shares – A transparent, liquid, and secure way for investors to participate in the gold bullion market without the complications of physical metal ownership.
In addition, the SPDR® Dow Jones® Industrial Average℠ ETF Trust is also available for investment via the SRS.