What’s not good about Supplementary Retirement Scheme (SRS)


At first glance, the Supplementary Retirement Scheme (SRS) appears to be a very good deal. But after a simple analysis, we will know why it is not the case.

As illustrated in today’s Sunday Times (see similar example in Finatiq), a contribution of $11,475 to your SRS account brings about a tax saving of $1,096. This is a yield of 9.6%. To the uninitiated, the yield looks impressive, and it may seem worthwhile to have the $11,475 locked up in SRS.

However, take note that the “yield” is one-time. And that you will not be able to withdraw from your SRS account until you hit retirement, which is about 30 years away for most people. (Premature withdrawals are allowed, but there’s a penalty of 5%.)

We calculated: if you instead invest the $11,475 and achieve a mere 0.31% return per year, you will make slightly more than what you would have got from the SRS tax saving. (Yes, no typos – it’s zero point three one percent).

So, unless you are extremely bad in investing, or you’re a compulsive spendthrift who needs to force himself to set aside some savings, or you simply have too much money, you can go with the SRS.

Ok, some of you may ask: can’t we use the SRS money to buy things that we are buying anway? Things like insurance come to mind.

But it seems the SRS is not designed to encourage this, as according to the MOF SRS Faq: (1) only single premium insurance products are allowed, (2) total life and TPD cover is capped at 3 times the single premium (how useful it that?), and (3) critical illness, health and long-term care are excluded (my goodness!).

Furthermore, direct property investments are also not allowed, rendering the SRS completely useless for people who aren’t interested in buying investment products from the SRS-linked financial institutions.

So again, if you already plan on buying things like unit trusts from the “pretty girl” or “pretty boy” in your bank (see wrong and right way to invest), you can consider putting money in SRS, enjoy some tax saving, and make that pretty girl happy for closing a sale (and getting a commission from it).

Otherwise, forget SRS.


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  1. I think the only real drawback is the tax if one withdraw prematurely.

    If one is 99% confidence that the fund will not be touched till retirement, its really a good scheme.

    I might consider using the money to invest in index fund via SRS.

  2. note that whatever capital gains you got from investing your SRS funds will be taxed at withdrawal, whether the gains are from stocks or unit funds.

    my personal view is that if you are very sure you’ll retire with no income, then SRS may be good.

    but if you foresee you will continue to work and possibly earn a higher income than now, then it’s harder to weigh the options.

    given the possibility of tweaks to the SRS scheme (may or may not be good) and increases in income tax rates (your withdrawal from SRS will be taxed at 50% of the prevailing rate at time of withdrawal), i personally think it’s better to forego the tax savings.

    i always think that a bird in hand is worth two in the bush. too hard to see 20-30 years from now.

  3. There is one other use for the SRS actually. If you are in one of the higher tax bracket, say 17% or 20%, it makes sense to put money into the SRS. At 20%, the $11,475 limit is worth $2,295 of tax reductions.

    If you happen to get retrenched or if you decide to take a year off work and go be a student, you can withdraw the full $11,475 in that year. Assuming you have no income (other than interest and dividends) in that year, the $11,475 you withdraw will not attract any income tax (because the first 20k of your income is tax-free) and you only pay the 5% penalty, and still save 15%/12% worth of tax!

  4. good point, student.

    i read through the SRS FAQs and discovered that it benefits foreigners more than residents. first, foreigners can put in more per year, double that of residents. second, and more importantly, they can withdraw the Full Amount Penalty-Free after just 10 years!

  5. I don’t understand why the govt keeps asking Singaporeans to part with their money. But Singaporeans ain’t stupid, judging from the poor take up rate of the SRS scheme. We already have enough of our money that we can’t touch! It’s called CPF.

  6. Its easy to understand.

    Most people do not save for retirement based on their statistics received. The reason you visit this site regularly is because you belongs to the minority who save diligently and are financial conscious.

  7. i agree with the above comment that it’s better to keep the money to yourself.

    i can’t see the difference between SRS and voluntary CPF contributions. both give you tax reliefs and both allow you to invest in stocks. while there is the CPF minimum sum beast to deal with, it won’t be a problem if you are in the higher income bracket, which the SRS is obviously targeting.

    i also agree with the comment that SRS benefits foreigners more. example: a foreigner working here can put into SRS more than 200k over 10 years, quit his job and leave singapore, and a year later withdraw the entire 200k but taxed at 100k (cos he has no other income in singapore then).

    singaporeans can’t do that.

  8. I started my own SRS account this year – still a newbie, but with some first-hand experience in how it works.

    Firstly, I don’t think the 0.3% explanation above is right. Presumably you would not leave your SRS money all in cash – the point of it is to invest it, in FDs, stocks, bonds, unit trusts etc. If we assume the one-time return from SRS is 9.6%, it means you need to get an ADDITIONAL 0.3% annual return on the money you invest after taxes just to match your performance if you had contributed it to SRS and invested it from there. That probably means you need to take more risk in your portfolio.

    Imagine there’s a unit trust you want to invest in, but there’s a (very high) 9.6% initial sales fee i.e. for every 10k you put in, $960 goes to the salespeople, and only the rest is invested. In the same way, this unit trust needs to perform 0.3% better every year just to match a similar unit trust that doesn’t charge the fee. Well, using after-tax money to invest is exactly the same, except the “sales fee” is called income tax.

    SRS contributions work best when (1) you are in a high tax bracket, and (2) you are 99.9% sure you will not need this money anytime sooner than retirement – not for a house, car, business, wedding or whatever. The big disadvantage is of course illiquidity, but if you are committed to investing for the long term, not for entertainment and kicks, then this may not be such a big problem.

    Oh yes, there are actually some additional costs that banks and brokerages impose on SRS accounts, like custody fees. Therefore it’s probably not worth contributing, say, less than 5k a year.

    Capital gains: actually, the MOF’s FAQ (the SRS Booklet) here has a question that addresses that, number 75. It works out to be the same.

    Difference between SRS and voluntary CPF contributions: if I am not wrong, you cannot invest money from voluntary contributions – it is meant to top up your own or someone else’s minimum sum. That’s where it is less flexible.

    Btw, MOF’s page on SRS also has an informative statistics sheet. SRS is definitely a minority’s minority thing: only 46,000-plus accounts as of Dec 2008. The breakdown is 85% S’poreans, 12% PRs, 3% foreigners.

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  10. “there are actually some additional costs that banks and brokerages impose on SRS accounts, like custody fee”

    the above alone already put me off.

    the 0.3% explanation is still valid – suppose that I self-invest the money instead of investing via SRS (which incur custodial fees and even management fees if you invest with funds), as long as I make a net of 0.3%, I will gain back the “loss” in the tax savings. and i have full liquidity and full control.

    i have a strong feeling that the custodial fee alone is already more than 0.3%.

  11. The following are taken from the DBS schedule of charges for SRS:

    (1) $2 per share/loan stocks/unit trust counter PER QUARTER for the MAINTENANCE of the account and for services rendered, e.g. handling of dividends, interest and bonus payments and other entitlements.

    (2) $2.50 per 1000 shares/loan stocks/units or part thereof subject to a maximum of $25 per transaction, for every purchase, sale, application for rights, application for excess rights.

    plus a host of other charges… (they never explicitly tell you so!)

    While (2) is ok, (1) is RECURRING and is what I call “custodial fee”. It’s definitely more than 0.3%.

    Buyer beware. You have been warned.

    See DBS SRS Schedule of Charges (PDF) for more info, or click the link on the POSB SRS page.

  12. Further, they always say things like this: “DBS Bank reserves the right to revise the above rates from time to time”.

    And they have lots of opportunity to increase the charges until you retire or give up. 🙂

  13. i prefer to manage my own retirement funds rather than go through hoops only to let others manage for me for a fee.

    worse, sometimes they make me lose money and still charge me for it!

    whether it’s ETFs or stocks, i’ll do it myself and save the heartache.

  14. I’m with OCBC and haven’t paid a single custodial/maintenance/etc fee ever since I opened the account.
    I think UOB also has no charges.
    Please correct me if I’m wrong.

  15. If they don’t charge a cent, why would they want to print all the pamphlets and why would the sales staff spend time on SRS? National service? 🙂

    I don’t know about OCBC, but for UOB they’re “waiving” all SRS fees until the end of this year, without forewarning about how high the fees can go. See UOB SRS page.

    My guess is that this will entice people to sign up during this period, and once hooked it’s up to the bank to up the fees to “maintain” your accounts. 🙂

  16. Kevin:

    Yes it is, but the main discussion here is whether there is a net benefit for doing so, given that banks may charge a recurring fee for managing your SRS account, the unforeseeable tax structure when you retire, and of course the illiquidity of your SRS funds.

    This is not forgetting that you already have CPF monies that are pretty illiquid and the government has a tendency to push back the official retirement age and do lots of policy tweakings that may or may not be beneficial net net.

    Some people here think it’s better to keep the money to themselves. I’m one of them. I would rather manage and invest the money myself, and I have full control.

  17. Fees:

    I suspect if your chargeable income is above 80,000, there should be some meat in the benefits because the personal income tax rate makes the biggest jump from 8.5% to 14.5% beyond 80,000.

    In this second example, http://www.finatiq.com/helpcentre/Hcr_Basics_SRS.shtm , it shows a $1000 savings. The future tax structure is a moderate risk if you are very far from retirement.

    On the other hand, if you have less than 10 years from retirement, the tax structure changes should be far less risky, and you may be able to knock $1000 or so each year off your income tax. I also think the banking costs are negligible if you are putting into an ETF and not trading actively.

    But I do not understand the logic of the scheme at all. Obviously they will attract people who are going to trade very little, close to retirement and have high income, but the savings to be made is only about $10000 (let say $1000 for 10 years) which also have to be partially taxed. All that hassle and lock down for just $10K isn’t worth a lot for those who earn 100k. Maybe that’s one way to save up a paid trip to say China after retirement.

  18. Kevin: I too don’t understand the logic behind the SRS scheme. 🙂

    Btw, the income tax rate here doesn’t “jump”. On the contrary, it’s a progressive rate system. Higher earners pay higher tax rates, but “progressively”. I searched a bit and found this graph best illustrates what I’m trying to say.

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  21. i, for one, is happy with SRS
    it is cheaper to invest with SRS than CPFIS
    and i have full control

    my only grouse is DBS only provides monthly statement (too long)

  22. Thanks for the comment. If you take into account the time value of money, you’ll see that the yield is actually much lower than 9.6%.

    See my calculations posted as a comment at:

    My calculations there are based on the maximum tax saving of $2,295 for a high income earner.

    Here’s an edited copy of that comment:

    Let’s assume the time horizon is 20 years; and that the yearly tax saving of $2,295 is invested and compounded at 5%. At the end of 20 years, you will have $75,886 from the investments.

    Let’s assume the SRS account earns you 2.5% return a year. In 20 years, your SRS will have $293,125. (Since the SRS money has certain restrictions, e.g. investing in property is not allowed, I think it’s reasonable to assume a lower return for SRS money.)

    At end of 20 years, tax savings + SRS = $369,011.

    It’s a sizable amount, but you would have achieved a slightly better outcome had you invested the yearly streams of $11,475 and achieved just a 4.73% per year over the same 20 years.

  23. to author:
    I’ve actually been contributing to SRS for a few years now, but seriously reconsidering as I run the real risk of exceeding the $440k limit by the time I reach 62.

    A couple of points you might want to consider as well:

    Look at the issue of how much tax one is saving – at the 14% bracket, the saving is $1606, which translates into no more than 1.76% of your _taxable_ income (as your taxable income will be at least $91,475). At the 8.5% and 20% brackets, the savings are no more than 1.89% and 0.69% respectively.

    So by annually putting aside $11475 + an additional 2% of one’s taxable income (but this 2% must be realised thru cutting on expenses, not other savings)into a long-term invest plan, one can replicate the “benefit” of SRS.

    Secondly, trying to invest SRS funds into stocks means one is restricted to either locally offered unit trusts, ETFs or whatever’s listed locally. For an investor wanting to create a globally diversified SRS portfolio will have to contend with unit trusts and ETFs which have high sales/brokerage charges and annual fees in comparison with whats available say in US/UK markets. So expect the CAGR of your SRS porfolio to lag 50-100bps behind a similarly diversified non-SRS porfolio.

  24. RT RL:
    “is there a $440k limit for SRS?”

    Under the current tax brackets, you wont have to pay any income tax if you spread your SRS withdrawals over 10 years @ $40k per year, and have $40k at the end of the period(which will be taxed at that time)

  25. You got quoted in today’s Sunday Times in an article by Goh Eng Yeow, who said “while not disputing the merits of the points (you and others) raised”, he can only use his own experience as an SRS account holder to point out some of the benefits.

  26. Data Says:
    November 16th, 2009 at 10:36 pm
    “Capital gains: actually, the MOF’s FAQ (the SRS Booklet) here has a question that addresses that, number 75. It works out to be the same.”

    The simplified example shows that after 10yrs, the sum is 12,905, both for nonSRS and SRS.

    From tax perspective,
    at Year0, nonSRS investor pays tax $1000 (@10%)
    at Year10, SRS investor pays tax $1,344.
    => For SRS investor, you are actually withholding the tax and investing (working) for IRAS, which IRAS will take back many years in future.

    Of course, the better investor will be more beneficial to IRAS.

    Still, taxing on only 50% of withdrawal may be a big incentive for investor to do SRS.

    Either way, if you have spare cash, put it in SRS.
    Use SRS to buy local shares
    Use cash to invest in other instruments.

  27. May I ask how we can reduce personal tax if the SRS is not a good approach? I’m single and earn between 96K and 111K depending on bonus for the year. No children but have parent relief. I’m part of the sandwich class, can’t qualify for HDB but can’t afford condominum either, and appreciate any advice on what I can do to reduce personal tax. It’s very painful when more than half the bonus you work so hard for goes into income tax. Looking forward to a reply.

  28. The IRAS website lists all the possible legal ways of reducing PIT:

    Singles have limited options to reduce their PIT, but you could consider topping up your/your parents’ CPF accts?
    Dont quite understand your comment on the taxation of your bonus – at your tax bracket (80k-160k), the marginal tax is only 14%

  29. thanks for the reply serendib.

    yes, read that iras webpage before.

    to clarify, does topping up family members cpf qualify for tax rebate? but what if they have emptied out their cpf?

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  31. Does anyone know if the government is considering any changes and updates to SRS?

    I think the principle and intention of SRS is great, but more should be done to really make it simpler and straightforward. Some points of my wishlist include:

    1) scrapping the tax on 50% of withdrawals and make it completely tax free for 100% of withdrawals at retirement age.
    2) widening the umbrella of investment/insurance products allowed
    3) make it the same for Singaporeans/PRs/Foreigners (complete equality and fairness)

    I’d like to see the MOF review the SRS scheme and rejuvenate some life into it. There needs to be more discussion on how we can encourage better retirement planning in singapore.

    Also – can someone clarify, do Spore PR’s benefit exactly the same as Singaporeans? I remember reading something about 20% tax for Singapore PRs (or is that only for non resident tax payers? regardless of PR and Sporean?)

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  33. People who agree with the author, like fees, completely miss the point. Let’s say A and B bought the exact SAME lousy shares that only earn them 0.3% a return. A uses SRS and upon retirement he enjoys the tax savings and the returns. B does not use SRS and upon retirement all his earnings are lost to the taxes he paid.

  34. Tan Soon Quang on

    Disadvantage/disincentive: One thing that negates the benefits of SRS is when you start making withdrawals your children cannot claim parent reliefs anymore. THE MOF should ease this restriction.

  35. Useful analysis , I learned a lot from the analysis ! Does anyone know where my company might locate a fillable IRS 8917 version to fill in ?

  36. Hello LAIKA VILLA , my colleague accessed a sample IRS 8917 document at this site “http://goo.gl/oj25pF”.

  37. Hi

    Assuming the balance in the SRS account is $500,000 on our retirement age.
    We choose to withdraw $40,000 per year for 9 years. And in the last year, we buy an annuity using the balance which pays out less than $40,000 per year.
    We would continue to enjoy zero tax expense assuming we do not have other taxable income. Possible?


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