Started in 2001, the Supplementary Retirement Scheme (SRS) is a voluntary initiative that forms part of Singapore’s multi-pronged strategy to help citizens, permanent residents (PRs) and foreigners start building up their retirement nest egg.
As an incentive to contribute to our SRS accounts, we receive dollar-for-dollar tax relief of up to $15,300 for citizens and PRs and up to $35,700 for foreigners. Note that we have a personal income tax relief cap of $80,000 each year – inclusive of the tax relief we get for SRS top-ups.
To start contributing to our SRS account, we need to first open an SRS account with either DBS, OCBC or UOB, which are the three SRS operators in Singapore. We are not tied down to these operators after opening our SRS accounts though. We can choose to invest in all available SRS investments with other financial institutions.
We can only start making penalty-free withdrawals from our SRS account once we hit the statutory retirement age of 63. The statutory retirement age has been planned to continue increasing to 65 by about 2030, so this will affect us depending on when we open our SRS account. For those who already have an SRS account, we will be able to withdraw from the prevailing statutory retirement age when we first opened our SRS account. This is why it makes sense to open an SRS account now to “lock in” the current statutory retirement age for withdrawals.
Subsequently, upon making our first withdrawal, we will have a 10-year window to withdraw our entire SRS funds. We need to understand that the SRS acts like a deferred tax system. We receive a dollar-for-dollar tax relief when we make top-ups, we will be taxed on 50% of our SRS withdrawals in the future. For example, if we withdraw $40,000 from our SRS account during the year, we will only have to pay taxes on $20,000 (50% of our $40,000 withdrawal from SRS). If this is our only income at that point, we would not have to pay any income tax.
We also have to note that there will be a 5% penalty as well as 100% taxation on withdrawals for those who take out funds before the statutory retirement age (currently 63 as of 1 July 2022).
Importance Of Investing Your SRS Contributions
Funds that we contribute to our SRS account earn a nominal bank interest rates. This means that if we want to meaningfully grow our retirement nest egg, we need to invest our SRS funds to earn better returns.
This is quite different from contributing to our CPF Special Account (SA), where funds earn a minimum interest rate of 4.0% p.a., and when interest rates rise, can go up (e.g. the CPF SA account is paying 4.04% currently). However, we cannot invest top-up monies in our CPF SA.
In reality, more than 20% of all SRS funds, or over $3.4 billion, is still sitting idle in cash as of December 2022. With that in mind, here are 10 investments we can all make with our SRS accounts today to grow our retirement portfolio.
We can invest our SRS funds in stocks listed on the Singapore Exchange (SGX). Remember, we don’t have to invest via the banks that we open our SRS accounts with, and can continue using our existing brokers in most instances.
This is especially handy for investors who are already funnelling a chunk of our savings into locally-listed stocks. This way, we can just continue making investments normally, while being able to save on our taxes in return. Even for those who are not already investing in stocks, we can easily get started by investing in strong blue-chip Singapore companies, including DBS, OCBC, UOB, SingTel and more.
Similar to investing in stocks, we can invest in real estate investment trusts (REITs) that are listed in Singapore. Again, since REITs are bought and sold like stocks, we can continue to use our existing brokerage firms to make such investments.
There are about 40 REITs listed on the SGX, and they tend to pay out higher distributions. When investing our SRS funds in REITs, we need to note that any distributions from the REITs will be channelled back into our SRS accounts rather than come to us in liquid cash. On the plus side, we can continue to invest these distributions.
Short for Exchange Traded Funds, ETFs typically replicate the composition of a broad index tracking regional or country indexes, stocks in a particular sector, REITs, bonds, commodities and other financial instruments.
In Singapore, there are two ETFs tracking the country’s Straits Times Index (STI) – the SPDR STI ETF and the Nikko AM Singapore STI ETF. There are also bond ETFs, the ABF Singapore Bond Fund comprises bonds issued by the Singapore government and Singapore government-linked entities, while the Nikko AM SGD Investment Grade Corporate Bond ETF comprises corporate bonds issued by investment-grade issuers. There are many other ETFs also listed on the SGX, with three REIT ETFs, the SPDR Gold Shares and many others.
Several retail bonds are also listed on the SGX, and we can invest our SRS funds in these bonds. These include Temasek’s T2023 S$ bonds and Temasek-linked Astrea IV, V, VI and 7A and 7B private equity bonds, as well as other retail bonds that have been listed on SGX.
We can use local brokerages, such as Phillip Securities (POEMS) to invest our SRS top-up funds in both stocks and REITs, as well as other listed securities such as ETFs and retail bonds.
#5 Singapore Savings Bonds (SSB)
While Singapore Savings Bonds were introduced in late 2015, we could only start investing our SRS funds in them from December 2018. At the same time, MAS also announced that individuals could invest in double the amount of SSBs to $200,000 (from $100,000 previously). This is a great way for extremely risk-averse investors to earn a return on our SRSS contributions as we do not take on much risk when investing in SSBs.
#6 Regular Shares Savings (RSS)
A regular shares savings (RSS) plan allows us to start investing in stocks, bonds, ETFs and REITs listed on the SGX from as little as $100 a month. It is an ideal way for investors with limited knowledge and interest in monitoring their portfolios to start their investment journey.
In Singapore, there are four brokerages currently offering RSS plans – OCBC Blue Chip Investment Plan; POSB/DBS Invest-Saver; Phillip Share Builders Plan; and FSMOne ETF Regular Savings Plan. Each has its own specifications of which types of shares we can invest in and brokerage charges we have to pay.
As more investment tools become available to us, we can also start incorporating them into our portfolio. Majority of robo-advisory firms aim to utilise complex algorithms to offer retail investors access to professional portfolio management services. We can also tap on robo-advisory platforms to park our SRS top-ups into less risky cash management accounts – which enables us to earn better interest than just letting it sit idle.
The following robo-advisors allow us to invest our SRS funds with them:
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Through Endowus, we can invest our SRS savings in its SRS core advised portfolios that are personalised to meet our long-term financial goals. We can also choose from a wide range of best-in-class single funds that are time-tested and globally diversified.
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#8 Unit Trusts/Mutual Funds
We can also invest in unit trust and mutual funds with our SRS funds. Remember, this extends to unit trusts outside of the three SRS administrators – which means we are not limited to investing in unit trusts that are sold by them.
Platforms such as FSMOne and Singlife with Aviva’s Navigator, dollarDEX allows you to invest in diverse unit trusts investments with your SRS funds. These platforms also enable us to choose the regions, sectors and even fund managers we are comfortable investing our funds.
#9 Insurance Products/Annuities
We can also put our SRS funds towards insurance products and annuities. On this point, we have to note that there are restrictions on Life Insurance products that we can buy. Typically, we can invest in only single-premium products, including recurrent single-premium products. We also aren’t allowed to purchase critical illness, health and long-term care products with our SRS funds.
We need to check with our agents and/or insurers if we want to invest with our SRS funds.
#10 Fixed Deposits
If we are extremely risk-averse and unsure of what to do with our funds, we can invest in fixed deposits rather than let it sit idly in cash. This way, we’re pretty much exposed to the same extremely low level of risk but receiving a significantly improved interest rate return on our SRS funds. As interest rates are the highest its been in nearly 20 years, we may be able to find increasingly more attractive interest rates on Fixed Deposits.
The SRS Is A Powerful Tool To Save On Taxes And Encourage Us To Build Our Retirement Nest Egg
The Supplementary Retirement Scheme gives us the dual benefit of saving on taxes today as well as encouraging us to invest for our retirement.
Many people may procrastinate retirement planning today as we don’t see an immediate benefit. The SRS helps resolve some of these issues by giving us a tangible benefit, of paying lower taxes in the following year of assessment immediately.
We will also be more in-tuned to investing our SRS funds to grow it for our retirement. The 10 investments listed above are not an exhaustive list, however, they provide a good start to get us on our way to making investments with our SRS funds.
This article was first published on 26 December 2018 and was updated to include additional information.
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