Maximizing Returns On Supplementary Retirement Scheme (SRS)

Overview of the Supplementary Retirement Scheme (SRS)

The Supplementary Retirement Scheme (SRS) was launched by the Ministry of Finance, it’s a voluntary savings plan designed to complement the CPF and tackle the financial challenges of an ageing population.

CPF contributions are mandatory, but SRS is completely optional. It’s like an extra tool in your retirement savings kit, giving you the flexibility to top up your funds and take charge of your financial future.

🔥 Tax Benefits of SRS Contributions

One of the biggest perks of contributing to SRS? It helps you lower your taxable income. Every dollar you put into your SRS account qualifies for tax relief, making it a smart move for anyone looking to save on taxes while planning for retirement.

If you’re Singaporean or a PR, you can enjoy tax relief on contributions of up to $15,300 a year. Foreigners, on the other hand, can get up to $35,700 in tax relief. Want to dive deeper into how these tax benefits work? Check out our earlier article here.

With these considerable tax savings, hence we’ve been contributing to our personal SRS accounts for over a decade as well.

Screenshot of our SRS statement

🕕 Important Deadline for SRS Contributions

Bear in mind that if you’re eyeing for the sweet tax relief, don’t miss the deadline! To qualify for tax relief in the next Year of Assessment which is YA 2025, your SRS contributions must be made by 31 December 2024.

But here’s a heads-up: SRS bank operators might stop accepting contributions a little earlier, so it’s a smart move to act early. Don’t wait till the last minute—lock in your tax benefits sooner rather than later!

💡Maximizing Returns on SRS Funds

For many SRS account holders, contributing to save on taxes is as far as they go—which probably might not be the best thing to do. Growing your SRS funds is where the real game begins.

According to the Ministry of Finance’s 2023 SRS statistics, about 19% of SRS money is sitting idle in cash, earning next to nothing. Why? The base interest rate for SRS accounts is a mere 0.05% per annum—hardly enough to keep up with inflation, let alone grow your retirement savings.

So, if your SRS funds are left in cash and not working for you, it might be time to rethink your strategy. After all, why let your hard-earned money snooze when it could be hustling?

Image credit: Ministry of Finance

So, what’s the best way to make your SRS funds work harder? Invest them! The whole point of the SRS is to grow your retirement savings, and the best way to do that is by putting your money into investments that offer higher returns.

You’ve got plenty of options to choose from. You can invest in Unit Trusts, ETFs, Annuity Plans, and even Stocks. For those looking to dive into funds, most local brokerages offer over 600 funds from more than 20 Fund Houses through the SRS investment platform. And if you’re into ETFs, you can also use your SRS funds to invest in all the ETFs listed on the SGX, as long as they’re denominated in SGD.

You can make a lump sum investment into these underlying assets, and some brokers also offer the option of setting up a Regular Savings Plan (RSP) for them. However, when it comes to SRS, lump sum investments or ad-hoc investments tend to be more convenient and less of an administrative hassle.

Why? Because not every investor may wish to contribute to their SRS every year, and it’s easy to forget to pause a RSP. This could lead to insufficient funds in the account, which one might only realize when it’s too late. So, for simplicity and flexibility, lump sum investing often makes more sense in the SRS context.

The bottom line? Don’t just let your SRS sit there—put it to work and watch your retirement savings grow!

Here’s a quick glance at the top 10 Stocks and ETFs traded by SRS investors from July 2023 to June 2024.

Image Credit: SGX Group

If you’re a bit more on the risk-averse side, no worries—you don’t necessarily have to dive into the high-risk investments to make your SRS funds work for you. T-bills or fixed deposits are solid options to park your money, and honestly, they’ll still perform better than letting it sit in cash.

The best part? Any dividends, bond coupons, or proceeds from your investments will be credited directly into your SRS account, helping your retirement funds grow without you lifting a finger. So, even if you’re keeping it low-risk, your SRS can still be working smarter for you.

🧐 How to Invest SRS Funds

Ready to start investing your SRS funds? The first step is to open an SRS Investment Account with one of the approved Agent Banks. Right now, you can choose from the following banks:

DBS Bank Ltd (DBS) / POSB
Overseas-Chinese Banking Corporation Ltd (OCBC)
United Overseas Bank (UOB)

If you already have an SRS investment account but would like to change to another bank, you can obtain the “Transfer of Account Form” from the new SRS operator, who will then liaise with your existing operator to effect the transfer.

Once you’ve set up your account with any of these banks, you’re all set to start investing your SRS funds. Just remember to link your brokerage account to your SRS bank operator first.

⚠️ Here’s a heads-up: remember to choose SRS as your payment mode when making trades, and double-check that you have enough balance in your SRS account. Should you select the incorrect payment mode or that you have insufficient balance, you could be required to pay up the trade in cash or be liable for any losses should you decide to cancel off the trade because of the mistake.

Closing Thoughts

We hope this two-part article has given you a clearer understanding of how the Supplementary Retirement Scheme (SRS) works and how it can benefit you. By contributing to your SRS account, you can enjoy immediate tax savings while planning for your retirement. Beyond just saving on taxes, SRS offers a fantastic opportunity to grow your wealth through investments tailored to your financial goals.

Whether you’re new to SRS or looking to optimize your strategy, understanding how to use it effectively can make a big difference in achieving both short-term tax relief and long-term financial growth. Start exploring your options today and take that step toward a more secure and financially rewarding future!