Why I Am Not Too Keen On The Supplementary Retirement Scheme

The Supplementary Retirement Scheme (SRS) seems like a cool financial phrase to utter these days. From the most recent Sunday Times which had two articles espousing the benefits of SRS to the latest blog post from esteemed personal finance blogger AK71 regarding an SRS promotion, everyone is talking about it. In fact, there’s even a blog that chronicles an SRS portfolio!

And many other Singaporeans are getting in on the act too. Especially since according to that report in the papers, there’s >80,000 people who have OPENED (which also doesn’t necessary mean putting in money) accounts with the three local banks. So it should be something beneficial for you and me too, right?

But first, what is SRS exactly?

If CPF funds are supposed to only provide for a BASIC retirement, then SRS is the additional layer for those who feel that CPF LIFE/Minimum Sum payouts are inadequate. Since these people are likely to be high income earners, the government designed a complementary scheme based on tax incentives. So voila, the SRS was born!

And basically, yours truly can benefit from the SRS since I would receive $700 worth of tax exemptions if I channeled $10,000 of cash into an SRS account before 31 Dec this year. And if I do this for the next 35 years or so, the tax savings would slowly add up. Withdrawing them over the next 10 years after I turn 62, the math indicates that it’s likely that I don’t have to pay taxes on them then.

For more detailed information, you can also refer to here.

However, like most government schemes, this isn’t a free lunch for most people. There are some downsides and they are especially significant and applicable to me.


Long period of lock-in

From now till I reach 62 years old is a good 35 years away. So subscribing to SRS today would mean that my money is locked-in for more than three decades. Since I would gladly exchange the 7% tax savings for 35 years of liquidity, the decision is a no-brainer. I would even argue that this is even worse than CPF liquidity-wise if you consider that funds above half of the Minimum Sum can be withdrawn when we turn 55.

My early semi-retirement goal

The biggest problem is that I have no intention of working full-time till 62 years old and my investments’ returns (especially dividends) are supposed to supplement my income when I semi-retire before 40.

Small benefits due to low personal tax rates for me

Just to clarify, I am not complaining about the low tax rates. It’s just that someone might argue that the SRS isn’t that illiquid and might not be that unsuitable for me even if I want to semi-retire early. After all, the monies in the SRS account are withdrawable anytime, subject to prevailing taxation and a 5% penalty. Since I save 7%, a 5% penalty would still result in a net positive.

At least for me, a 2% return is not appealing enough as compared to the additional hassle and the risk of the monies being taxed at the point of withdrawal. However, I have to admit that the cost-benefit analysis could change drastically if I ever progress to the next tax bracket.

Presence of competitive alternative

There’s little doubt that the main benefit of this SRS is the tax advantages. But if you’re keen on a similar alternative, look no further than CPF. Individuals can also enjoy additional tax relief if they use cash to top up the Minimum Sum for themselves, or their spouse, siblings, parents, parents-in-law, grandparents, grandparents-in-law (up to $14,000). Instead of leaving it in the SRS as cash (low returns) or investing in shares or financial products (higher risk), here is the option of a significant return of 4% with almost zero risk with top-ups to the Special or Retirement Account.


My take is that the SRS is catered to an especially small niche. These are the older folks who already have the full Minimum Sum figure (not eligible for top-ups or noone else to top-up to), pay significant taxes (>$60,000), and have plenty of cash lying around.

I have a strong feeling that my in-laws could be keen on this product since they fulfil the above criteria (after working for >30 years and recently sold off their previous home) so it wouldn’t be fair to say that the SRS is a white elephant even after what I have laid out above!

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    8 thoughts on “Why I Am Not Too Keen On The Supplementary Retirement Scheme

    1. VG

      Hi HWW,

      I have been a frequent reader of your blog and it has been a real eye opener.
      One thing that has been bugging me would be that if the funds in the SRS have been doubled or tripled through a timely investment during a crisis and if I were to make a withdrawal before 62, all funds are subjected to the current tax rate which implies that capital gains are taxed. Correct me if I am wrong but I couldn’t seem to find any information on it.

      1. My 15 HWW Post author

        Hi VG,

        Thanks for the kind comments.

        Regarding your question, I wouldn’t commit to an answer but I shall append what the Ministry of Finance has to say below.


        74. 50% of SRS withdrawal is taxable without distinguishing capital gains, income and contribution. Is the Government taxing capital gains with the introduction of SRS?

        SRS is a tax deferral scheme. Under a typical tax deferral scheme where a sum of money is not taxed upfront but instead taxed at a later time after netting off all subsequent capital gains and losses from investments, the individual will be no worse off than if the sum of money was taxed upfront and all subsequent capital gains were exempt from tax.

        As an illustration, consider a person who has an earned income of $10,000. Assume his marginal tax rate is 10%. He pays an income tax of $1,000 and invests the balance of $9,000. He makes a capital gain of 3% each year until he reaches the retirement age 10 years later. Assume his marginal tax rate remains at 10% at retirement. At the end of 10 years, he will have a total of $12,095.

        Total = ($10,000 * 0.9) * 1.03 * 1.03 *….(for 10 years) = $12,095

        Next, consider another person with the same earned income of $10,000 but who invests the sum under a tax deferral scheme. He does not pay income tax on $10,000 and is able to invest the full $10,000. He makes the same capital gain of 3% each year until he reaches the retirement age 10 years later. The capital gains accumulate tax-free in the account. At the end of 10 years, everything in the account is taxed at the same marginal tax rate of 10%. After paying tax, he will also have a total of $12,095.

        Total = $10,000 * 1.03 * 1.03 *….(for 10 years) * 0.9 = $12,095

        In fact, under the SRS, the individual will be better off, as only 50% of the withdrawals will be taxed. The same person above will have a total of $12,768 if he withdrawals everything in the first year of retirement.

        Total = 0.5 * ($10,000 * 1.03 * 1.03 *….(for 10 years))
        + 0.5 * ($10,000 * 1.03 * 1.03 *….(for 10 years)) * 0.9
        = $12,768

        He will have even more if he spreads his SRS withdrawals over a period of 10 years (or more if the statutory retirement age increases), which is allowed under the SRS.

        75. Why is the tax treatment of SRS withdrawals not changed even though locally-sourced investment income is now exempted from tax?

        The current tax treatment of SRS withdrawals is already attractive. Only 50% of SRS withdrawals at/after retirement age are taxed. With careful planning, a retiree who is likely to have a low marginal tax rate, may end up paying little or no tax on his SRS withdrawals.

    2. B

      Hi HWW

      You mentioned that instead of using the SRS, one should used up the additional top up of the CPF to get the maximum deductions for tax purposes. I think SRS is meant as an additional top up scheme, that is after one has used up all the possible top up scheme but still wants more.

      Why not treat SRS as a money that you can invest in and still earning returns from the market and at the same time use these money for your next generation instead of for yourself. That way, you can benefit from the tax reliefs and at the same time have planned prudent savings for your next generation.

      1. My 15 HWW Post author

        Hi B,

        True, if there is a desire to leave a bequest for your children, the SRS might be a useful tool. But I guess I should ensure that I am well taken care of financially first before thinking about my unborn children. =)

      1. My 15 HWW Post author

        Hi CW8888,

        Exactly! I do have friends that contribute a huge part of their incomes to their parents, which also makes it hard for them to save more.

        If I am financially independent of my future children, that should already be a great gift to them!

    3. JD

      The most important thing to consider about the SRS is that, should any exile be on the cards in the near future, you’d be saying bye bye not only to the planeload of crap, but to your moolah as well.

      1. My 15 HWW Post author

        Hi JD,

        I think the SRS is a good tool for someone who is nearing 62 (less than 10 years away) and belongs to a high tax bracket.