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Should I: Use SRS for tax relief?

by Apoorv Trivedi on
Should I Featured Image

The Bottom Line

The SRS is a government scheme where you get tax relief on long-term savings for retirement. We recommend investing under this scheme if you have funds available for long term investments as the tax savings are worth the loss of liquidity and investment flexibility.

If you have to choose, we would ordinarily recommend taking tax relief via SRS rather than CPF-SA due to more flexibility in withdrawal and investment over the long term. Read more here.

You should invest your SRS funds in low cost, globally diversified portfolios with Endowus. While SRS has more flexibility in investment than CPF-OA, we think Endowus is still the best option available for investing SRS funds.

Our pick
The best platform to invest SRS Funds

On Endowus, you can easily invest all your money, including eligible CPF & SRS funds, in low-cost, globally diversified passive portfolios that are appropriate for your risk appetite.

What is the Supplementary Retirement Scheme (SRS)?

The SRS is a voluntary saving program with tax incentives, offered in Singapore. It works as follows:

  • Singapore Citizens & PRs can deposit up to S$15,300 in their SRS accounts every year. The limit for foreigners is S$35,700
  • These deposits enjoy tax relief i.e. the amount deposited in SRS accounts is reduced from your income for the year for tax calculations
  • You can invest these funds in eligible instruments – mostly in Singapore; more on this here.
  • All your deposits in SRS must stay invested in the scheme through the statutory retirement age (62 till Jun 2022 and increasing to 65 by 2030) for Citizens & PRs and for a period of 10 years from the first deposit for Foreigners
  • Citizens & PRs may withdraw the funds after this period, either in lump sum, or over a period of 10 years from the first withdrawal
  • Foreigners must withdraw the whole amount as a lump sum
  • Half of any withdrawal made after this period is treated as Income in the year of withdrawal and taxed at a rate applicable to you in the year of withdrawal
  • You can also withdraw the funds earlier, but then you must pay tax on the entire amount and also pay a 5% penalty
  • Early withdrawal without penalty is permitted for specified medical reasons or due to bankruptcy

Should I use the SRS for tax relief?

It makes sense to use the SRS for tax relief if you have funds available for long term investments and your personal income tax relief is below the cap of S$80,000.

This means you should at least have sufficient funds to meet your regular expenses for 6-12 months and visibility of sufficient income to meet any upcoming major expenses like a down payment on property or a wedding.

In other words if you need to save up to buy a house / get married / get a degree, it doesn’t make sense to lock up that money in the SRS account through retirement (62+) or to pay the penalty for early withdrawal. You should pay tax on it and invest it.

The S$80K cap on personal income tax is unlikely to be a concern for most people (this is not tax advice) as most tax relief items are small relative to the cap.

High earning working mothers, who may be able to claim relief for one or more children and some individuals eligible under special tax schemes are likely among the few categories who could be impacted by this cap (also not tax advice).

Once these conditions are met, the trade-off you are making is to give up some flexibility in investing / using the money in return for the tax relief.

This is because while the MoF suggests that there are very few restrictions on investing SRS funds apart from property, in practice, direct investments in overseas instruments incl. single stocks and ETFs are not available. It is possible to invest in overseas markets via Unit Trusts and some Robo-advisors.

However chances are if you meet all the requirements for investing in SRS above, your tax rate is at least 7%, likely more. In our opinion saving that much on tax is worth sacrificing some flexibility, especially since you can still invest in a globally diversified, low cost portfolios.

I only have S$X,000 to claim tax relief on. Should I invest in CPF-SA or SRS?

Citizens & PRs also have the option of claiming tax relief by depositing up to S$14,000 a year in CPF. Of this up to S$7,000 can be deposited in your own account and up to S$7,000 can be deposited in family members’ account. The family members can include your parents, children and spouse.

This amount is deposited in the CPF-SA account and can earn the guaranteed 4% interest for most people.

If you are in the happy position of being able to claim relief on both CPF-SA and SRS schemes, go for it. But if you need to choose between the two options for tax relief, which is the better option – CPF-SA or SRS?

In our opinion, the SRS is the better option for most people to claim tax relief.

This is because unlike the CPF-SA, with SRS you have the option of withdrawing early, should you have an emergency. Yes, you will need to pay full tax on the withdrawal amount and a 5% penalty but at least you have the option.

You could also make better investment returns on the SRS portfolio.

The guaranteed 4% interest on the CPF-SA is nothing to sneeze at. As we discussed in our piece on investing the CPF funds, a fairly risk averse person should be indifferent between this and the expected return over long term of 5.5%-6.0% on the traditional 60|40 diversified portfolio.

However, if you are young or have a slightly higher risk appetite, you could invest the SRS funds more aggressively, with a higher expected return. The CPF-SA has much fewer investment options and in our opinion none of those is better than taking the risk-free 4%.

Estimated Performance of Cash, SRS and CPF-SA over 20 years

Initial Amount S$5,000 S$5,000 S$5,000
Tax Rate 15.0% 0.0% 0.0%
Post-Tax Amount S$4,250 S$5,000 S$5,000
Expected Long Term Return^ 6.0% 6.0% 4.0%
Expected Amount after 20 years S$13,630 S$16,036 S$10,956
Tax Rate on Withdrawal 0.0% 15.0%* 0.0%
Maturity Amount on Withdrawal S$13,630 S$14,833* S$10,956
^Returns on CPF-SA are guaranteed while those on Cash & SRS are expected based on history and not guaranteed.
*The post-retirement tax rate on withdrawal should usually be lower than the rate at the time of investment. This is a conservative estimate.

It may make sense to use SRS when you are young and need to invest for a long time and switch to using CPF-SA for tax relief as you get closer to retirement, when the investment horizon is shorter.

Doing it this way will also make it more likely that you exceed your Basic or Full Retirement Sum in the CPF by the time you are 55. You can then withdraw more of these later deposits at or after 55, should you need to, instead of waiting to turn 62 to withdraw from SRS.

If you follow this strategy, we would recommend a cut-off age of somewhere between 47-52. Before 47, investments made via SRS would still have 15+ years horizon and the earlier liquidity from CPF-SA would still be 8+ years away. After 52, the SRS investment horizon is less than 10 years (i.e. increasing risk of returns being impacted by short term market swings) and the liquidity from CPF is only 3 years away.

Of course, you always have the option of leaving the funds in SRS or CPF after 55 or 62 respectively.

Another advantage of SRS is that you can withdraw the investments in form of underlying securities. You don’t have to sell the unit trusts or stocks to withdraw. This allows you to stay invested without incurring unnecessary transaction costs.

Where should I invest the SRS funds?

Unlike CPF-OA or CPF-SA, the default interest rate on SRS is low – 0.05% at the time of writing. So if you do take the tax relief via SRS, you should absolutely invest them to earn better returns.

While the MoF suggests that there are few restrictions on investing SRS funds other than property, in practice, most providers offer only limited options for SRS funds vs. general investments.

Brokers do not offer access to overseas stocks & ETFs and Mutual Fund providers offer lot fewer funds under SRS than for cash. The only difference vs. CPF-OA is that there are more unit trusts available for SRS and all ETFs listed on SGX are eligible. Most of the ETFs listed on SGX are not very liquid and we would avoid them.

Unit Trust & ETF Options for SRS

Mutual Funds on FSMOne Mutual Funds on Endowus ETFs on SGX
Total 1,760 133 52
SRS Eligible 957 98 52
CPF-OA Eligible 75 31 6
CPF-SA Eligible 18 N/A 0

Our approach for investing SRS funds is very similar to what we laid out for CPF-OA here. We would avoid single stocks, bonds, insurance products etc. and focus on diversified portfolios offered by the robo-advisors.

This is because those portfolios are the most likely to offer the best risk-adjusted returns at a low cost.

Endowus vs. StashAway We picked Endowus as the best robo-advisor for most people in Singapore partly because it is the only robo-advisor that allows you to invest CPF-OA funds. However, both MoneyOwl and StashAway also offer the option of investing SRS funds.

Between MoneyOwl and Endowus, even for SRS we would stick to Endowus because their portfolio construction and fees are very similar to MoneyOwl but they offer significantly better user experience on the site and in App. They also offer a choice of being able to create your own portfolio of mutual funds although we do not weigh this heavily in our recommendation.

The choice between Endowus and StashAway just for SRS is a bit harder. Endowus constructs their portfolios using mutual funds while StashAway uses US-listed ETFs in their portfolios.

Portfolios on both the platforms have similar all-in costs (platform fee + management fee of underlying asset) for amounts up to S$250K. They both offer great user experience and easy onboarding.

Fees for SRS Portfolios

Platform Fee Fund Management
Total Cost
Endowus 0.40% 0.35-0.50% 0.75% -0.90%
StashAway* 0.40% – 0.80% 0.20% 0.60% – 1.00%
MoneyOwl 0.50% – 0.60% 0.28% – 0.32% 0.78% – 0.92%
*Fee range is for investments up to S$500,000.

However, we again recommend Endowus for investing your SRS funds for a couple of reasons.

First, its is also our recommended advisor for CPF-OA funds and by combining your SRS investments on the same platform you are more likely to benefit from lower fee tier.

And second, Endowus’ flagship portfolios are passively managed while StashAway practices active asset allocation on their portfolio. We prefer passive strategies for reasons highlighted here.

There are some other differences between the two but these did not impact our conclusion.

On both platforms you can invest the SRS funds in their flagship portfolios but only StashAway allows you to invests these funds in their Thematic and Income generating portfolios. Those types of portfolios are not SRS eligible on Endowus at the time of writing.

However Endowus allows you to create your own portfolios using one or more mutual funds on their platform. You cannot invest in individual ETFs on StashAway or create your own portfolio.

However these supplementary portfolios typically have higher total cost on both platforms and are riskier. We would not recommend those for your retirement funds.

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