SRS, or the Supplementary Retirement Scheme is a voluntary scheme to encourage saving for retirement, over and above your CPF savings. Your contributions to SRS are eligible for tax relief, subject to a yearly cap.
The cap is $15,300 for Singapore Citizens and PR, and $35,700 for foreigners.
Investment returns in SRS are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement.
Why contribute to SRS?
The main benefit for SRS contributions is tax savings, and so this applies to individuals who are paying a lot in taxes, and looking for ways to reduce tax liability by investing for their retirement.
You can look to save about $1500 to $2000 in taxes every year if you make the maximum contribution.
In addition to tax savings, contributing to SRS allows you to receive a higher tax relief compared to CPF SA top up (capped at $7000). Withdrawals from SRS can be made anytime (although a 5% penalty applies), unlike CPF SA, which can only be withdrawn after 55.
SRS base interest is only 0.05%
Even if you contribute to your SRS, the base interest is a mere 0.05%, lost entirely to inflation - not so good.
However, you have the option to invest your SRS money in a few investment instruments, such as unit trusts, ETFs, endowment plans, REITs, Singapore Savings Bonds, and more.
Many banks and financial institutions offer investment options for your funds in SRS.
SRS investment options
Depending on your risk appetite, you can choose between extremely safe investment instruments or riskier ones with a higher expected return.
Invest SRS in Singapore Savings Bonds
Since December 2018, you can invest your SRS money in Singapore Savings Bonds, which now pay 3.2% a year, up to an individual cap of $200,000 across your cash and SRS portfolios.
This is the simplest, risk-free way to invest your SRS savings.
Invest SRS in fixed deposits
You can also invest your SRS funds in banks' fixed deposits, which currently offer an interesting 12M interest rate slightly higher than SSBs.
Invest SRS in REITs, stocks, unit trusts and ETFs
Your SRS funds can also be invested in stocks, REITs and ETFs traded on the Singapore stock exchange. This option, however, limits your investment universe to what's offered in Singapore.
For those who want to invest overseas, you'd need to purchase unit trusts, or funds through your bank or broker.
Examples of funds that can be invested include:
- Fidelity Global Multi-Asset Income Fund
- Schroder Asian Income Fund
- First State Dividend Advantage
The problem with this approach is the expensive fees such as distribution/trailer fees you have to pay to your bank, in addition to the hefty annual fund expenses.
There are platforms such as FSMOne and Aviva's dollarDEX that also allow you to invest in unit trusts with your SRS. But, I like Endowus' fund marketplace best.
Invest SRS in funds/unit trusts with Endowus
Endowus Fund Smart is a fund marketplace that allows you to invest your SRS funds into a selected group of funds at lower cost - you can access institutional share class funds which come with lower annual fees, zero sales charges with 100% cashback on trailer fees.
Invest SRS funds with robo-advisors like Endowus, StashAway, MoneyOwl
If you prefer not to pick your own funds, but let a robo do the hard work for you, then you could pick any of the top robo-advisors in Singapore - they offer investment options for SRS funds.
My biased pick is Endowus, because I know they offer world-class security, your funds are under custody by UOB Kay Hian, and lowest fund costs so you get the best value from your investments - but you could pick whatever you like.
The type of funds you pick also depends on your personal preference, but I'd just go for a globally-diversified equity index fund or a Dimensional Factor-based global equity fund.
How to maximize SRS returns
Investing your SRS funds is the first step to growing your SRS monies that outpaces inflation. However, the core asset allocation between cash-like fixed deposits, bonds and stocks (through unit trusts and ETFs) remain a personal decision.
The longer your investment horizon, the more risk you can take with your SRS investments, since you won't need to withdraw them anyway. This means you can allocate a higher % to riskier investments, while keeping their costs low.
Note that SRS contributions must be made by 31 December, and then the annual quota gets reset.