SRS vs CPF Top-up: Which One Should You Choose?

What do Singaporeans want for their personal finances?

According to a recent Manulife study, retirement planning is priority number one, with almost two-thirds (63%) of Singapore respondents viewing it as their top personal finance goal, more than anywhere else in the region (average 49%).

However, the study, which polled 1,037 Singapore residents and was conducted between December 2022 and January 2023, found that only 35% of the respondents have a retirement plan in place:

With life expectancy in Singapore currently at 83.5 years (as of 2022 via SingStat) and respondents stating that they expect to retire at the age of 62, it is clear that planning early for our retirement is ideal if we want to have sufficient savings when we retire.

Although there are many ways to plan your retirement, two of the more popular retirement planning moves people make is to top up their Central Provident Fund (CPF) or Supplementary Retirement Savings (SRS) account as you get to enjoy paying less income tax when you do so.

But which method is best for you?

Read on to find out!

TL;DR: CPF Special Account (SA) Top-up vs SRS Top-up — Which Should You Choose?

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any investment product. 

Click to Teleport

• CPF Special Account (SA) Top-up Explained
• Benefits of CPF SA Top-ups
• Eligibility for CPF SA Top-ups
• Supplementary Retirement Scheme (SRS) Top-ups Explained
• Benefits of SRS Top-ups
• Eligibility for SRS Top-up
• CPF SA Top-ups vs SRS Top-ups Overview
• Conclusion

What is CPF Top-up: CPF SA Top-up Explained

Simply put, your CPF SA is purpose-built to fund your retirement in your golden years.

When you retire, your CPF SA funds will largely be channelled towards the CPF Lifelong Income For The Elderly (LIFE), a national longevity insurance annuity scheme that provides a monthly payout for as long as we live so that we will not run out of our retirement savings.

More specifically, when you turn 55, a new CPF account, i.e. the Retirement Account (RA), is created for you.

The CPF RA is then filled up by withdrawing your SA and Ordinary Account (OA) Account monies (SA monies will be deducted first, followed by the OA cash balance if the SA cash balance is insufficient) to build the prevailing FRS ($198,800 in 2023).

Special Account CPF Withdrawal Amount

If you have the CPF Basic Retirement Sum (BRS) and pledged your property OR the Full Retirement Sum (FRS) or your RA, you can withdraw anything above that amount from your SA at 55.

If not, you can only withdraw $5,000.

If you’re wondering what happens to your CPF contributions.

CPF monies are invested by the CPF Board (CPFB) in Special Singapore Government Securities (SSGS) that are issued and guaranteed by the Singapore Government.

The Singapore Government is an AAA credit-rated government according to international credit rating agencies, such as Moody’s and S&P.

This makes Singapore Government Securities (SGS) one of the safest investments to hold.

The proceeds from the SSGS issuance would then be invested by the Government via the Monetary Authority of Singapore (MAS) and the Government of Singapore Investment Corporation (GIC).

This would be pooled with the rest of the Government’s funds, such as government surpluses, land sales, and Past Reserves.

They will first be deposited with MAS as government deposits.

And then be converted into foreign assets through the foreign exchange market.

But with most of these assets being long-term, they are transferred to GIC to be managed over a long investment horizon.

Therefore, the Government’s assets are mainly managed by GIC.

Back to top

Benefits of CPF SA Top-ups

To build up your savings, you can actually top up your CPF SA with cash which has two main benefits.

1. Boosting Retirement Savings

If you think you can do better than CPF offers, you can invest your CPF SA funds under the CPF Investment Scheme (CPFIS).

2. CPF Cash Top-up Online Tax Relief

There are also tax relief benefits.

An important point to note is that the SA does not have an account limit.

But, you can only make a cash top-up to your SA account via the Retirement Sum Topping-Up Scheme (RSTU) and transfer your OA to your SA up to the prevailing FRS.

This amount is also net of any SA balance withdrawals made to invest through the CPFIS:

Self CPF Top-up CPF Top-up for Child, Topping up CPF for Parents and Top-up Spouse CPF Tax Relief

From 1 Jan 2022, you will enjoy annual tax relief on your income tax (i.e. your taxable income will reduce by this amount) of:

• Up to $8,000 (previously $7,000) for cash top-ups to your own SA/RA and/or MA*
• And up to $8,000 (previously, $7,000) for cash top-ups to your loved ones’ SA/RA and/or MA*.

This cap is shared between the Retirement Sum Topping-up (RSTU) scheme and voluntary contributions to employees’ MediSave Account (MA).

Here are a few things to take note of:

• Only cash top-ups to the SA/RA within the prevailing FRS ($198,800 in 2023) are eligible for tax relief
• The amount of tax relief you get from RSTU top-ups is limited by the $80,000 annual personal income tax relief cap
• There will be no refund for SRS contributions made. Please evaluate whether you would benefit from tax relief on your SRS contributions and make an informed decision.

Back to top

Eligibility for CPF SA Top-ups

If you are a foreigner, tough because only Singapore citizens (SCs) and Singapore permanent residents (SPRs) can have CPF accounts to receive CPF contributions and make top-ups to their CPF.

Back to top

What is Top-up SRS?

The SRS was started in 2001 and is part of the Singapore government’s multi-pronged strategy to address the financial needs of an ageing population.

It’s basically a way to help Singaporeans save more for their old age and supplement their CPF savings.

Think of the SRS as an extra savings and investment account for retirement planning.

SRS Top-up Limit

It is a purely voluntary scheme, unlike our CPF, where you can contribute any amount; there is an annual SRS contribution cap of $15,300 for Singaporeans and $35,700 for foreigners.

Which SRS Account is Better?

You can choose to open your SRS account with any of the following banks in the private sector: DBS, OCBC, or UOB.

There isn’t much difference between these SRS accounts, so you can just go with the bank that you are most comfortable with

You’ll only earn the standard 0.05% p.a. return as you would with a regular bank savings account.

But if you want to, you can also use your SRS monies to invest in various financial instruments and products to increase your returns.

Back to top

Is SRS Worth it? SRS Benefits Explained

Here are some of the benefits of the SRS.

1. SRS Top-up Tax Relief / SRS Contribution Tax Relief Explained

The SRS is appealing from a tax benefit perspective as contributions made to it qualify for tax relief.

You can save more on tax every year with a higher contribution amount than topping up your CPF SA, i.e., reduce your taxable income by up to $15,300 yearly for Singaporeans and $35,700 yearly for foreigners.

SRS Contribution Tax Relief Example

Check out this illustration for an idea of how much you can save on taxes:

IRAS has stated that ‘any SRS member, regardless of whether he is a foreigner or not, may withdraw his SRS without penalties at the age of 63, if that is the statutory retirement age prevailing at the time of his first contribution.’

In other words, if you make a $1 SRS top-up now, you can lock in your retirement age at 63 and withdraw your money tax-free* then.

According to the Inland Revenue Authority of Singapore (IRAS): You may withdraw funds from your SRS account anytime after your locked-in withdrawal age. Withdrawals can be made:

• in cash;
• in the form of investments for the qualifying types of withdrawal.

Withdrawals in the form of monies or investments from your SRS Account are subject to income tax and added to your other taxable income (e.g. employment, rental). It will be taxed based on the prevailing tax rate. The withdrawal’s time and circumstances determine the withdrawal’s taxable amount.

When a foreigner or Singapore Permanent Resident (SPR) withdraws from his SRS account, the withdrawal is subject to withholding tax.

According to IRAS: if a foreigner or Singapore Permanent Resident (SPR) has applied to withdraw cash/investment from his SRS account, 50% or 100% of the withdrawn amount, depending on the type of the withdrawal, will be subject to a withholding tax.

The SRS bank operator will:

1. Withhold an amount of tax at the prevailing non-resident tax rate of 24% (22% for withdrawal from 1 Jan 2016 to 31 Dec 2022) at the point of withdrawal. This amount will be remitted to IRAS.
2. Deduct a 5% penalty on any premature withdrawals. The 5% penalty is non-refundable and is separate from the withholding tax.
3. Electronically transmit the information on the withdrawal and pay the withholding tax to IRAS.

*You will only need to pay personal income taxes if you earn more than $20,000 annually. This means that when you retire and do not have any other taxable income and relief, you can withdraw up to $40,000 per year from your SRS account tax-free on or after reaching the statutory retirement age (63 years old from 1 July 2022). That’s $400,000 over 10 years tax-free!

You can also withdraw your money before the age of 63 years old if you need the money urgently. But you must pay a 5% penalty fee and be taxed 100% on these withdrawals.

But there are exceptions to this rule. Here are the SRS withdrawal rules you need to take note of:

SRS contributions made on or after 1 Jan 2017 are subject to a cap on personal income tax relief of $80,000 per Year of Assessment from Year of Assessment 2018.

2. Flexibility in investment options

Unlike topping up your CPF SA, the SRS account is more flexible regarding investing options.

For the CPF SA, you cannot invest the first $40,000 in your SA. In other words, only money in excess of $40,000 can be invested via the CPFIS. There is no such restriction for the SRS account.

Eligibility for SRS Top-ups

To open an SRS account and make top-ups, you need to be a Singapore Citizen, a Singapore Permanent Resident (SPR), and a foreigner who derives any form of income may make SRS contributions in the current year.

You must also be:

• At least 18 years of age;
• Not an undischarged bankrupt;
• Not having a mental disorder; and
• Capable of managing yourself and your affairs.

Back to top

CPF vs SRS Top-ups Overview

Many people are confused between topping up their SRS Account and their CPF SA regarding retirement planning and tax savings.

I’ve created this comparison table to give you a better overview of the difference and the potential returns you can get:

With that in mind, let’s look at the Pros and Cons of topping up your CPF SA and CPF SRS.

1) CPF Special Account (CPF SA)

Pros of Putting My Money in CPF SA:

• You are automatically enrolled and start contributing once you start work (if you’re a Singapore citizen or PR)
• You get 4% p.a guaranteed by the Singapore government [The first $60,000 of your combined balances (OA, MA and SA) earns an extra 1% interest per annum]
• You can use it as a ‘bond’ option in your portfolio, where the maturity is at 55 or 65 years old
• You can invest any amount above $40,000 in your SA.

*CPF SA interest rate will rise to 4.01% from 1 July 2023.

Cons of Putting My Money in CPF SA:

• The investment products you can invest in using your SA are quite limited
• You can only top up a maximum of $16,000 ($8,000 for self-contribution + $8,000 for family members) in cash for tax relief every year up to the FRS for those under 55 and the Enhanced Retirement Sum for those over 55
  • note that the annual personal income tax relief cap of $80,000 applies
  • This amount of tax relief you can get is also shared with any voluntary contributions you make to your MediSave account.
• You cannot touch the money until you are 55 or 65, even when you really need it.

2) Supplementary Retirement Scheme (SRS) Investment, Tax Relief, Max SRS Contribution and More

What is the Benefit of an SRS Account:

• You can lock in your retirement age at 63 years old if you make a $1 top-up now
• You can save more on tax every year with a higher contribution amount compared to topping up your CPF SA, i.e. reduce your taxable income by up to $15,300 every year for Singaporeans and $35,700 a year for foreigners
• You can withdraw your money before the age of 63 years old if you need the money urgently. But you will need to pay a 5% penalty fee, and you will be taxed 100% on these withdrawals.
• Currently, you will only need to pay personal income taxes if you earn more than $20,000 per year. This means that when you retire and do not have any other taxable income and relief, you can withdraw up to $40,000 per year from your SRS account tax-free on or after reaching the statutory retirement age (63 years old from 1 July 2022). That’s $400,000 over 10 years tax-free!

Cons of Putting Money Into an SRS Account & How to Invest in SRS:

• You get 0.05% p.a. like a regular bank savings account
• You can choose to invest your monies, but the investment returns are non-guaranteed because they depend on your investment decisions.

Back to top

Final Thoughts

In conclusion, the decision to top up your CPF SA or SRS is, in the end, very personal. The decision is also influenced by age; if you are older, topping up SRS or your CPF SA makes more sense as you have a shorter time horizon.

There is also the annual income tax relief cap of $80,000 to consider before funding both accounts for tax relief. You won’t receive additional tax relief from these top-ups if you have a substantial CPF contribution from employment (tax relief up to $37,740) and other tax reliefs such as the Working Mother Child Relief (WMCR).

Because of the potential higher profits from SRS, younger people may want to top up the SRS account first. You will have a greater chance of achieving projected returns of 6% to 7% from investing in a 100% stock portfolio if you consistently use the dollar-cost average (DCA) technique for SRS investments. But it is vital to note that investors who choose to do this will have to take on greater investment risk in order to build their retirement assets quicker than any CPF top-ups.

Having cash on hand has advantages to having it locked away in CPF or SRS. But if you are older, the lock-up period is shorter if you are older so this consideration may vary. Remember that because SRS is a tax deferral account, the more money you have in it could result in a higher tax bill when you withdraw your SRS funds.

Read More

• Should You Top-Up Your CPF MA or CPF SA First?
• The Ultimate Guide to Central Provident Fund (CPF): Interest Rates, Contributions And More
• Here Are the Finance Accounts You Need to Open Now: Your Future Self Will Thank You!