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Government Encourages Retirement Savings Through Privately-Operated Scheme

31 Jan 2001

Supplementary Retirement Scheme Offers Generous Tax Benefits

Singaporeans will be able to enjoy attractive tax benefits on their retirement savings through the Supplementary Retirement Scheme or SRS. The scheme was first announced by Finance Minister Dr. Richard Hu in his Budget speech last year in response to recommendations made by the Inter-Ministerial Committee on the Ageing Population in November 1999. Meant to complement the existing CPF scheme, the SRS will be entirely driven by private operators and will offer Singaporeans the chance to invest in a wide range of investment products, while benefiting from generous tax reliefs.

The scheme is aimed at encouraging Singaporeans to save more for their retirement, in order to supplement their CPF savings. It does this through a system of attractive tax benefits?contributions to SRS accounts are tax-deductible, investment gains will accumulate tax-free (with the exception of Singapore dividends), and only 50 percent of the savings withdrawn at retirement will be subject to tax. By spreading out one's withdrawals over time, one can reduce one's tax substantially.

Four banks - DBS, OCBC, UOB and OUB - have been appointed SRS operators to perform the administrative and custodial roles necessary for the operation of accounts under the SRS. Individuals can choose to open their SRS accounts with any of these operators. The fact that the SRS, unlike the CPF system, is entirely privately operated, is intentional. Participants in the scheme will enjoy a wide range of investment choices in financial assets (excluding real estate), limited only by the imagination and creativity of financial institutions, such as fund managers and banks. Any bank or fund manager will be able to offer a product for the scheme, as long as it is through one of the SRS operators who will act as custodians of the accounts.

The scheme is entirely voluntary, and participants can invest as often, as much or as little as they like through their SRS accounts, subject to a generous cap. The contribution rate for Singaporeans and Permanent Residents will be 15% of their income. Unlike the CPF, withdrawals can be made anytime. A 5% penalty on pre-retirement withdrawals is meant to ensure that the SRS is used for retirement savings.

Foreigners working in Singapore will be allowed a contribution rate of 35% of their income, in recognition of the fact that they have no access to the tax benefits afforded by the CPF scheme.

In keeping with Singapore's pro-business stance, only employees will be allowed to participate, so that employers will not face pressure to contribute and suffer higher business costs. This decision was made after taking into consideration the concerns voiced by some local businesses to the Government.

Indeed, the scheme was crafted only after close consultation with various sectors. Input from the public was actively sought, and from April till June last year, a consultation document was posted on the Ministry of Finance website to invite public feedback. The finalised scheme has incorporated feedback from industry players and the public. One example is the lowering of the penalty for early withdrawal from the originally proposed 10% to 5%.

The government has put into place the framework of attractive tax benefits, and invited the custodians?the SRS operators?to run these accounts. All that remains is for the private sector to use its ingenuityand creativity to help Singaporeans further bolster their retirement nest eggs.

MOF has produced a booklet explaining the features of the SRS. Members of the public can view the contents of the booklet at the MOF website:

The four SRS operators are expected to be ready to accept accounts from 1 April 2001.

Public queries on the SRS may be directed to MOF, IRAS or any of the SRS operators.

IRAS Tax Enquiry Phoneline: 1800-352 7728
DBS: 1800-327 2265
UOB: 1800-222 2121
OCBC: 1800-438 6088
OUB: 530 2182