SRS Strategy: Smart Hack to Secure Annuity Plans
The Supplementary Retirement Scheme (SRS) is a voluntary program designed to complement your CPF savings while offering tax benefits. Contributions to SRS can also help reduce your taxable income.
Here are three key SRS items to note:
Tax Relief on Contributions – Every dollar contributed qualifies for tax relief, up to the annual limit (S$15,300 for Singaporeans/PRs and S$37,500 for foreigners), within the S$80,000 personal income tax relief cap.
Tax-Optimized Withdrawals – Withdrawals made at or after the statutory retirement age are only 50% taxable. However, early withdrawals before the statutory age will incur a 5% penalty fee and be fully taxable at 100%.
Maximum Withdrawal Duration – Currently, the statutory retirement age for penalty-free withdrawals is 62. Users can make penalty-free withdrawals from their SRS account over a 10-year period, starting from the date of their first penalty-free withdrawal.
With no other sources of income (e.g., rental income), an annual SRS withdrawal of $40,000 is ideal. Since only 50% of the withdrawn amount ($20,000) is taxable, it falls within the 0% tax bracket under the current tax structure.
In contrast, a lump sum withdrawal of a similar account value would result in a significantly higher tax burden, as illustrated in the diagram below.
Where Do Annuity Plans Fit In?
Since SRS contributions can be made from age 18 up to the first withdrawal at 62, the total contributions and investment growth may exceed the ideal $400,000 limit needed to avoid tax liabilities.
Given that SRS is primarily a tax relief tool, let's consider this scenario:
The user maxes out the annual SRS contribution of $15,300 from age 32 to 55 to fully utilize the tax benefits as his/her income stablizes.
These contributions are invested in a medium-risk portfolio with a 5% return
By age 62, the SRS account balance could potentially grow beyond $900,000
Detailed Calculation Breakdown
Holding Period = 62 (First Withdrawal) - 32 (Starting Age) = 30 years
Deposit Period = 55 (Stop Contribution) - 32 = 23
If the user follows the tax optimization strategy of withdrawing $40,000 per year over 10 years, there would still be an excess of over $500,000 left for the final withdrawal. This means that 50% of the remaining balance (>$250,000) would be taxable, leading to an estimated tax of around $30,000.
Alternatively, if the user withdraws the full $930,000 in one lump sum, the potential tax exposure could be as high as $180,000.
Strategic Planning for Excess SRS Funds - Annuity Policy
Clients need not worry about exceeding the SRS withdrawal limit, as IRAS clarifies that:
"For investments in life annuities, the 10-year withdrawal period does not apply. As long as you continue to receive annuity payments for life, 50% of the annuity payments will be subject to tax each year."
Link - https://www.iras.gov.sg/taxes/individual-income-tax/basics-of-individual-income-tax/special-tax-schemes/tax-on-srs-withdrawals
This means that SRS withdrawals can extend beyond the 10-year period with a life annuity in place, allowing consultant to secure large single premium annuity cases.
Example Strategy
For a $930,000 SRS account, a client could:
Allocate $530,000 into a single premium annuity that starts payouts at age 72.
Withdraw tax-free during the initial 10-year SRS period (from age 62 to 72).
Continue receiving annuity payouts thereafter, keeping taxable withdrawals lower.
Maintain liquidity—if needed, the annuity policy can be surrendered for access to funds.
Key Benefits of This Approach:
✅ Tax optimization for large SRS balances
✅ Growth potential during the 10-year withdrawal period, increasing surrender value
✅ Extended income stream, minimal tax obligation, and liquidity access if required
Encourage your clients to leverage their SRS for tax relief, as this lays the groundwork for stronger client relationships and future referrals. Providing strategic advice on maximizing SRS benefits—whether for immediate tax savings or long-term lump sum planning—can position you as a trusted advisor for both financial optimization and high-value referrals.
