In today’s globalized world, career opportunities are no longer confined to India, with many professionals exploring opportunities abroad. Among the top destinations for work and career growth is Singapore—a sought-after choice for its dynamic economy and quality of life.
While working in Singapore, you have the chance to accumulate significant savings, including contributions to the country’s retirement system. However, challenges arise when you decide to return to India: What happens to your retirement savings and other financial assets?
This guide unpacks Singapore’s retirement system and offers actionable insights tailored for NRIs. It includes practical scenarios to help you navigate financial decisions when planning your move back to India. Whether you’re currently in Singapore and considering a return or planning to move there and want a clearer understanding of its pension system, this article will serve as a valuable resource. (Also Read: Returning US NRIs and 401k Planning)
How Does Singapore’s Retirement Support System Work?
Singapore’s retirement system revolves around two main pillars: the Central Provident Fund (CPF) and the Supplementary Retirement Scheme (SRS). Let’s break them down in simple terms:
1. Central Provident Fund (CPF)
What is it?
The CPF is a mandatory savings plan for Singaporean citizens and permanent residents, aimed at supporting retirement, healthcare, and housing needs.
How does it work?
Both employees and employers contribute to the CPF, with contribution rates varying by age:
- Under 55 years: Employee 20%, Employer 17%
- 55 to 60 years: Employee 16%, Employer 15%
- 60 to 65 years: Employee 10.5%, Employer 11.5%
- 65 to 70 years: Employee 7.5%, Employer 9%
- 70 years and above: Employee 5%, Employer 7.5%
Retirement Age
The current retirement age is 63, with plans to increase it to 65 by 2030. CPF payouts typically begin at 65 years or later, depending on when you choose to start receiving them.
Payout Options
Once you’ve saved at least S$60,000 and reached retirement age, you can opt for payouts under the CPF LIFE scheme, which provides monthly income for life. You can choose from these payout options:
- Steady payouts: A fixed amount every month.
- Growing payouts: Monthly payouts increase by 2% annually.
- Progressively lower payouts: Payments decrease when your balance falls below S$60,000.
If you prefer not to enroll in an annuity, you can opt for a lump-sum withdrawal, subject to certain conditions.
CPF works like EPF In India. The contribution, accumulation, and even Withdrawal are tax-free.
2. Supplementary Retirement Scheme (SRS)
What is it?
The SRS is a voluntary savings scheme designed to encourage individuals to save more for retirement beyond the mandatory CPF contributions.
Who can contribute?
- Singaporeans and Permanent Residents: Annual contribution limit of S$15,300.
- Foreigners: Annual contribution limit of S$35,700 (since they are not eligible for CPF contributions, the higher limit allows for increased savings).
Tax Benefits
- Contributions to the SRS are eligible for tax relief, which reduces your taxable income by the amount contributed.
- Investment returns within the SRS account are tax-free until withdrawal.
- Upon withdrawal after the age of 62, only 50% of the amount is taxable.
Eligibility Criteria
To open an SRS account, you must:
- Be at least 18 years old.
- Earn an income in Singapore.
- Not be an undischarged bankrupt.
- Be mentally capable of managing your affairs.
- Open only one SRS account at a time.
Withdrawal Conditions and Tax Treatment of Withdrawals in Singapore
1. Withdrawal Conditions
Central Provident Fund (CPF):
- Permanent Departure from Singapore:
Singapore citizens and permanent residents can withdraw their CPF savings if they leave Singapore permanently. There are no penalties for such withdrawals, provided all tax obligations have been settled. - Lump-Sum Withdrawals While Remaining in Singapore:
- At age 55, individuals can withdraw up to S$5,000.
- Upon reaching the statutory retirement age (currently 63 years), full withdrawal is allowed.
Supplementary Retirement Scheme (SRS):
- Withdrawals can be made at any time, but the following conditions and implications apply:
- Withdrawals after the statutory retirement age can be spread over 10 years, with only 50% of each withdrawal amount taxed.
- Early withdrawals before reaching retirement age incur a 5% penalty in addition to regular taxes.
Exceptional Circumstances (Applicable to CPF and SRS):
Certain withdrawals may be exempt from penalties:
- Withdrawals due to medical reasons, such as physical or mental incapacity.
- Full withdrawals in cases of terminal illness.
- Withdrawals due to bankruptcy.
- For foreigners with an SRS account held for at least 10 years, a one-time full withdrawal may be made without penalties.
2. Tax Treatment in Singapore
CPF Withdrawals:
- Tax-Free Withdrawals: Withdrawals from CPF are generally not subject to income tax in Singapore, ensuring no tax liability when accessing your funds.
SRS Withdrawals:
- General Tax Treatment:
- Withdrawals are subject to income tax in Singapore.
- The tax rate applied depends on your residency status at the time of withdrawal:
- Tax Residents: Only 50% of the withdrawal amount is taxed.
- Non-Residents: Subject to a 24% withholding tax rate on the withdrawal amount.
- Early Withdrawals:
- Withdrawals made before retirement age incur a 5% penalty, in addition to taxes.
- Penalty-Free Withdrawals:
- After reaching the statutory retirement age, withdrawals spread over 10 years ensure tax efficiency, with only 50% of each withdrawal amount taxed.
What Should You Do If You Decide to Leave Singapore?
Now that we have a clear understanding of how the CPF and SRS systems operate, along with their tax implications in Singapore, let’s explore your options when planning a return or migration from Singapore. (Read: How to Select the Best Investment Adviser for NRIs)
Key Considerations for NRIs
- Future Plans Post-Retirement:
From experience, most NRIs working in Singapore do not choose to retire there. Instead, they tend to migrate to countries like the US, Australia, UK, or return to India. Given this trend, the question of keeping funds in Singapore for long-term goals like children’s education is often irrelevant. - If You Are Only Enrolled in the SRS Scheme:
- NRIs typically participate in the SRS scheme rather than CPF, as CPF is restricted to Singapore citizens and permanent residents.
- If you withdraw your SRS investments after 10 years, there are no penalties, but the withdrawal will be taxed according to your income tax slab.
- Post-Retirement Withdrawals: Upon reaching retirement age, only 50% of the corpus is taxable. Additionally, you can spread withdrawals over 10 years to optimize tax efficiency.
- If You Are a Singapore Citizen Moving Back to India:
- Singapore citizens who have a CPF retirement account can withdraw their CPF funds without penalties upon permanent departure from Singapore.
- This offers a seamless transition while securing the savings accumulated during their working years.
There are 2 more considerations when NRIs need to make a final decision or which they are generally concerned of
- Tax implications in India – You want to keep yourself safe from any Taxation In India
- Currency movements – You feel that INR is a depreciating currency, and would it be wise to shift money in lumpsum to INR.
Tax Implications (If any) in India will arise if you withdraw your CPF money after moving to India and after becoming a tax resident in India. You need to report your foreign Assets in India and disclose any income coming from it, and will be taxed as per Indian tax laws. (Read: RNOR Tax Rules every Returning NRI needs to know)
If there is any tax withheld in Singapore then again the proper disclosures need to be made and wherever possible take DTAA benefit.
If you receive annuity payments or pensions from Singapore after returning to India, these are taxable as per Indian income tax laws under “Income from Salary or Pension.” The DTAA provisions may apply depending on whether taxes have been withheld in Singapore.
And Regarding the second concern, of currency movements, I am of the view that even if this is true, the money should be invested the country where it is going to be used. If growth is the concern then you will get ample investment avenues in that country where you can earn higher than currency depreciation. Keeping Money in 2 different countries will anyway increase your management burden and tax reporting requirement.
In the last 10 years, we have seen INR depreciate by 3.13% on annualized basis. In some patches, we have seen it appreciating also. So you can’t make the long-term decision based on currency movements only. Keep in SGD only if you have some goals left in Singapore even after you return to India.
Making the Right Decision: What Singapore NRIs Should Consider
1. Stage of Life
- Younger NRIs: If you are still early in your career or unsure about your long-term plans, it might be beneficial to leave your funds in Singapore for the time being. Money in CPF continues to earn interest, offering a stable growth avenue until a clear decision is made. But be aware of the operational challenges you might face.
2. Tax Implications
- Understand Tax Liabilities: Carefully evaluate the tax implications in both Singapore and India.
- CPF withdrawals are tax-free post-retirement, making it an attractive option to defer withdrawals.
- SRS withdrawals, however, are taxed in Singapore (with DTAA relief available in India to avoid double taxation).
3. Currency Risk
- SGD Stability: Keeping funds in Singapore exposes you to SGD, which is generally more stable than INR.
- Exchange Rate Fluctuations: Consider the risk of unfavorable currency movements during conversion. However, over the long term, investments in securities that outperform inflation and currency depreciation can help mitigate these risks.
4. Investment Opportunities in India
- India offers a range of tax-efficient and growth-oriented investments, such as:
- NPS (National Pension System): A flexible retirement planning tool with tax benefits.
- PPF (Public Provident Fund): A government-backed scheme offering tax-free returns.
- Mutual Funds: Providing diversified investment options aligned with your risk profile and goals.
Transferring funds to India can open up these opportunities, enabling you to create a robust financial portfolio.
5. Future Plans
- If you have plans to return to Singapore or relocate to other global destinations, retaining some funds in Singapore can provide flexibility and financial security for your future endeavors.
Returning to India from Singapore financial planning -Conclusion:
Deciding what to do with your retirement savings in Singapore when planning a return to India—or any other country—is a significant financial decision. By understanding the nuances of the CPF and SRS systems, tax implications, and currency risks, you can make informed choices that align with your goals and financial future.
Remember, there is no one-size-fits-all solution. Your decision should consider your stage of life, financial goals, plans, and risk tolerance. While Singapore’s systems offer stability and growth, India provides a diverse range of tax-efficient and growth-oriented investment opportunities.
The key is to plan, weigh the pros and cons, and consult with financial experts if needed. A well-thought-out strategy will not only safeguard your savings but also ensure a smooth financial transition as you embark on the next phase of your journey.
One last thing, the information contained in the article has been taken from verified sources, however, it is wise to do your research and be in touch with a professional in the respective countries to get proper guidance for your decision-making.
