SRS account start date determines when penalty waiver kicks in

Singapore

WHEN can account holders withdraw funds from voluntary Supplementary Retirement Scheme (SRS) accounts without incurring penalties?

That depends on the retirement age in force when account holders first paid into the kitty, under a policy that pre-dates the latest plans to raise retirement and re-employment ages.

The statutory retirement age will be lifted from 62 to 63 in 2022, Prime Minister Lee Hsien Loong said in his National Day Rally speech on Sunday.

It will be raised again in steps, to 65 years by 2030, with the timeline determined by economic conditions.

The upcoming changes may still affect when SRS account holders can take out their savings for old age.

The SRS, which is operated by the private sector, was introduced in 2001 to encourage retirement savings beyond mandatory Central Provident Fund (CPF) contributions.

SRS contributions, which qualify for personal income tax relief, are capped at S$15,300 a year for Singapore residents and S$35,700 for foreigners. The funds can also be used to invest in instruments such as unit trusts, shares and bonds, or single-premium life insurance products - but they cannot be put into property.

Investment returns accumulate tax-free, and SRS funds can be taken out at retirement, with taxes imposed on 50 per cent of the sum withdrawn.

But withdrawals made before the retirement age is reached are taxed in full. There is also a 5 per cent penalty, except in situations such as death.

The penalty-free withdrawal age is defined as the prevailing statutory retirement age at the time that the first contribution to an account was made.

Since the retirement age is going up, account holders who make their first deposit before July 1, 2022 can withdraw their SRS savings without penalty at the age of 62, while those who do so from July 1, 2022 can take out their funds at 63, and so forth.

There were 156,820 SRS accounts - which can be opened with any of the three local banks - as at end-2018, according to the Finance Ministry. Each year, about three-fifths of account holders make SRS contributions.

But labour economist and Nominated Member of Parliament Walter Theseira has called the income tax reliefs on retirement savings "a hidden subsidy to retirement for the rich".

Nine in 10 of those who paid into SRS accounts last year had tax-assessable incomes of more than S$80,000.

To that, Second Minister for Finance Lawrence Wong replied in February that "we will continue to review our schemes, taking in suggestions and feedback... and ensure that the balance of support remains tilted towards the lower- and middle-income groups".

On Sunday, PM Lee said there would be no change to age-based withdrawal policies for CPF accounts: "You can still take out some money at age 55. And you can still start your CPF payouts from age 65. All that remains exactly the same."

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