Review of Penalty for Premature Withdrawal of Monies From Supplementary Retirement Scheme

Date: 4 November 2014
 
Parliamentary Question by Ms Lee Li Lian:

To ask the Deputy Prime Minister and Minister for Finance whether the 5% penalty for premature withdrawal of monies from accounts under the Supplementary Retirement Scheme (SRS) can be waived for Singaporeans who wish to withdraw from their SRS account before their statutory retirement age.

Reply by DPM and Finance Minister Tharman Shanmugaratnam:
 
1. The Supplementary Retirement Scheme, or SRS in short, is a voluntary retirement savings scheme that complements the CPF. Under the scheme, participants enjoy tax relief on SRS contributions. Only 50% of SRS withdrawals are taxed, as long as they are made any time after the statutory retirement age of 62. 

2. As a retirement savings scheme, withdrawals prior to retirement are not encouraged. However, to provide flexibility to SRS participants, premature withdrawals are allowed but fully subject to tax. Even so, a person would still benefit from tax savings if his marginal tax rate is lower at the time he withdraws the savings, compared to when he earned the money and put it in his SRS account. Hence a 5% penalty is imposed as a deterrent against using the SRS as a tool to lower one’s income tax, as distinct from building up retirement savings. However, we recognise there could be circumstances where participants may need to exit the scheme prematurely. Current SRS rules already provide for penalty-free withdrawals under certain circumstances, such as on medical grounds^[1] or bankruptcy.

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^[1] SRS members may withdraw their SRS savings if they are certified to be (a) physically or mentally incapacitated from ever continuing in any employment, (b) mentally disordered and incapable of managing himself or his affairs, or (c) suffering from a terminal illness or disease.