Supplementary Retirement Scheme (SRS) withdrawal

Lifetime Membership Following my previous article, “My first CPF top up”, a member of SG Wealth Builder wrote in to enquire on how retirees could withdraw their Supplementary Retirement Scheme (SRS) monies without incurring income tax. In this article, I will share some of my insights on SRS withdrawal.

In accordance with the Retirement and Re-employment Act, the statutory retirement age in Singapore is raised to 63 in 2022. In the context of SRS, this change is significant as it could affect the penalty and tax liability upon SRS withdrawal.

Unlike CPF withdrawal, you can make SRS withdrawal anytime. However, if the SRS withdrawal is made before the statutory retirement age prevailing at the time of the first contribution, 100% of the sum withdrawn will be subject to tax. A 5% penalty for premature withdrawal will also be imposed.

According to IRAS, “Withdrawals are penalty-free only if they take place on or after the statutory retirement age (63 effective from 1 Jul 2022) that was prevailing at the time of your first SRS contribution (i.e. prescribed retirement age). If you have already opened an SRS account and made your first contribution, any subsequent change in the statutory retirement age (e.g. up to age 65) will not affect you”.

What does the above IRAS rule mean? Assuming you are currently 40 and had made your first SRS contribution prior to 1 July 2022, you will not be subjected to the 5% penalty when you withdrew your SRS monies at the age of 62. This is because you had locked in your retirement age for SRS withdrawal. However, you will still be subjected to the 50% tax on the withdrawal sum. As such, I do not recommend that you make a lump-sum SRS withdrawal though it may be tempting to do so.

SRS withdrawal process:  The three local banks (DBS, OCBC and UOB) are approved by Ministry of Finance to operate SRS accounts for Singaporeans. As such, if you are withdrawing your SRS monies, you need to visit the bank branches to process your SRS withdrawal. As far as I understand, the process should be quite straightforward and simple but you need to decide on optimization of the SRS withdrawal which I will share more in the following.

10-year SRS withdrawal

The optimal amount of SRS savings should be $400,000. This is because the tax exemption is up to $400,000. Let’s assume a retiree has accumulated $400,000 at the age of 62 and has no other taxable income.

Scenario 1: Retiree decided to withdraw lump sum of $200,000

Amount taxable:  $100,000 (50% tax concession)

Tax payable: $5650 (derived using IRAS YA2022 tax calculator)

SRS members can opt for 10-year pay-outs. This means that every year, members who reached statutory retirement age can choose to make SRS withdrawal of $40,000. In this case, only 50% of $40,000 is subject to tax. But since the first $20,000 of your income is tax-free, you do not need to pay tax for the SRS withdrawal.

Scenario 2: Retiree decided to withdraw $40,000 annually over 10 years

Amount taxable:  $20,000 (50% tax concession)

Tax payable: $0

In my view, the 10-year SRS withdrawal is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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