Kiwisaver not like a bank account
The main purpose
of Kiwisaver is retirement savings.
QMy daughter’s partner has been saving to buy a car. Problem is, he is putting the money into his Kiwisaver account. He says he can withdraw the money any time to buy a car. Am I right in thinking he can’t just get it out whenever he wants to? He has no hardship or disability.
It does sound like your daughter’s partner is treating his Kiwisaver like a bank savings account, which it certainly is not.
Does he have his Kiwisaver account with his bank? Many bank customers enjoy seeing their Kiwisaver balance alongside their bank accounts when they go online, but this convenience has more than one downside. Firstly, it can tempt them to feel wealthier than they are (what’s the problem with a couple of grand on your credit card when you have $15,000 in your Kiwisaver?) and secondly, they may think that the money is quite easy to access. This seems to be the case with your daughter’s partner.
In fact, Kiwisaver is nothing like a bank account. It is a managed fund holding a basket of investments. For every dollar that you invest, you are given units in the fund. The value of the units will go up and down depending on share and bond prices around the world. Units will be cashed up from time to time to pay tax and fees. You can see this activity in a transaction summary.
There are five situations where Kiwisaver investors can access their savings. Of course, the main purpose of Kiwisaver is retirement savings. Investors who reach the age of 65 and have been in Kiwisaver for at least five years can withdraw their savings. Since July 1, 2019 investors over 65 can join Kiwisaver and access their savings without the waiting period, but they do not qualify for the annual
Government top up.
The Government has added a category for people with congenital life-shortening conditions to withdraw their savings at the point that it makes sense for them to retire.
First home buyers can apply to withdraw all but $1000 from their Kiwisaver, as long as they have been members for at least three years and intend to live in the house they are buying.
Then there is the Significant Financial Hardship option, where a member has found themselves in dire hardship, usually involving rent or mortgage arrears. This is not a straightforward process, and the amount they can withdraw is decided by the trustees of the Scheme.
The fourth option is Serious Illness, and in this case medical evidence is needed — usually when the member has a terminal illness.
Finally, there is the Permanent Emigration withdrawal. This is an option for members who have moved overseas (not Australia) and after one year can apply to withdraw most of their Kiwisaver and close their account. When they do, they lose all Government contributions (except any $1000 kickstart).
As you have observed, your daughter’s partner is not in hardship. It is unfortunate that his good intentions to save for a car will not have the desired outcome. He should talk to his bank as soon as possible about creating a new savings account for this purpose. There is a silver lining — the extra money he has put into his Kiwisaver can help him into his first home one day.
Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451
issued by the Financial Markets Authority to provide financial advice
services. Disclosure information is available at www.peak.net.nz or call
06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a
financial product. Send your Kiwisaver questions to shelley.
hanna@peak.net.nz