KiwiRaider: Hard-up savers withdraw a record $109 million

KiwiSaver financial hardship claims have hit a record high as the Government mulls over a recommendation to bring budget advisers into the process in a bid to cut the number of people raiding their retirement savings.

Inland Revenue figures show hardup New Zealanders took more than $109 million out of their KiwiSaver accounts in 2019, with 19,384 claims made to providers — including a record 2000 claims in December.

That was well up on the 1677 claims in December 2018 and is the highest monthly claim rate since KiwiSaver was launched in July 2007.

Mark Jephson, chief executive of Perpetual Guardian, a trustee company which oversees KiwiSaver hardship claims, said no reason came to mind as to why the numbers were up.

“KiwiSaver is growing, although the number of new members is slowing down.”

The percentage of KiwiSaver members making hardship claims in December 2019 was higher than the prior December, despite New Zealand’s economy going through one of its strongest growth periods and unemployment hitting record lows.

Jephson said while some people were doing better, it appeared others were not. “It might be benign economic times . . . but this is a measure of what is happening socially and economically.”

He said most financial hardship applications were triggered by a life event — “whether it is a job loss, unexpected illness, family event. One wage earner out of work for a period of time.”

Often those people were in some form of debt and many were repeat customers, he said. “That is relatively common.”

Jephson said that was because trustees would only advance enough money from a person’s KiwiSaver account to alleviate the significant financial hardship for a period of time — usually 12 weeks.

If they haven’t found a new job by then, for example, the person may apply again.

Jephson said there was typically a spike in applications after Christmas when all the bills came in, but this time it appeared people had fallen on harder times before the festive season.

The rise in hardship claims comes as the Retirement Commissioner has recommended the Government establish a centralised financial capability hub for hardship applications.

In the 2019 review of retirement income policies the commissioner’s report says this is needed to ensure a “consistent approach, improve fairness and trigger budgeting, counselling and other wrap-around assistance.

“One of the key pieces of feedback we received from a KiwiSaver review forum held with KiwiSaver providers and Government agencies was that hardship applications bring a wide range of wellbeing and other considerations with them.

“Providers tell us they are illequipped to deal with some situations, such as when a hardship applicant shows signs of severe stress, or for example, threatens to take their own life.”

A survey of budget advisers who work with hardship withdrawal applicants found they were able to divert one in five from taking the money out, through giving them alternatives, and more experienced advisers were able to divert half of applicants.

The report recommended that budgeting service FinCap provide the service and step in to give advice, between the application going from the provider to the trustee for approval.

FinCap chief executive Tim Barnett has welcomed the recommendation.

“Currently people in financial hardship wanting to withdraw Kiwisaver may go to a local budget service to talk through options or get help completing the paperwork. The evidence is that many people do have other options.

“That can create a win-win-win situation — their retirement savings aren’t reduced, the KiwiSaver scheme remains strong and they are on a pathway to financial capability. We look forward to discussing with Government and KiwiSaver companies how to progress these excellent proposals.”

Jephson said he liked like the idea of wrap-around services but was not convinced it would stem the flow of hardship claims.

“If they meet the test, the law provides for it. People do have to live for today — to meet day-to-day expenses.”

He said those who applied had an immediate need for the money and an intermediated process could slow it down.

The Government has said it will respond to the recommendations in the report by the middle of the year.