Kiwisaver withdrawals rise
More middle-income earners seek hardship payments
The amount of money being withdrawn from Kiwisaver schemes for hardship reasons has nearly doubled in a year as more middle- and higher-wage earners find their “household income isn’t sufficient to live on”.
A budget advice service says it has experienced a “huge increase” in people seeking help with applications for hardship withdrawals from their Kiwisaver account.
Figures from the Inland Revenue Department show that nationally in the year to September 1614 people withdrew $11.1 million, compared with 1045 people who withdrew $6.7m in the year to September 2021. In the year to September 2020, amid Covid-19 lockdowns, 2010 people withdrew $14.2m.
In the Bay of Plenty over the same period, $576,345 was withdrawn to September this year by 104 people, compared with $499,745 by 81 people the year before and $911,548 by 133 people in 2020.
Rotorua Budget Advisory Service manager Pakanui Tuhura said up to six people a week were seeking help with Kiwisaver hardship withdrawals, compared with one or two before Covid.
“We have experienced a huge increase in people coming to us . . . and we are not alone. It has become a major reason for people to seek out budget services for advice and support.”
He said that pre-pandemic it was typically low-income households and clients who needed to make withdrawals but that had changed.
“We are getting more and more middle-income and even higher. It is very stressful for the people we see as a Kiwisaver hardship application is usually made after all other options have been exhausted.
“Even people who previously had been financially safe are finding that their household income isn’t sufficient to live on. They are having to make much harder decisions about their money and lifestyle.”
Tuhura said that fundamentally the withdrawal criteria depended on what the Kiwisaver provider allowed.
“Most hardships are because the clients are not able to cover their basic needs of food, accommodation or power but some providers allow other reasons including debt repayment etc.”
He said if the reason for hardship aligns with the provider then the approval process was relatively straightforward and clear.
“If it doesn’t align then it can feel like pulling teeth.”
Te Ara Ahunga Ora Retirement Commission personal finance lead Tom Hartmann said withdrawing from Kiwisaver should be a last resort, not for paying off debt.
“It’s really to keep food on the table and pay essential living expenses or your mortgage.”
It could also be used for medical treatment or in some cases a funeral.
“So we are really talking about food and shelter, not credit card debt, fines, debt collection agency bills, hire purchases or anything that is non-essential like holidays.”
Hartmann agreed with that principle because otherwise people might feel encouraged to raid their Kiwisaver under the hardship scheme, which could affect how they related to borrowing.
He said it was good for those in genuine hardship but he advised anyone contemplating it to seek advice.
“If we are talking about stopping people from going homeless that is a real good thing. It eases people’s minds that if something went really pear-shaped they would have their Kiwisaver but it is locked away and it should be.”
Withdrawing was a big deal because you could lose tens of thousands of dollars in future income.
If you were aged 35, had $22,000 in Kiwisaver, and took out $20,000 now, by age 65 you would have $74,000 less.
“That is a lot to walk away from and, while it depends on what inflation and other things do, we want to impress on people it’s a lot of money.”
Bay Financial Mentors manager Shirley Mccombe said people often thought they just come in, complete a form, and get the Kiwisaver hardship money.
“Withdrawal is a process and requires budgets, up-to-date balances, and sometimes quotes and it must be signed by a Justice of the Peace. This all takes time, technology and confidence/capability. Cost of living and homelessness has contributed to the need.”
She said often her company only helped with establishing the budget and the person made the application.
Mccombe agreed Kiwisaver withdrawals should be a last resort. “We often see clients who are returning to make another application when the money withdrawn the first time has not been used for the reason outlined in the application.”
It was important to look at why the person was in hardship.
“Sometimes, it is completely outside of their control and their Kiwisaver is a lifeline. For others, they need to make changes in their lifestyle/choices so that they do not fall back into hardship.
“Kiwisaver should not be seen as the easy way out, but many consider that because it is their money, they should be able to access it whenever they want to.”
ANZ, New Zealand’s largest Kiwisaver provider, said that as of October it had about 680,000 members and $34 billion in funds was under management.
That fell from about 740,000 members in October 2020, a spokeswoman said, and a significant driver of the decrease was the transfer of its default members in December last year to the new providers.
She said that over the past three years the number of hardship withdrawals has fallen 16 per cent and ANZ did not release detailed information on the reason for hardship withdrawals.
“Kiwisaver is designed to help people save for retirement, so before applying for hardship withdrawal, it is important people have talked to their bank about how they might be able to assist and talked to Work and Income NZ [Winz] who might be able to offer financial support.
“For those experiencing significant financial hardship who have exhausted all other reasonable alternatives, they may be eligible to withdraw some of their Kiwisaver savings early. They will need to show they have used any savings they have, cashed in any investments or shares, asked their bank for assistance, and asked Winz for assistance.”
The amount they can withdraw depends on their situation and was decided by independent scheme supervisor the New Zealand Guardian Trust Company Ltd.
According to ANZ’S website, you may be eligible to withdraw some of your Kiwisaver savings early if you’re unable to pay for minimum living expenses such as power, water and food bills. Mortgage, rental or board payments, or modifications needed on your home to meet special needs, if you or a dependent family member was disabled, could also qualify.
Other mitigating factors could be necessary medical treatment for you or a dependent family member and funeral costs if a dependent family member dies.
Fisher Funds chief client officer Cath Lomax said the fund manager had more than 200,000 members and $7b invested across its two Kiwisaver schemes and had grown steadily over the past few years.
“Hardship withdrawals have legally defined criteria. While withdrawals for our clients are tracking slightly above where they were last year, only a small number of members do this each year.”
Kiwisaver was a crucial tool to help New Zealanders save for retirement and for their first home, and it had helped many Kiwis achieve a more secure financial future, she said.
BT Funds Management New Zealand chief executive Nigel Jackson said the Westpac Kiwisaver Scheme had about 423,000 members as of September 30, an increase of about 38,000 as default members were reallocated.
He said hardship withdrawals had fallen in the past two years.
“We work together with customers experiencing hardship to explore their options and refer them to our budgeting or financial capability resources if needed.”
By law, a Kiwisaver provider was unable to approve applications for a withdrawal of funds. That responsibility was held by an independent external supervisor.