Overseas debt and your KiwiSaver
Once a withdrawal application is processed and approved by the KiwiSaver scheme provider, the member’s balances will be payable to the Official Assignee.
Q In case of bankruptcy can the Official Assignee have access to my KiwiSaver funds after I’m 65 years old? I have debts out of New Zealand which have gone to legal proceedings in that country, but not in NZ.
I’m asking this in case foreign debtors put me into bankruptcy here in NZ. It’s all spiralled out of control and I can’t afford pay back those debts.
I would be very grateful for any information as I’m worried how I would survive if I went bankrupt in NZ. A You are in a tricky situation and your concern is understandable. I put your question to Emma Dale, special counsel to law firm Chapman Tripp in Auckland. She replied: “Members’ KiwiSaver balances are an asset for the purposes of insolvency. Generally, though, KiwiSaver balances are protected from creditors while they remain invested in the KiwiSaver scheme.
“This is the result of a Court of Appeal decision that made it clear that money that remains in a member’s KiwiSaver account does not pass to the Official Assignee if the member is adjudicated bankrupt.
“The protection of KiwiSaver balances that was set out in the Court of Appeal decision does not extend to amounts to be paid to a bankrupt member from their KiwiSaver account. Accordingly, if a member makes an application to their KiwiSaver scheme provider for release of the funds, for example, because the member is entitled to access their KiwiSaver balance at 65 years of age, then, if the member remains an undischarged bankrupt, the funds paid to the member vest in the Official Assignee.
“KiwiSaver providers should ensure that a bankrupt member is aware of the consequences of making such an application and is given an opportunity to reconsider their request before it is processed. Once a withdrawal application is processed and approved by the KiwiSaver scheme provider, the member’s balances will be payable to the
Official Assignee.
“One of the reasons for early withdrawal, significant financial hardship, requires that the money be needed to alleviate the financial hardship experienced by the bankrupt.
“The Court of Appeal held that the release of funds in the case of a bankruptcy does not meet that goal. Instead it serves the interests of the bankrupt member’s creditors (and does not alleviate the hardship on the individual bankrupt member). Such an application in bankruptcy is therefore unlikely to succeed, unless there are other circumstances existing.”
“I am not commenting on the effectiveness of New Zealand bankruptcy laws against foreign claimants as that is another matter.”
The Court of Appeal’s decision should help your situation if you are made bankrupt in New Zealand, provided you do not apply for withdrawal of your KiwiSaver balances even once you reach 65 years of age.
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 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