Hardship claims set to jump

Financial hardship applications for KiwiSaver could spike sharply in the second half of the year as the 12-week employer wage subsidy comes to a close, experts predict.

Data for March shows 1958 hardup Kiwis took a combined $12.7 million out of KiwiSaver for hardship reasons, compared to 1786 who took out $10.24m in March last year.

That is only a tiny fraction of the 3 million people who belong to the scheme, which has around $59 billion invested.

Claire Matthews, a Massey University KiwiSaver expert, said there was potential for a “substantial increase in applicants” wanting to get their money out of KiwiSaver.

“I wouldn’t expect to see much [increase] in the current quarter,” she said. “But come the first of July, when the support will disappear, that is when we will start to see an increase, in the latter part of the year.”

That seems to be borne out by figures from ANZ — the largest KiwiSaver provider — which saw a drop in hardship applications during the level 4 lockdown.

An ANZ spokeswoman said hardship applications fell 36 per cent between March 26 and April 23 compared to the same period last year.

“We expect this decrease is largely driven by people accessing other forms of financial support available during the Covid-19 crisis.”

She said it was too soon to tell if Covid-19 would affect KiwiSaver hardship withdrawals.

KiwiSaver has already been through one recession, in late 2007 to March 2008. But at that time balances were small, as KiwiSaver only launched in July 2007, and the first investment money was allocated in October 2007.

Now the average balance is around $20,000.

Tom Hartmann, money editor at the Government’s money education arm, the Commission for Financial Capability, said that made it a tempting place to raid for those in debt and

under pressure from job losses or a reduced income.

“I think there will be more applications. Whether they are accepted is another thing altogether.

“If you have a debt burden it feels a lot heavier in the Covid world and your mind turns to KiwiSaver,” said Hartmann.

He said people could claim hardship only if they were not able to meet their day-to-day living expenses.

“It’s not for paying off the mortgage but for making mortgage payments.”

Katrina Shanks, chief executive of Financial Advice New Zealand, told Newstalk ZB’s Heather du PlessisAllan KiwiSaver could be accessed for hardship — but the bar was high.

“You’ve got to prove you cannot service your debt in any way, shape or form to basically do that.”

She said the pandemic meant there could be a case to adjust laws to grant people access to a portion of their fund.

However, Shanks said a range of questions would need to be answered first — noting that the Government was still working to help people and businesses in other ways too.

“It’s how fast can the economy recover, how fast can people get back into jobs again, how fast can businesses pick up?

Hartmann said hardship withdrawals should be a last resort.

He said withdrawing money from KiwiSaver accounts at the moment could mean people crystallise any losses and miss out on future investment growth that would help boost their money for retirement.

“The important thing to understand is that it can’t be used to repay debt, that is important for everyone to realise. If you were going to use it to pay off debt then many people would not have retirement savings at all,” he added.

Hartmann said the big variable that could affect how many people applied for hardship was ongoing government financial support and the ability of businesses to keep employing people.

“What happens after the 12-week employer wage subsidy ends?”

Part of the agreement with employers who apply for the wage subsidy is to keep workers on, a move that has helped the numbers of newly unemployed remain relatively low so far.

But economists and Treasury have predicted the unemployment rate could hit double digits.

The rate was 4 per cent at the end of last year.