Kiwisaver in troubling times

While we all hunker down at home, many of us will be thinking about our Kiwisaver accounts - paying far more attention to the specific type of fund your money is invested in, and the decline in funds you are most likely seeing. With any investment, the rise and fall of funds relies on what is happening in the world economy, and even those in the low risk funds will most likely be affected.

Funds are designed for different lengths of time, and have different levels of risk attached. A mistake a lot of people have made with Kiwisaver, is to have elected to sit in a particular fund type when joining the scheme, and never revisit or think about the suitability of the type of fund chosen again. This may be fine for a person who already owns their own home, is middle-aged and Kiwisaver is part of their retirement scheme only. However, if you are looking at buying a home with Kiwisaver funds or getting closer to retirement, this is generally not the case.

The type of fund your Kiwisaver is invested in is definitely something you need to review regularly, as often as six-monthly, for instance when you are planning to use your Kiwisaver savings to fund the deposit for your first home. Once you are getting close to purchasing, it is suggested that you look at lower risk schemes to limit the chances of the funds decreasing. Often funds dip without warning, as most people have seen in the past few weeks, and dip harder in the higher risk schemes. When looking at purchasing a home, this can be most frustrating. Worse still, it can have a negative outcome for any offer or signed contract you have entered into, and deprive you of the opportunity to purchase your dream home.

Let me explain with this example. A $4,000 drop in a Kiwisaver balance has the potential effect of reducing a buyer’s price range by $40,000. There are first home buyers out there who have signed up to purchase properties in reliance on their Kiwisaver that has now dropped steeply – as much as $10,000 in some cases. These purchasers may not be able to withdraw from their contracts and are now looking to banks, other lenders and family members to borrow more funds. If alternative lending is not available, the borrower could well be exposed to the vendor to a claim for breach of contract.

Another burning question being asked in the current climate is whether Kiwisaver can be accessed for financial support. With many people facing financial hardship as a result of the lock down, Kiwisaver could be something to look at to relieve the financial burden.

To be able to apply for funds from your Kiwisaver for financial support, you must provide evidence of ‘significant financial hardship’. The government’s web site (www.kiwisaver.govt.nz) provides guidance on what that means. It includes:

- Unable to meet minimum living expenses

- Unable to meet mortgage repayments on the home you live in, resulting in your mortgage provider enforcing the mortgage on your property

- Modifying your home to meet special needs because of you or a dependent family member having a disability

- Paying for medical treatment if you or a dependent family member becomes ill, has an injury, or requires palliative care - Suffering from a serious illness

- Incurring funeral costs due to the death of dependent family member To be able to access your Kiwisaver funds on the basis of significant financial hardship, you should apply to your Kiwisaver provider directly. They will require proof that you are in financial hardship at the time you contact them (not that you may run out of money soon). For instance , you would need to be able to show you are behind in your mortgage payments, rather than you will not be able to meet your mortgage commitment in a few weeks’ time. You should also expect to be required to show bank statements, bills, letters, demand letters – any documents that demonstrate that you are not coping financially.

The application needs to be accompanied by documents that are required signed by a justice of the peace or other authorised person (these include Member of the police, New Zealand Chartered Accountant, New Zealand Lawyer or Notary Public). Here lies the issue with a lock down as these forms cannot then be signed at this time. There has been talk of changes to the law to alter or delete this currently mandatory step, but this may take some time to occur.

A final thought: Kiwisaver was established as a savings initiative to help support your retirement. Clearly, withdrawing your funds early could have a negative financial impact later in life. It is therefore strongly recommended that advice be sought from a budgeting advisor or your bank before exploring the financial hardship route.

For any legal issues relating to Kiwisaver, Lindsay Hobbs at Treadwell Gordon is available to discuss these with you. Prior to joining the Treadwell Gordon team in 2019, Lindsay worked for 17 years in the banking industry. Since the introduction of Kiwisaver in 2009, he has had a keen interest in the scheme and regularly gives advice on Kiwisaver-related issues.