Financial hardship claims may be on the rise. What’s the deal with KiwiSaver scheme withdrawals?

by Nick Stewart

Coming off a year of interest rate rises and increasingly painful living costs, the amount being withdrawn from KiwiSaver funds to cover financial hardship has sharply increased.

While the overall number of withdrawals for any reason has decreased, the dollar amount of withdrawals due to financial hardship has jumped $4.4m up from September 2021, almost doubling from $6.8m to sit at $11.2m. As an indicator of the housing market, the IRD data set reports the amount attributable to first home purchase dropped from $100m in September 2021 to $70m at the same time in 2022.[i]

It’s not only lower income households struggling, but middle and even some higher income households claiming hardship too. With a 14-year high on food prices reported back in October and inflation at 7.2%, even those who may have been comfortably paying down debt or even just buying fresh produce may find themselves struggling more.[ii]

If you weren’t aware, there are very finite reasons why you may withdraw from your KiwiSaver account before you’re 65:

1. Using some of your funds towards your first home.

2. Moving overseas; if you go anywhere outside of Australia and NZ for over a year, you count as having ‘permanently’ moved and can withdraw most of your savings. If you’ve moved to Australia permanently, you can transfer your KiwiSaver funds to an Australian Super scheme.

3. Serious health problems which permanently affect your ability to work, or if you could die.

4. Significant financial hardship, bankruptcy, or by court order.

5. In the event of your death, in which case your funds will form part of your estate.[iii]

Even if you qualify under these, you usually can’t withdraw the entirety of your investment.

KiwiSaver is meant to be the vehicle to provide New Zealanders with a comfortable lifestyle after 65, or as they retire and generally have less income than they did for the past 40-something years of being in the workforce. The more you have to take out before you’re 65, the less you’ll have to retire on.

Additionally, it can take weeks for approval to go through. Even if you qualify for any of those circumstances, you’re looking at a weeks-long and a potentially difficult process. It’s not designed to be an easily accessible safety net. The bar is high because a comfortable retirement is not guaranteed for everyone without additional funds to back them.

This may be part of the reason why the number of reported withdrawals is not as high as in past, even while various scheme providers and budget advisory services report a creeping increase of people querying the process.

On the other side of the process, there have been less compaints to the Financial Services Complaints agency (which is a disputes resolution agency). This might hint that if less people are disappointed by their applications being declined, perhaps there are more being approved.

So far the increased queries regarding withdrawals have not translated into a rise in actual transactions. But if it’s in people’s thoughts already… we may see the result of some of these queries in the next data series, as household bills aren’t tipped to get smaller anytime soon. [iv]

It’s important to keep your eye on the retirement horizon (and beyond) if you are able to weather the current storm. The Retirement Commission released information in November stating that the myth of retirement – a ‘wealthy-ish’ homeowner with enough capital to live comfortably – only applied to about 50% of the population currently. That number will decline as home ownership becomes less and less common.[v]

If you can, stay the path – but consider how you can fit it to your goals, be they immediate or long term. If you need a savings record to get a home loan, consider splitting your efforts to put the minimum into your KS and auto-pay the remaining balance into another account before you can miss it. If you’re purely aiming for retirement, put as much as you can manage in, make sure you’re in the right fund for your goals and timeframe, and ‘set and forget’.

If you’re struggling with allocating money on increasingly tight resources, there are budget advisory services you can use to help keep you on track. Sorted.org has a free budgeting tool. Booster (a KiwiSaver scheme) have their free mybudgetpal app. Or if you need someone to talk to directly, you can access free, confidential services via MoneyTalks.

And if you’re looking for a second opinion on your KiwiSaver or investments, contact a trusted financial adviser for a chat about your specific situation and goals – it’s a great place to start.

• Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. 

• The information provided, or any opinions expressed in this show, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.ird.govt.nz/about-us/tax-statistics/kiwisaver/withdrawals/amount

[ii] https://www.stats.govt.nz/information-releases/food-price-index-october-2022/

[iii] https://www.booster.co.nz/booster-kiwisaver-scheme/kiwisaver-withdrawals.aspx

[iv] https://www.newshub.co.nz/home/money/2022/11/kiwisaver-hardship-withdrawals-drop-but-inflation-recession-could-change-that-poverty-researcher.html

[v] https://www.rnz.co.nz/news/business/479687/retirement-commission-review-suggests-more-people-set-to-retire-without-a-nest-egg