Call for IRD to vet KiwiSaver hardship claims

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Inland Revenue should take charge of the KiwiSaver hardship application process to eliminate glaring inconsistencies, Guardian Trust's Bryan Connor says.

Friday, September 30th 2011, 7:22AM

by Niko Kloeten

Connor, Guardian's general manager of corporate trusts in Auckland, raised the issue in a recent speech to the Workplace Savings conference, where he said it "doesn't make sense" to leave the ultimate call on hardship to trustees.

Although accepting his view was "controversial," he said Inland Revenue was the logical choice to look after hardship because it was already involved in making the decisions on contribution holidays.

He told Good Returns it was an "anomaly" that issuer obligations were changing away from trustees to managers, but trustees were still being left with the hardship process.

And he said there would be "a hell of a lot more consistency" if the process was handed over to Inland Revenue rather than being left to individual trustees or scheme providers.

"We have seen evidence of couples using different schemes both applying for a hardship claim and one scheme says yes while the other scheme says no," he said.

Although trustees could manage the consistency of hardship claims across schemes they supervised, "there's no guarantee New Zealand Guardian Trust's process would line up with Public Trust's or Trustees Executors, etc."

Connor said the issue needed to be sorted out because it was only going to get worse as KiwiSaver continued to grow.

"As the scheme gets bigger and bigger people are going to start looking at their accounts and thinking, ‘is there some way to get at that money?'

"Another point is there is evidence of people who will be in a scheme and apply for a hardship claim and get turned down, then switch to another scheme and try it again."

He said this sort of behaviour raised costs for providers and ultimately other members, and Inland Revenue would be better placed to identify it and stop it.

Mike Woodbury, a partner at Chapman Tripp and former chairman of the Association of Superannuation Funds of New Zealand, agreed trustees were the wrong people to be assigned the job of scrutinising hardship claims.

"Making decisions on hardship and serious illness claims is one of the most hands-on and labour-intensive aspects of KiwiSaver and it seems firmly on the operations side of the KiwiSaver divide - we think it's a little incongruous.

"The role of the trustee is to supervise issuer compliance - what that should involve is they look at the forms and processes used by the issuers.

"If providers x and y have both processed 100 hardship claims and one has approved half and the other one has approved three quarters, find out why, but that's as far as it should go."

Woodbury said Chapman Tripp didn't advocate Inland Revenue being in charge of hardship claims but he said it was "worth a look at exploring."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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