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Covid withdrawals possible 'but not always desirable'

KiwiSaver members are being told they may be able to withdraw their money to help them through tough financial times caused by Covid-19 – but the decision should be made carefully.

Wednesday, April 1st 2020, 6:57AM 10 Comments

Jane Wrightson

Retirement Commissioner Jane Wrightson said it was understandable that many KiwiSaver members facing financial hardship were turning to their funds as a potential source of short-term income, but there was a range of options they could consider first.

“While your circumstances may qualify for withdrawal under significant financial hardship, taking out money now may severely impact your quality of life in retirement later,” says Wrightson. “There is a lot of other help available you could access before going down that road.”

She said people could check they were getting the full support available from the Government, could ask for support from their bank or advice from helpline MoneyTalks.

“Avoid making a decision based on fear,” says Wrightson. “Emotional situations tend to lead to poor financial choices, so access the help above before turning to the long term savings and investment that is your KiwiSaver. You will not only crystallise the losses your fund has suffered since the effects of Covid-19 began, but also lose out on future returns.”

For example, a 35-year-old earning $80,000 who has contributed 3% to a KiwiSaver balanced fund since KiwiSaver started 13 years ago could have a fund worth $100,000. If they withdrew $30,000 now, they could have $47,000 less by the time they turn 65.

People who wanted to tap into their KiwiSaver account would need to show they were suffering significant financial hardship as a result of Covid-19.

Some elements of the process may be simplified, such as the requirement to sign a form in front of an authorised witness, to take into account self-isolation and level 4 lockdown requirements.

Liam Mason, the director of regulation at the Financial Markets Authority (FMA), said: “We understand providers are focusing hard on helping their customers through these times of financial uncertainty. We’ve been talking to providers about how they can approach KiwiSaver hardship withdrawals.

“We’ve advised providers and their supervisors to take a sensible and practical approach when they consider these applications. We also want providers to point out there are other forms of assistance available from the Government, that people should look to first. Hardship withdrawals from KiwiSaver should always be a last resort, after other options have been exhausted.”

Tags: Covid-19 FMA Jane Wrightson KiwiSaver Liam Mason

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Comments from our readers

On 1 April 2020 at 1:25 pm Murray Weatherston said:
Much more compassionate response in Australia. Looks like they are making it very easy.
Remember To get to the long run, you have to survive a series of short runs!

From official website:

"The government is allowing individuals affected by COVID-19 to access up to $10,000 of their superannuation in 2019–20 and a further $10,000 in 2020–21. Individuals will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

Eligible individuals will be able to apply to access up to:

$10,000 of their super before 1 July 2020
a further $10,000 from 1 July 2020 until 24 September 2020.
To apply for early release, you must satisfy one or more of the following requirements:

You are unemployed.
You are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance.
On or after 1 January 2020, either
you were made redundant
your working hours were reduced by 20% or more
if you are a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more.

You will not be required to attach evidence to support your application; however, you should retain records and documents to confirm your eligibility.
On 1 April 2020 at 1:37 pm Murray Weatherston said:
PS Source is ATO in case anyone thought I was making this up.
Anecdotal evidence is it has been very hard to get a Kiwisaver withdrawal in the past.
Members shouldn't have to beg to a bureaucrat in current circumstances. Give most of ourselves credit for knowing what's best for ourselves. Where is individual responsibility in all this!
On 1 April 2020 at 2:16 pm John Milner said:
Murray, although I don't work in the KiwiSaver space (I have to make a living) I have been successful on several occasions assisting with withdrawals under compassionate reasons of hardship. The very reason KiwiSaver is a success is the fact that the public can't get their hands on the funds easily. Unfortunately I wouldn't give credit to the average KiwiSaver member as they are probably their greatest risk. Never mind the risks of credit, currency, profit, etc. In a perfect world we wouldn't need barriers to our savings but its not perfect. People act in irrational ways and do sell themselves short when they should be strong. We do need to protect our clients from themselves, unless of course they have exhausted all other possible options.
On 1 April 2020 at 4:23 pm All hat no cattle said:
I'm sure the retirement commissioner's pay has not dropped a cent in this crisis.
Probably "working from home".
That advice about making decisions based on fear is a bit hard to hear. My clients who have lost their incomes are making decision based on terror - the reality that they have no idea whether their business/job will be there when this is over. And in that vacuum of uncertainty, one thing that is absolutely certain is that the next mortgage payment will be required. And the next one, and the next one. Same for power, car payments, and taxes.

The kind of "class advice" only a boffin can come up with - that this is a choice about taking $30k now at the expense of $47k later.
Let's just look past the stupidity of that $30k example above - hardship withdrawals have never been that easy, or large. A couple of overdue bills and a bit of mortgage interest is more likely. Not $30k.

No, this is about keeping the wolves from the door.
It's about dipping into one pot, to keep the house.

Ther real problem with hardship withdrawals is that the decision lies with the entity that stands to lose the FUM fees.
On 2 April 2020 at 10:49 am Murray Weatherston said:
Surely I am not the only adviser who thinks that in the current Covid-19 circumstances,it should be easier not harder to get a limited hardship withdrawal from Kiwisaver?
On 2 April 2020 at 12:07 pm Davidvs said:
Totally agree with you Murray. Total silence to date from Govt and FMA on this important topic. Accessing savings is better than racking up more debt the present system is slow, arduous and uncertain. This is overdue for an overhaul - like with Aussie super, KiwiSaver hardship withdrawal process should be simple, fast and certain.
Timely for the KS industry to lobby GR and Co on this.
On 2 April 2020 at 3:12 pm Chris Hardcastle said:
Very few of us have any idea what facing homelessness and potentially starvation (literally and figuratively) is like.

As outlined above, those making the policy and case by case decisions about hardship withdrawals are not facing the same imminent future.

We need to be more compassionate, empathetic and realistic about the fate of many during this massive transfer of wealth that occurs with all financial crises. The middle class is about to get it's biggest shock in generations.
On 3 April 2020 at 8:44 am Richard James said:
Murray et al
The following is an email I sent to Grant Robertson 10 days ago...

Hi Grant
Firstly, well done to you and team on a tremendous job so far, under extreme conditions.
One idea you may like to consider (you probably have already considered it)….
Allow all KiwiSaver members to withdraw say, 20% of their current KiwiSaver balance, at their discretion, without having to go through the hardship framework.
This would provide $10 billion or more of immediately available liquidity to (almost) all New Zealand families, without requiring any governmental funding.
It could be made available immediately, with little or no frictional cost. The infrastructure to process those payments is in place.
I wouldn’t worry about distinguishing between those who have lost jobs/faced financial duress versus those who haven’t as that would massively increase the complexity. Just allow people to take it if they need it.
While it would be a setback to long term savings, and it is an inopportune time to make withdrawals, it would provide a much needed cash infusion that may assist families to navigate their way through the next 3-6 months.
Ultimately it is each individual’s money, and many of them will desperately need it over the next few months. It seems cruel for them to have financial resources that they can’t access in that situation.
If there is anything I can help you with in this regard or otherwise, please do not hesitate to sing out.
Cheers
Richard
PS. Don’t let KiwiSaver managers’ (whose primary instinct is to preserve the assets they manage) convince you that it is not in their member’s interests!
On 3 April 2020 at 11:32 am Denis said:
Just signing in to agree with @richardjames.
On 5 April 2020 at 3:51 pm Graeme33 said:
Brilliant Suggestion Richard!! we have to push this very hard.Graeme Adams

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