Clive Fernandes
Auckland, December 12, 2023
Clive Fernandes
Auckland, December 12, 2023
New Zealanders are increasingly exploring their KiwiSaver funds to manage financial hardships, observing a doubling of withdrawals compared to the previous year.
In October 2023, $21.5 million was withdrawn, up from $10.3 million in the same month in 2022, signalling a noteworthy trend.
As someone in the financial advisory field, I think that the surge in KiwiSaver hardship withdrawals raises considerations. The number of monthly applications has surpassed a thousand, a situation that was less common before the Covid-19 pandemic.
Data Insights
Data from the supervisor of 11 KiwiSaver schemes, the Public Trust, reveals a significant increase in severe illness and financial hardship applications.
In the 2021 financial year, there were 9805 applications, dropping to 7194 in the following year. However, in the 2023 financial year, the total surged to 10,321, with 9165 being serious financial hardship applications. Year-to-date data for 2024 indicates 4451 applications, with 4071 being serious financial hardship cases. If this trend continues, it could result in over 13,000 applications for the entire year, double the figure for 2022.
Root Causes: Beyond Employment Changes: The driving force behind these withdrawals is no longer primarily changes in employment circumstances but rather the financial strain induced by factors like rising interest rates. Even if still employed, individuals are grappling with challenges such as higher interest rates that were not anticipated. This trend is considered unsustainable, particularly given the already low contribution rates.
Navigating the Regulatory Landscape: Despite concerns, it is crucial to recognise the stringent withdrawal rules, requiring applicants to provide evidence of significant financial hardship. Each application is assessed, often involving the completion of a budget sheet to thoroughly understand the individual’s financial situation. The measure of financial hardship must demonstrate a significant and likely occurrence.
Strategic Considerations of KiwiSaver Withdrawals: As KiwiSaver can offer short-term relief, it is not necessarily a bad option if needed, especially when compared to accumulating high-interest debt. Readers are advised to weigh the pros and cons carefully.
Consideration should be given to market conditions and the fund’s performance before considering an early withdrawal. Withdrawing when the market is low can have a more significant impact than during favourable market conditions.
Financial Discipline
Balancing the Short-Term and Long-Term: If one decides to withdraw early, exercising financial discipline is advisable. Restarting savings in KiwiSaver and gradually increasing contributions to compensate for the early withdrawal when financial situations improve is a prudent approach.
Balancing short-term needs with long-term retirement goals lies at the core of sound financial decision-making. It is advised to approach these decisions with a comprehensive understanding of both aspects, seeking guidance from financial professionals if needed.
Clive Fernandes is the Director of National Capital, a financial advisory firm that provides personalised investment advice, primarily focusing on KiwiSaver.
Disclaimer: The views expressed in this article are the author’s views. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
