Family debt difficulties

Kassidy’s life was turned upside down when her partner left her and their two small children. She resigned her job to look after her kids and, because she could not afford rent, moved in with her parents. Just before her relationship broke down, Kassidy had borrowed $6,000 from her mum to buy a car, agreeing to repay the loan by the end of the year. However, without a job, Kassidy could no longer afford to repay her mum. Kassidy’s relationship with her mum was deteriorating when her aunty, Vanessa, offered to help.


Vanessa suggested Kassidy withdraw money from her KiwiSaver account to repay the loan. Kassidy completed a significant financial hardship application explaining that a change in her circumstances left her unable to repay a debt to her mother.


The trustee of Kassidy’s KiwiSaver assessed her application and agreed to release $1,400 towards the deficit in Kassidy’s budget, but declined to release money to repay Kassidy’s mum. The trustee explained that it did not usually release money to pay family debt.


Vanessa contacted the KiwiSaver provider, explaining Kassidy’s relationship with her mum had broken down because of the debt. Vanessa asked the KiwiSaver provider to reconsider. At the trustee’s suggestion Kassidy’s mum provided a statutory declaration supporting Kassidy’s application. Because Kassidy had bought the car with cash, the trustee said it would consider the application again if Kassidy could contact the car seller for confirmation that she had bought the car. Kassidy tried, but the person who sold her the car had moved overseas.


The trustee said that, without a statement from the previous owner, it was unable to approve an application to withdraw $6,000 to repay family debt. Kassidy and Vanessa did not accept the trustee’s response and complained to FSCL.



Kassidy said she had given the trustee all the information she could to support her application. Vanessa agreed, saying Kassidy was experiencing both financial and emotional hardship that could be relieved if the trustee would release Kassidy’s money.


The trustee responded that unless it could be certain of the transaction sitting behind the loan, it was not prepared to release money to pay Kassidy’s mother. Kassidy could not provide this information, and so the trustee continued to decline to release funds.



We explained to Kassidy and Vanessa that Kassidy’s money was locked into her KiwiSaver account until Kassidy reached retirement age, currently 65 years. Although Kassidy could apply for an early withdrawal on the grounds of significant financial hardship, in our experience a trustee is unlikely to release money to pay debt because the debt does not necessarily indicate financial hardship. The release of money to pay family debt is even less likely, because financial hardship caused by family debt is hard to prove.


We could see the trustee was trying to help relieve Kassidy’s financial hardship, and had released money to alleviate her weekly budget shortfall. The trustee was prepared to look retrospectively at Kassidy’s car purchase, and we considered it reasonable for the trustee to ask for direct proof of that purchase.


We acknowledged that Kassidy was unable to provide the proof the trustee needed, but this did not mean that the trustee was obliged to waive its requirements and release the funds. We were not prepared to ask the trustee to change its decision.



We were not persuaded that the trustee had made a mistake when assessing Kassidy’s application and remained of the view that the trustee was entitled to ask for proof of the debt before it released money from Kassidy’s KiwiSaver. While the release of funds would alleviate Kassidy’s emotional stress, the KiwiSaver Act only allows the release of funds to alleviate financial hardship, in this case as a result of Kassidy’s inability to meet her minimum living expenses.


Insights for consumers

The purpose of the KiwiSaver Act is to help New Zealanders save for retirement. There should be no expectation that KiwiSaver is a savings fund that members may dip into at will. If it is too easy to withdraw money, there will be no savings left on retirement.

Trustees may only release money when they are satisfied the significant financial hardship criteria allowing early release are met. Inevitably some people will disagree with the trustee about whether or not funds should be released. We are always happy to review these complaints, but ask that you to bear in mind that we will only ask a trustee to review its decision if we consider a trustee has either failed to take into consideration relevant information or relied on irrelevant information. Ultimately the decision to release funds is at the trustee’s sole discretion.