The withdrawal application
Richard is self-employed. He runs a small business which unfortunately suffered a downturn in trade, in part, because of the Christchurch earthquakes. This made it difficult for Richard to meet his financial commitments.
Richard applied to his KiwiSaver trustee to withdraw funds early from his KiwiSaver account because he said he was likely to suffer financial hardship. The trustee declined Richard’s withdrawal application.
Richard’s business was continuing to lose around $250 each month. Richard had previously taken out a business loan, secured by his home, which was around $41,000 when he complained to FSCL in mid 2014. He also had a $4300 credit card debt. Richard also had funds in savings accounts of around $14,000 as at April 2014. Richard was also close to retirement age; he turned 63 in 2014.
Richard argued that even though he had savings and could currently meet his financial commitments, with some financial pressure, his savings would eventually run out because his business was losing money. He argued that on this basis, he should have access to his KiwiSaver funds early to avoid this situation.
The trustee’s view
The trustee said it had a duty under sections 10 and 11 of the KiwiSaver scheme rules (schedule 1 of the KiwiSaver Act 2006) to determine whether a member was likely to suffer financial hardship and meet minimum living expenses. But the trusteet also had a duty to be reasonably satisfied that all alternative sources of funding had been explored and exhausted before approving a KiwiSaver withdrawal on the basis of significant financial hardship. The trustee said that because Richard still had savings, he had not exhausted all alternative sources of funding.
Richard could apply again for a withdrawal in the future, if his financial situation worsened, but he did not meet the high threshold for a KiwiSaver hardship withdrawal at the time.
FSCL’s view and role
We investigated the complaint and foundthe complaint could not be upheld. Our role when considering complaints about early withdrawals from KiwiSaver is not to supplant our view for that of the trustees, but to assess whether the trustee has considered the KiwiSaver Act 2006 and other guidelines and made a reasonable decision in all the circumstances.
We reviewed the KiwiSaver Act 2006 and the Workplace Savings Guidelines’ definition of ‘minimum living expenses’. The Guidelines outline that a person is unable to meet their minimum living expenses if they cannot pay for essential items, including food, accommodation, healthcare and essential travel.
Richard was looking to sell his home to pay off the business loan secured against it. We noted however that Richard’s bank had not taken legal action (i.e. issuing a Property Law Notice); Richard had made the decision to put his home on the market.
We agreed that the trustee had come to a reasonable decision when it determined that Richard did not yet meet the high threshold of ‘significant financial hardship’. Richard needed to use the savings he had, and he could re-apply later for an early withdrawal, if that was necessary.
We were also of the view that there was no guarantee that Richard’s business was going to recover. We noted that Richard was close to retirement age and if his business was wound up it may be difficult for him to find other employment. We sympathised with Richard’s situation, however, we suggested to Richard that he seek advice from his accountant or a financial adviser about whether continuing to trade was the best option for him in all the circumstances.
Lessons to be learned
It’s important to remember that there is a high threshold to meet when seeking an early release of KiwiSaver funds. The aim of the KiwiSaver regime is for funds to be ‘locked in’ until members reach the age of retirement (currently 65 years). The underlying policy reason for this is for New Zealanders to fund, at least in part, their living expenses when they retire from their income while they were working.
It is not the purpose of the KiwiSaver regime as a whole to be a form of savings scheme whereby members can access funds at their discretion to assist when there are periods of financial difficulty for them personally or to ‘prop up’ a failing business.