Insights for consumers
If you are applying for a KiwiSaver withdrawal on the grounds of significant financial hardship or serious illness, you need to be aware of what the law allows.
The KiwiSaver scheme aims to preserve savings for use in retirement, after age 65. The rules for early withdrawals are strict. Significant financial hardship withdrawals are intended to cover essential living expenses, rather than funding asset purchases or lifestyle changes.
Make sure you provide clear evidence of your hardship and explore all other options first. Withdrawals are typically limited to cover essential expenses for short periods (13 weeks), after which you can reapply if you are still facing significant financial hardship.
Be prepared to provide your KiwiSaver provider or supervisor with further evidence to support your claim.
KiwiSaver provider: is the organisation that manages and invests your KiwiSaver funds (the fund manager). They receive withdrawal applications, but do not make decisions on them.
KiwiSaver supervisor: makes sure the provider follows all the rules. There are only five supervisors in NZ who oversee all the different KiwiSaver funds. They make the decisions on withdrawal applications.
Samantha applies for a financial hardship withdrawal
Samantha applied to withdraw KiwiSaver funds under the significant financial hardship provisions. Samantha wanted to use the funds to buy a tiny home, caravan, or container as a long-term solution to her financial hardship. Samantha explained that her current living situation was unstable and causing her stress and anxiety.
The KiwiSaver supervisor declines the application
The supervisor declined Samantha’s application for funds to buy a tiny home, saying that the KiwiSaver Act only allows withdrawals for essential living expenses, not asset purchases like Samantha wanted. Instead, the supervisor approved a limited withdrawal to cover 13 weeks of essential living costs.
Samantha believed this was unreasonable and complained to Financial Services Complaints Limited (FSCL). She said that the supervisor had not properly considered her circumstances or mental health. She also felt there was a lack of dignity or genuine assistance for applicants during the withdrawal application process.
Samantha’s view: A tiny home is a long-term solution to hardship
Samantha argued that buying a tiny home would provide stability and improve her financial hardship in the long term. She felt the supervisor applied the rules too rigidly, without a commonsense approach. Samantha also said the communication during the process lacked clarity and sensitivity.
Why the CoFI and FMCA rules did not apply
The supervisor said that they followed the KiwiSaver Act and industry guidelines. They explained that hardship withdrawals are intended to address urgent needs, such as essential living expenses, and that did not include a tiny home. They also said that limiting withdrawals to 13 weeks is standard practice under the guidelines.
FSCL’s analysis of the decision
We reviewed the complaint, the law, and the Financial Services Council guidelines. We found that the supervisor’s decision was reasonable:
- The KiwiSaver Act does not allow withdrawals for buying assets like tiny homes, even if intended to improve long-term hardship
- Limiting withdrawals to 13 weeks for immediate needs, with reassessment at the end of that period, is standard practice
- While communication could have been clearer and more sensitive, this did not make the decision unreasonable.
We recommended that the supervisor discuss with the provider the way they communicate with vulnerable customers.
Outcome of Samantha’s KiwiSaver complaint
We determined that the supervisor’s decision was reasonable under the law and guidelines. The complaint was not upheld.
