Lessons to be learned when dealing with significant financial hardship applications

The story 

Adam knew his employment contract would end in early December, with a new contract starting in late February.  Adam was paying a creditor $500 a week under a legal agreement.  If Adam defaulted on payments the creditor would recommence legal action which would be likely to bankrupt Adam.  

Adam applied to his KiwiSaver provider to withdraw funds to meet his living expenses and $500 weekly debt repayments during December, January and February.  The KiwiSaver provider passed the application on to the trustee, and the trustee declined the application because Adam was not, in the trustee’s view, experiencing significant financial hardship.  

Adam applied again in November and December providing more information about his financial situation.  The trustee again declined the applications.  In January Adam complained to FSCL.   By now Adam had defaulted on his debt repayments, was having difficulty buying food and paying his rent.  Adam had also received a prepossession notice because his car loan was in default.   In February the trustee agreed to release money to meet the $500 weekly debt repayments and the car loan default but was not prepared to release money for other living expenses, including food, because Adam had not provided arrears notices. 



Adam felt extremely frustrated.  He had tried to be organised and make arrangements ahead of time so he would not default on his financial obligations, and would be able to meet his living expenses.  Although the trustee had released funds when Adam’s creditors had issued demand, having to wait for this to occur was stressful, especially when he did not know if and when the trustee would release money. 


FSCL’s review 

Although we did not issue a formal decision on this complaint we found lessons could be learned from Adam’s complaint. 


Provide a reminder that KiwiSaver funds are ‘locked in’ 

Many people appear to believe money in their KiwiSaver account belongs to them without appreciating that the ability to access the funds before the age of eligibility, currently 65, is extremely limited.  We suggested the application form for withdrawal could be accompanied with the reminder that KiwiSaver is ‘locked in’ and that to access the funds early a person must have extremely good reasons and have exhausted every other reasonable avenue.  It may also be helpful to give examples of what will and will not be acceptable reasons for an early withdrawal. 


Provide detailed reasons an application is declined 

Adam found the inability to contact the trustee directly, to ask why his application was declined, frustrating.  It also resulted in at least three extra hardship applications being lodged as Adam tried to persuade the Trustee to release the funds. 

We could understand why the contact with Adam came through the KiwiSaver provider but wondered whether more detail could be given to allow the KiwiSaver provider to provide a meaningful response to the member.  Providing reasons for the decision to decline an application may help the member to either provide a more focused second application, or accept the decision that their situation does not meet the high statutory bar. 


Likely to suffer significant financial hardship 

The trustee later explained it does not accept that evidence a debt is owed is financial hardship.  The trustee requires evidence that the creditor intends recovering the debt and that the debt recovery action will cause significant financial hardship.  We could see the trustee may have been justified in its decision not to release funds in late 2013, before Adam defaulted on the $500 weekly debt payments.  However it may have been helpful if the trustee had given Adam more information.  For example, the trustee could have explained its view and suggested Adam resubmit an application if he defaulted on the $500 weekly payments and the creditor demanded payment threatening legal action.  


Minimum living expenses 

Adam also applied for funds because he was worried he would be unable to buy food and pay rent when his income stopped in December.  The trustee noted Adam’s December bank statements showed he had bought lotto tickets, justifying its decision to decline his application for funds to meet living expenses.  Although Adam may have purchased lotto tickets in December this should not have affected the trustee’s decision to release funds for foods if he could not afford to buy food in February. 

We also noted the Workplace Savings NZ Significant Financial Hardship Guidelines refer to the Otago University annual nutrition cost survey to allow for the estimation of costs of providing adequate nutrition. 



While we were reviewing Adam’s complaint the trustee released Adam’s entire KiwiSaver balance to allow him to meet his $500 weekly debt repayments, and car loan repayments.  Adam then withdrew his complaint.