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New guidance for consumers on KiwiSaver early withdrawals

Financial Services Complaints Limited (FSCL), a free dispute resolution service, has released guidance to set consumer’s expectations when applying to access KiwiSaver funds early on the grounds of serious illness.

The document’s release comes as financial ombudsman, Susan Taylor, could not uphold complaints where consumers wanted to access their retirement savings to pay for weight loss surgery.

FSCL can investigate a complaint about a KiwiSaver supervisor’s decision to decline a serious illness withdrawal, but we cannot require the supervisor to approve a withdrawal application.

“We can encourage the supervisor to reconsider the application if we conclude the supervisor made an unreasonable decision,” explains Ms Taylor.

In three of the recent cases, FSCL concluded that the supervisors had not been unreasonable when they declined to release funds.

“In two of the cases, the complainants argued that they needed to access their KiwiSaver funds to pay for weight loss surgery. Their arguments were that if they did not have the surgery, their lives would be shortened or their ability to work would be affected,” says Ms Taylor, “we understand that having an application turned down can be stressful, but it is important to remember that your KiwiSaver savings are there to ensure that you have enough funds to have a financially secure retirement.” 

The KiwiSaver Act 2006 defines serious illness as: an injury, illness, or disability:

  • that results in the member being totally and permanently unable to engage in work for which he or she is suited by reason of experience, education or training, or any combination of those things; or
  • that poses a serious and imminent risk of death.

Industry guidelines suggest that imminent means death is impending or expected to occur within the next 12 months.

In one case, the supervisor declined Ava’s application because the medical evidence did not support that her life expectancy was less than a year. Even if there had been evidence of this, the weight loss surgery was expected to improve her health and life expectancy.

Similarly, Ishaan was told by the supervisor of his KiwiSaver scheme that weight loss surgery was restorative rather than palliative. The supervisor said all KiwiSaver supervisors had concluded that weight loss surgery did not qualify for a serious illness withdrawal because applicants regained the ability to work after surgery and the threat of death was no longer present.

In both cases, the supervisors suggested that an early withdrawal to pay for non-palliative medical treatment is best considered on the grounds of financial hardship.

“We had to consider both these cases on the circumstances of the withdrawal application. The supervisors had made reasonable decisions because the consumers did not meet the criteria in the Act for a serious illness withdrawal,” explains Ms Taylor, adding that FSCL reached a similar conclusion in a case where the consumer had incurable cancer but was expected to live longer than 12 months.

Leah felt it was unfair that she could not withdraw her savings, despite the fact she was not expected to live to retirement age.

“The threshold for an early KiwiSaver withdrawal is very high. Our suggestion would be for the consumer to speak to their KiwiSaver provider about a significant financial hardship withdrawal if they do not meet the criteria for a serious illness withdrawal. A KiwiSaver member might be eligible to withdraw their funds early if significant financial difficulties have arisen because of a medical condition, for example, because of medical treatment costs or reduced hours at work,” says Ms Taylor.