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New guidance for consumers on KiwiSaver withdrawals for hardship

Financial Services Complaints Limited (FSCL), a free Financial Ombudsman and dispute resolution service, has released guidance to help set consumers’ expectations when applying to access KiwiSaver funds early on the grounds of financial hardship.

The document’s release comes as reports indicate the number of New Zealanders withdrawing retirement funds because of hardship has doubled in the past two months.

According to the recent report, 20 per cent of the applications related to an underlying weather event while the increased cost of living has also impacted Kiwis hard.

Financial Ombudsman and FSCL CEO, Susan Taylor, said that the organisation had developed the guide as a tool to help guide consumers who may feel that their KiwiSaver provider has unfairly dismissed their hardship application.

This guide is the second the organisation has released in as many months, as there was an uptick in complaints from consumers who were not able to access their KiwiSaver funds for some medical conditions.

“We know that New Zealanders are under increasing financial pressure. This is evidenced by the high number of complaints we are receiving across the board. However the bar to withdraw funds early from a KiwiSaver fund is set very high, ” Ms Taylor explains.

If a consumer feels their KiwiSaver supervisor has unfairly declined a hardship application, they can bring their complaint to FSCL, for free, and a case manager will review their complaint.

“We cannot require the supervisor to approve the withdrawal application, but we can encourage the supervisor to reconsider the application, if we conclude the supervisor did not make a reasonable decision or made a mistake that affected the outcome of the application,” says Ms Taylor.

In one recent example, a KiwiSaver supervisor agreed to release money to repay loan arrears to prevent the repossession of a solo- mother’s car but would not agree to release the funds to clear her debt.

Tina brought her complaint to FSCL, as she felt the supervisor’s decision was unfair. She explained that if could clear her debt, she would be able to use the money she was currently paying towards her minimum monthly repayments to cover her living expenses.

“Although the supervisor did not release the funds that Tina wanted, they were prepared to release some funds to assist Tina to buy her daughter a school uniform and to fix her broken washing machine,” says Ms Taylor.

“The law that allows the supervisor to release money to Tina is found in Schedule 1 of the KiwiSaver Act 2006 (the Act). To be able to release money to Tina, the supervisor needs to be “reasonably satisfied that a member is suffering or is likely to suffer from significant financial hardship…”. The Act goes on to explain what will be considered significant financial hardship, for example, if you are unable to meet your minimum living expenses,” explains Ms Taylor.

“Because Tina’s budget was in surplus and the Act does not allow the supervisor to release money to repay a debt, we were satisfied the supervisor had not made a mistake when assessing Tina’s application. We told Tina that we were unable to ask the supervisor to reconsider her application.”

Ms Taylor said that while consumers might be frustrated with a supervisor’s decision to decline an application, it is for good reason.

“KiwiSaver funds are intended to be used for your retirement, so the government has made it difficult to access money early.”