New Zealand’s new Retirement Commissioner, David Boyle, is asking whether KiwiSaver hardship withdrawals have become too easy to get, after almost $1.8 billion left the scheme on hardship grounds between 2012 and 2025.
About $1.32 billion of that has gone since 2020, RNZ reported on Monday. Boyle, who ran KiwiSaver at Fisher Funds before taking up the commissioner’s role, told RNZ he wants more information on what is driving the claims, and on whether the rules for assessing them have quietly loosened.
“We’re living in a challenging cost-of-living period of time and it’s been exacerbated particularly this year by the oil shocks and those costs being passed on to customers, as well as interest rates starting to inch up again,” he said.
He plans to go to the scheme supervisors, the independent trustee companies that make the final call on each application. “I’m looking to get some feedback from supervisors in time to get a better picture of that.”
A hardship claim is lodged with a member’s KiwiSaver provider, which does the first round of processing, but the decision sits with the supervisor. Members have to show they are struggling to cover basic living costs. The Retirement Commission has long urged members to treat hardship withdrawals as a last resort, because every dollar taken out early loses decades of compounding.
One of those supervisors agrees the bar has slipped. James Douglas, who chairs the independent board of Trustees Executors, told RNZ that supervisors work from guidelines when they weigh applications. “Unfortunately those guidelines have expanded over time. I think we’ve become a little bit more lax.”
The commissioner’s inquiry lands as the latest monthly numbers show the flow of money out of KiwiSaver easing, at least for now. Inland Revenue figures reported by interest.co.nz on Saturday show members took $226.3 million out early in August across 8580 withdrawals. First home buyers accounted for $186.6 million of that from 4080 withdrawals, while 4500 hardship withdrawals took out $39.7 million.
That was down from about $260.1 million in July, when hardship cases outnumbered first home buyers, and well below the monthly high of more than $296 million in March. Another 1129 members paused their contributions in August because of financial hardship.
Commentators told RNZ the August slowdown was likely to be short-lived, particularly in the lead-up to Christmas. Christine Liggins of Debtfix, which processes hardship applications for several KiwiSaver providers, said the rate seemed to ease in June and July but applications were rising again.
Boyle’s biggest worry is the gap between what an applicant says the money is for and where it actually goes. Providers are often handed a quote, for a surgical procedure for example, but have no way of knowing whether the payout is spent on it. Applicants sign a declaration, and he said misusing it was serious.
“I’m hoping it’s not a large number of people doing that, I would doubt it,” he told RNZ. “It’s essentially breaking the law … I have certainly seen videos of influencers, so-called influencers, talking to specific groups around how they can game the system. And that’s not particularly productive and shouldn’t be encouraged at all, in my view.”
The Financial Markets Authority shares that concern. Its head of licensing and regulatory service, Anita Frazer, said the regulator was “concerned by any content that encourages people to provide false or misleading information in support of a KiwiSaver hardship withdrawal application.”
“The rules are deliberately strict because accessing KiwiSaver savings early can have a significant impact on long-term retirement outcomes,” she said. Frazer added that preventing fraud was a regulatory priority for the FMA, and that it would consider an appropriate response if it became aware of fraud or of people encouraging it.
Boyle also wants to know whether members are dipping in once to deal with a genuine crisis or returning again and again. “Or are they coming back for more and almost treating KiwiSaver like a bank account, which it’s not designed for?”
One fix on the table is to pay hardship money straight to whoever is owed it, such as a surgeon, landlord or power company, rather than into the member’s bank account. Boyle said the idea might be worth considering. Liggins has been lobbying government ministers for exactly that change.
“I believe that this would halve the number of withdrawals that happen. Not only that but it will see funds [go] to the actual cause, so helping to alleviate the hardship too,” she said.
Not everyone is keen on a tougher regime. Simplicity chief economist Shamubeel Eaqub warned against making the money much harder to reach for people in real trouble. “It’s their money. Is it the majority that are working around the rule? I would hate to see policies changed to catch a few bad actors.”
That tension sits at the heart of the debate. KiwiSaver is locked away until 65 so that New Zealanders reach retirement with more than New Zealand Super to live on, yet the hardship door exists because some members hit trouble that cannot wait decades. Earlier this month Newswire reported that nearly six in ten hardship applicants referred to Debtfix in the year to March were helped through other options, such as a repayment plan or a budget, instead of a withdrawal, which suggests some front-line filtering is already happening.
The cost of an early withdrawal is easy to underestimate. A few thousand dollars taken out in a member’s thirties is not just that sum lost, but everything it would have earned in the markets over the following 30 years. With about 3.48 million active or provisional members, according to the Inland Revenue data, even small shifts in how hardship claims are handled add up across the scheme. Readers wondering what a withdrawal could cost them can test it in our KiwiSaver growth calculator.
Boyle has not put a timeframe on his information-gathering, and no formal rule changes are on the table yet. Any tightening of the hardship test would need the government and the regulator to act, and with an election campaign under way, KiwiSaver policy is already contested ground. Labour, for one, has made KiwiSaver contributions part of its pitch.
Should hardship withdrawals be paid straight to the bill, or is that too paternalistic when it is members’ own money? Have your say in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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