Helen Twose

Helen Twose on KiwiSaver and you

Kiwisaver: Bar for accepting hardship claims high

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Saving scheme trustees have serious responsibilities, so you will need to have exhausted other financial options.

Every single Kiwisaver fund has a trust deed and trustee.
Every single Kiwisaver fund has a trust deed and trustee.

I would like your help to clarify the process for KiwiSaver financial hardship withdrawals.
I made an application to withdraw my KiwiSaver funds because of financial hardship but was declined.
I asked for a reason but was told by my KiwiSaver provider: "The trustees are not required to provide a reason and the only response we receive is 'accepted' or 'declined'."
Why are trustees not required to provide a reason for declining applications?
Also with my KiwiSaver provider the trustees are in Wellington and I never hear from them directly, only through one KiwiSaver adviser, who is also based in Wellington, and he didn't even submit my first application to the trustees for consideration, so my last question would be: Is there any way that I can be sure the decision is made by the trustees, not by the KiwiSaver provider?
I just would like some transparency.

At its core KiwiSaver is a retirement savings scheme, with the funds locked up until you are at least 65.

But there are four ways you can access some of that money early:

•Buying your first home.

•Moving overseas permanently.

•Serious illness.

•Financial hardship.

All the avenues for early withdrawal have rules around them, but to get KiwiSaver cash when you are suffering from financial hardship you need to prove:

•You are not able to pay basic living expenses.

•You can't make mortgage payments and are at serious risk of losing your home.

•You need to modify your home because you or a dependent family member has a disability.

•You need to pay for medical treatment when you or a dependent family member becomes seriously ill, injured or requires palliative care.

•Or, you need pay for funeral costs when a dependent family member dies.

"It's not that you've spent your money on a new flat-screen television and you can't pay the credit card," says David Brown Douglas, executive director of the Trustee Corporations Association of New Zealand.

Brown Douglas' organisation represents the majority of corporate trustees that oversee the running of KiwiSaver funds.

The role of a KiwiSaver trustee, who are all required to be registered with the Financial Markets Authority, is about governance.

"There's a number of KiwiSaver funds that have been established and approved and those funds are all supported by a trust deed that effectively sets out the rules under which people provide money to the fund and the fund invests that money."

Every single Kiwisaver fund has a trust deed and trustee.

You can find out the name of your fund's trustee by checking the prospectus supplied by your KiwiSaver provider.

The trust deed will also be available from your KiwiSaver provider.

"They set out the rules which essentially establish what sort of fund you're putting your money into.

"When you've got rules you need somebody to keep an eye on them and make certain that the manager is actually doing what they say they are going to do, and that's the role of the trustee," says Brown Douglas.

The trustee is ensuring your money is being invested where you'd agreed it should go - and not on the roulette tables at the casino - but they aren't responsible for monitoring the day-to-day performance of the fund.

Another role of the trustee is to assess financial hardship claims.

An application is made to your provider, which is likely to include bank statements, payslips, letters and invoices from people who want payment and an explanation of the circumstances that have led to your financial difficulties.

That bar for accepting claims is high and you will also need to prove that you have exhausted all other financial options, such as mortgage holidays, savings, money held in family trusts and Winz benefits.

You may apply for some or all of your funds but you cannot access the $1000 kickstart or any of the annual tax credits.

The number of people who have made claims under financial hardship is not listed, but last year the Commission for Financial Literacy and Retirement Income estimated in the year ending June 2012 several thousand people had dipped into their KiwiSaver funds.

Your KiwiSaver provider may make an initial assessment of the claim and prepare a recommendation for the trustee, or just pass the application on to the trustee.

"The trustee then has a look at the facts and they say 'I agree' or 'I don't agree' and then that's it.

"The core issue you've got to bear in mind is the trustee is required to use their discretion, and if you think about it, it's for that reason they generally won't give reasons for their conclusions."

Brown Douglas says the trustees have serious responsibilities to look after the interests of KiwiSavers.

It's for this reason a test case is being heard in the Wellington High Court this week to determine whether a bankrupt's KiwiSaver funds can be accessed to pay creditors using the financial hardship category.

The corporate trustees argue any claims by creditors on KiwiSaver cash only benefit the creditors and not the KiwiSaver member.

"When somebody is suffering financial hardship and they're put into bankruptcy, essentially their financial hardship has been resolved.

"So how can you make a claim under financial hardship? You can't."

•Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the Herald's panel of industry players email Helen Twose, helentwose@gmail.com.

- NZ Herald

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