Breaking the bank

Thousands of withdrawals are being made from KiwiSaver funds every year as New Zealanders struggle to cover the costs of living.

Fidelity Life, which has 70,000 KiwiSaver funds in its management, said it received 50 claims every month from people who wanted their money out because of financial hardship, including paying the power bill.

The country's biggest KiwiSaver providers, ANZ and One Path, reported about 250 hardship withdrawal applications being approved each month by the end of January this year. ASB reported 712 for the 2010-11 year.

Fidelity Life chief executive Milton Jennings said many were for things such as overdue power bills, although one was for tickets to the Rugby World Cup - a claim that was denied. One person claimed six times.

ANZ spokesman Andrew Park had also noticed an increase in applications for withdrawal. Almost 90 per cent were approved. Some wanted all their funds in the account, while others wanted just part of it.

"The withdrawals are for things such as the cost of living, arrears in bills and redundancies," he said.

Decisions on hardship claims are made by individual funds and their trustees, but there has been a call for the process to be handled by the IRD to avoid inconsistencies.

KiwiSaver members can withdraw only their contributions and those of their employer. The Government's $1000 kickstart and tax credits must stay in the fund.

Jennings thought the process should be tightened so withdrawals could be made only in dire circumstances, such as when someone faced bankruptcy. "It is becoming like a bank account for some people."

But Park said the process was rigorous and people would not put themselves through it if it was unnecessary.

The scheme has been in the firing line lately. Advisers said Kiwis were too complacent about their investments and might be missing out on thousands of dollars in savings.

The problem affected both ends of the spectrum: young savers had funds that were too conservative and older people had money in risky funds.

BNZ chief economist Tony Alexander said people who put their money into high-risk assets when they were young could be left with a dismal balance sheet if they then forgot about it. "If you are investing long term, you need a lot of equities. But once you approach that long term you need to move away from them. If they never take their investment out of high-risk assets, the fund might be having a bad year as they near retirement."

ANZ general manager of wealth investment management Simon Botherway agreed people needed to be reminded to review their investments regularly.

But his concern was more about younger investors. ANZ wanted the scheme modified so the automatic structuring of default funds allocated assets according to an investor's age.

ANZ estimated that young KiwiSavers who could not be bothered to change out of conservative default funds could, on average, cheat themselves of $72,000 over 40 years.

Managing director John Body said about 191,000 investors were in this position and dubbed the problem a "$14 billion timebomb".

Botherway said people defaulting to a conservative fund were "without question" being dealt a disservice.

Of the 1,863,572 KiwiSaver members at December 31 last year, 696,166 had been enrolled automatically. Most members were aged 25-34, the group that traditionally should be in riskier investments.

A UMR Research survey last year suggested more than a quarter of KiwiSavers did not know what kind of fund they were in.

With the sale of state-owned assets approaching, those in a default fund would at best have 1 per cent exposure to them, Botherway said. A growth fund would offer four or five times that amount.

But Jennings said former Finance Minister Michael Cullen had done the right thing in making default schemes conservative during the global financial crisis.

A review of providers is scheduled for next year. Revenue Minister Peter Dunne said changing the default fund would be considered then.