When is hardship really hardship? That's the question when it comes to KiwiSaver.
The purpose of KiwiSaver is creating a nest egg for retirement. You can withdraw money from your KiwiSaver if you're in "significant financial hardship". Very specific rules define what that is. It's not just that your budget is out of whack.
Hardship should be the final step after you've explored all other sources of funding, and budgeted to live within your existing means, says Commission for Financial Capability's personal finance lead Tom Hartmann.
Third-party supervisors decide whether your hardship application succeeds, not your KiwiSaver provider. The supervisors aren't a law unto themselves. Their decisions are very consistent, says Hartmann.
The supervisors must work within the legislation and adhere to guidance issued by the Financial Services Council. That guidance, for example, sets out the cost of basic food in different parts of the country, based on Otago University numbers. Basic costs of other items such as utilities are also listed.
Harry Koprivcic, chief executive corporate trusts at Guardian Trust, which is one of those supervisors, says the vast majority of applications are from people on very low incomes or benefits who have had a change in circumstances.
Sometimes the supervisors have to consider applications from people who are used to a certain standard of living and want to maintain it, says Koprivcic. It's unlikely they'll be allowed to withdraw that level of money, however.
The Public Trust is another supervisor and its chief executive Glenys Talivai says 86 per cent of applications are approved, but not always in full. The process of applying for a hardship withdrawal usually involves seeing a budget advisor, which can help them with immediate issues but also help to re-educate them.
You must look at other sources of funds, says Talivai. Sometimes people don't want to touch their savings or shares. They need to, however, before being allowed to withdraw from KiwiSaver.
Hardship withdrawals aren't there to pay off debts, she says. Hardship withdrawals are designed to help with minimum living expenses while you're between jobs or suffering financial hardship from other causes.
Periodic withdrawals from KiwiSaver severely impact your future income when you retire, says Hartmann.
If you are suffering financial hardship it's common to get a sum that adds up to 13 weeks. That should be long enough for most people to get back into work or, if not, to qualify for help from Work & Income.
The withdrawal, if approved, is more likely to cover monthly repayments for a period of time. You will need to go to your lenders to see if you can restructure your debt or take a payment holiday.
"If you are struggling to pay household expenses because of that debt there might be ways to reduce the payments," says Talivai. "That is what people whose applications aren't immediately approved often haven't done to bring down their expenses in the short term. They may be in financial pain, but have they exhausted all other avenues?"
Sometimes the onerous process of applying helps raise the financial awareness of the KiwiSaver, which can have long-term benefits.
Both Public Trust and Guardian Trust have seen a steady increase in hardship applications this year. Public Trust says that's a 25 per cent increase from March to October 2020, whereas KiwiSaver growth for the same period has been about 4 per cent.
The latest figures from the Inland Revenue Department show hardship withdrawals amounted to $14.3 million in September 2020, up from $8.7m in September 2019.
During the pandemic one of the hardest-hit groups has been sole company directors, who have often guaranteed business loans personally, says Talivai.
Finally, everyone should be tracking their KiwiSaver deductions to ensure they do land in their fund. My colleague Tamsyn Parker has found that the KiwiSaver has held onto some savers money for as long as six months. Likewise, some less-than-scrupulous employers have on rare occasions failed to pass employee's deductions over.