Hard-up Kiwis withdrew close to $15 million from KiwiSaver last month, the biggest monthly withdrawal rate since the Covid-19 pandemic hit New Zealand's shores.
Monthly data supplied to the Inland Revenue from KiwiSaver providers shows the amount of money taken out for hardship reasons spiked in April, during the nationwide level 4 lockdown, and then dropped down again in May and June.
But the number of applications and the amount taken out in July has now risen again and is expected to continue rising as Kiwis come under further financial pressure from the rise in alert levels.
Glenys Talivai, chief executive of the Public Trust, which supervises the hardship applications for 11 KiwiSaver schemes, said the resurgence of Covid-19 in our community had added a new layer of uncertainty to many people's situations.
"We're urging anyone feeling concerned about their financial situation to seek professional financial advice as soon as possible, especially before making any major decisions around KiwiSaver funds, savings or other assets."
Talivai said people should be exploring all other options first including the Government's wage subsidies and the mortgage deferrals offered by banks, which have both just been extended, before applying for a withdrawal from their KiwiSaver account.
"That said we know that for some people, accessing their KiwiSaver funds will be a necessity."
How to smooth the process
Talivai says for those who do need to apply there is a lot of information they have to give to their KiwiSaver providers and it can trip people up.
"We do find information is missing."
If it is missing the supervisor will go back to the KiwiSaver provider who will then get in touch with the member to get the information.
It's something that can slow the process down often at a time when people want access to their money quickly.
Talivai says before applying KiwiSaver members need to show they have explored and exhausted all other avenues of financial support.
"We may decline the application if we haven't seen they have asked for a mortgage holiday."
She said it was a good idea for applicants to work with the Citizens Advice Bureau or get advice from the Government's money education service Sorted to make sure they explored other options first.
It was also important to be clear on what you need the money for.
The main reason people can apply for financial hardship withdrawal is that they are no longer able to meet day-to-day living expenses, that could include not being able to pay mortgage or rent, or for medical reasons.
Talivai said typically KiwiSaver scheme supervisors did not release all of a person's KiwiSaver money at once.
"Some of it might depend on what they [the KiwiSaver member] can get from the Government."
If there is a stand-down period before a person gets paid the Jobseeker benefit then the supervisor will pay out enough to cover that stand-down period.
"If you are looking for work we might cover three months of expenses."
Talivai said that meant some people had to apply again if their financial circumstances had not improved.
Biggest reasons for being turned down
Public Trust says it approves 86 per cent of applications but some are turned away.
"Often people are turned down because they want to use it to buy things and that is not what it is for," Talivai says.
Many also want to use it to pay off debt.
Talivai says there are some circumstances you can use KiwiSaver to pay off debt such as if paying down your debt is going to remove the financial hardship from your life.
"Or if you can show the debt is so significant that it is having an impact on you to the extent you can't live."
But she said using the money to just pay off any debt is not what KiwiSaver was set up to do.
"The legislation doesn't allow for it."
Talivai says as a supervisor it has an obligation to protect people's retirement savings.
While taking money out now might help you in the short term it will also have a flow-on effect to how much you have to live off at retirement.
"It's about finding that balance."
"We help them now but then some day in the future they are going to need to retire and they are not going to have the same amount of money as someone who didn't do a hardship withdrawal.
"They are going to struggle again because of this vicious cycle."
Talivai says the best way to avoid having to make a difficult choice like a hardship application is to get advice and get it as soon as possible.