But Herald calculations show through nine months so far this financial year (July 2023-March 2024) more than $209.5m has already been withdrawn.
Already, 26,580 KiwiSaver members have made financial hardship withdrawals over that period compared to 20,601 in the year to June 2023.
The first quarter of this year has seen more than $75.3m withdrawn due to financial hardship compared to $43m over the first three months of 2023 and $24.9m in the same period for 2022.
David Callanan, general manager of Corporate Trustee Services at Public Trust - a KiwiSaver supervisor in charge of approving hardship withdrawals - said it was a significant increase and had been continuing for a few years.
“The reality is we’re seeing more widespread vulnerability.
“What we see now is more instances where the kind of event where people previously would have been able to ride out, they aren’t able to anymore.
“And that is because there has been an ongoing increase in general living costs, in particular, the cost of having a roof over your head.”
The decision to withdraw KiwiSaver money was often caused by a one-off cost, such as damage to a vehicle, he said.
Historically it was largely a significant change in employment circumstances or another significant life event such as a marital split, Callanan said.
The Public Trust supervises 13 KiwiSaver schemes. The trust, while unable to share approval rates, said it assessed 9165 applications for serious financial hardship in the 2023 financial year. Between July 2023 and April 2024, it has already evaluated 11,987 applications.
The numbers are a significant uptick from the 2022 financial year when it assessed 6267 serious financial hardship applications.
“We’ve got about, give or take, a 40 per cent market share in terms of KiwiSaver providers so we’ve got a pretty clear view of what’s happening in this space and our data’s fairly similar to the overall picture,” Callanan said.
Callanan said they were also the supervisor for four of the six default providers of KiwiSaver.
“Proportionally we probably pick up more than our otherwise fair share of hardship applications. Where you’ve got default members, they tend to be slightly less engaged with their financial products... unfortunately, there’s also a higher propensity to enter a situation of hardship,” he said.
“It speaks to the need for an uplift in broader financial literacy across the country.”
But Tom Hartmann, personal finance lead at Sorted, cautioned against blowing out the numbers.
He pointed to the declining number of those on a savings suspension as a reason to not be worried.
IRD figures show 86,300 KiwiSaver members were on a savings suspension in the year to March 2024, down from 103,955 in March 2023.
“It’s a decrease of about 17 per cent,” Hartmann said.
“It’s an important [measure] because it’s voluntary. It means people are experiencing hardship to the point that they want to stop contributing.”
He said the percentage of members withdrawing funds due to financial hardship relative to those in KiwiSaver was small.
“Overall, only 1 per cent of [KiwiSaver] members have withdrawn funds for financial hardship in the past year… compared to 0.6 the previous year.”
“So definitely trending up, not where we want it to go, but it’s not that big of a problem.”
He said probably the best way to track the numbers was on a per capita basis.
“In the year up to March 2023 the average amount per withdrawal is $6927… this past year up to March 2024 that average amount looks to be $7923,” Hartmann said.
“It’s gradually trending upward.”
Who can make a hardship withdrawal?
Hartmann said short-term hardship withdrawals can be entirely appropriate for people who are having difficulties making ends meet, such as putting food on the table or paying their everyday expenses.
But they were not for repaying debt or for paying fines, he said.
“We want hardship withdrawals to be a last resort because people are stepping away from the long-term growth [of their KiwiSaver],” he said.
He said it was a “straightforward process with your KiwiSaver provider”.
“The KiwiSaver providers take in the applications but the decision on whether to release funds is from the supervisors.”
Those supervisors are Public Trust, Guardian Trust and Trustees Executors.
However, not having enough information in an application can really slow down the process, Hartmann warned.
“Many times they are looking for a budget statement so financial mentors get involved,” he said.
The Public Trust’s Callanan said there is a fair bit of work that has to go into proving a significant financial hardship.
“Some of the things we look for... if you’ve got a loan... you need to have gone to your bank or your financial provider and had a conversation with them to get some alleviation. If you’ve lost your job, we want the member to go to Winz [Work and Income] first and apply for income support,” he said.
“Because it’s KiwiSaver, we want to explore other options first.
“We don’t want to draw down fundamentally the KiwiSaver balance any further than we have to and you want to support the member to get back on their own feet, as opposed to having to continually draw down that value all the way.”
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
