Our property investment project is failing – why can’t we use our KiwiSaver? - Ask Susan

By Susan Edmunds of RNZ

My wife and I invested in property as most Kiwis do. In recent years, we had to consolidate our property portfolio and we sold all our properties and kept a block of units and our family home.

With the block of units, there was a house alongside four two-bedroom units, which did not comply with any regulations or standards. When we bought the property there was no mention of any of this when we did our due diligence.

We then decided to demolish the whole building and construct 14 new units in place, over three levels. After debating with the council and spending in excess of $700,000, we were informed at the last minute that the building height infringes into the Mt Wellington volcanic view shaft.

We were devastated and as an option we altered the scheme to building four two-bedroomed units over two levels in the location of the house. After a year, we obtained the building consent and got two quotes from builders to build the building. Unfortunately, we had to battle our bank to get the funds as it had numerous restrictions. It structured the funds in favour of the lower price and we commenced the build.

After two years of poor attendance and numerous excuses of Covid, supply chain issues and numerous family deaths, we had to stop the works as the construction was no further forward than having the frames, slabs and partial roof on after more than a year.

We have now engaged a new builder and they have been progressing well on-site. We have now been requested by our bank to apply for a new loan to complete the build, though there was some amount left from our previous loan application.

Unfortunately, with the high interest rates now and the length of time our property had not returned sufficient revenue, we had to subsidise the mortgage payments from our earnings and savings. We now have a fixed price and as prices have all increased, the bank is struggling to structure the lending for us, as our debt is rather high.

My wife and I turned 64 in September this year and we are able to get our KiwiSaver next year. We have requested our bank to withdraw our KiwiSaver and use it towards the new build price and it is refusing to do so, as it can only be withdrawn when we turn 65.

This is causing untold stress – are we not able to use our KiwiSaver for this? We stand to lose a huge amount of money if we have to sell the property in its current state.

This sounds like a very stressful and difficult situation.

Until you’re 65, the rules around withdrawing your money from KiwiSaver are strict. I can see why that would be frustrating when you’re so close to being able to use it without any questions at all.

For now, you’d have to show that you were in serious financial hardship. That would probably need to mean that you were behind on your debts and didn’t have enough income each month to meet your outgoings.

Dean Anderson, chief executive of Kernel KiwiSaver, says yours is a complex situation that is also a reminder that property investment is not a one-way game.

“KiwiSaver hardship withdrawals have a high bar, specifically for when individuals are in a material hardship state and unable to meet key payments,” he says.

“On the face of it, while messy, several key points indicate a frustration with having to fund this with their earnings, rather than an actual hardship. I would also have expected that the development is likely held in a separate entity, be it a trust or company. Overall, this doesn’t read like a situation where the individuals would have access to their KiwiSaver.”

The rules around withdrawing your money from KiwiSaver are strict. Photo / 123rf

Employees are entitled to cash. [Under the] 1964/83 Wages Act, direct debit is optional, and both need to agree.

I decided to look into your email because I was interested in your suggestion rather than because you’ve asked a question. Is it really the case that employees are entitled to be paid in cash and need to agree to an alternative?

Alastair Espie, a partner at Duncan Cotterill, says employees are entitled to ask to be paid in cash but generally speaking, the employer would need to agree.

“Although payment in cash is in fact the default payment method specified in legislation, almost all employment agreements will provide for payment to be made by bank transfer. If an employee wants to change back to cash payment, the employer will need to sign off on this.”

I just read your reply to a lady questioning whether her hard-earned KiwiSaver would be included in means testing for her husband’s potential frail care expenses.

Like her, I have been working hard to build my KiwiSaver, contributing 10% of my earnings, whereas my husband refuses to do anything about his future financially.

If I leave or divorce him, does he automatically get half of my KiwiSaver? Is there any way I can avoid this?

KiwiSaver schemes are caught by relationship property rules, and so yes, you could find you had to give your partner some of your KiwiSaver if you were to separate.

Usually, contributions you, your employer and the Government have made and returns you earned during the course of your relationship are considered relationship property. That is usually up until the date of separation.

When people are working out their separation agreements, they often make up for differences in KiwiSaver balances elsewhere in the division of assets.

If you can’t do this, you can apply to the court to make an order directing your KiwiSaver manager to pay out a portion of your funds.

- RNZ

Sign up to The Daily H, a free newsletter curated by our editors and delivered straight to your inbox every weekday.