KiwiSaver withdrawal: Looming redundancy, separation not good enough reasons

A man who tried to withdraw money from KiwiSaver because he expected to be made redundant, and another who wanted to access his KiwiSaver to buy his ex-wife out of the family home without a separation agreement are just two of what providers say is likely to be a significant number of people confused about when they can tap into their investments.

Financial Services Complaints Ltd (FSCL), an external dispute scheme that deals with complaints about some financial providers, has published details of four cases it looked at this year alone relating to withdrawals from KiwiSaver.

In one case, a woman was left waiting a long time for a withdrawal. The provider was told to pay her $500 in compensation because of the delays, which meant she fell further behind on her rent.

In another, a man wanted to use his KiwiSaver to pay out his ex-wife's share of the family home.

The provider declined the application because he had not provided a court order or legal relationship property agreement to show the division of property. When he obtained the order, and the money was released, he complained that the provider had caused him to incur $8000 in legal fees and should reimburse him.

FSCL told him the documents were legally required.

In still another case, a man applied to withdraw $8000 because he had been told that his role might be disestablished. He was turned down because the KiwiSaver supervisor said he was not yet in hardship and it was not clear he would be in the future. FSCL said the test for hardship was high.

Another woman was turned down when she tried to withdraw money for a tiny home that she hoped would be an end to her unstable living situation. She said it would help her improve her financial position. But FSCL said the supervisor's decision to reject her was reasonable.

Providers say there are misconceptions more generally about how withdrawals work.

The number of withdrawals has eased slightly but is still near record levels. On an annual basis, the number for hardship reasons surpassed first-home withdrawals for the first time in the year to June last year.

In addition, there are a number of people offering advice on social media about how people should be able to access their money, which is not always correct.

Pie Funds chief executive Ana-Marie Lockyer said the cases suggested there was still some misunderstanding about what members could realistically expect from the process.

"I am not sure that is going to change - many people assume that being in financial hardship automatically means they can access their KiwiSaver savings, but the rules are intentionally strict and withdrawals are only approved in limited circumstances. The cases highlight the importance of setting clear expectations around eligibility, evidence requirements, and the role of the supervisor in making withdrawal decisions."

Generate investment specialist Greg Smith said people often thought it was up to their provider to decide on an application. But it is the supervisor of the scheme that makes the final determination.

"There's a very strict set of guidelines about withdrawals. And they have to meet pretty strict criteria. It's not the provider saying no…. I think sometimes people think the provider might be just being too strict or whatever it might be.

"Often people in that situation are doing it for a reason, they need money… But you literally have to be able to not meet your outgoings. And I think people just think sometimes, is it just something I can draw on because I need some extra money to pay for petrol?"

He said the ability to access KiwiSaver for a first home was also relatively unusual by international standards.

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