Redundant man begs Government to be allowed to use his KiwiSaver to repay debt

Tuesday, 28 April 2020

Keith Smith from Northland wants to use his money to secure his financial future, but KiwiSaver hardship withdrawal rules do not let him clear his debts even though he has been made redundant.

Northlander Keith Smith is facing mounting debt because of a 'nuts' decision not to allow him to access his KiwiSaver.

Made redundant just before lockdown, the 58-year-old electrical sales engineer has $40,000 in home loan debt, and $40,000 in savings, but he isn't legally allowed to use the savings to clear the debt.

That's because the savings are in KiwiSaver, and KiwiSaver hardship rules prevent him from using his own money to stabilise his financial position.

'I'm not asking for any of the government's money - just what ourselves and our employers put in over the years. We need this money right now,' Smith said.

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On being made redundant, Smith and his wife cashed up his private super scheme to pay off most of their home loan, fearing he would struggle to find work again.

But KiwiSaver hardship withdrawal restrictions mean Smith can't clear the last $40,000 of his debt to ASB despite having a matching amount in his ASB KiwiSaver account.

KiwiSaver was designed to lock away people's retirement savings until they reached the age of 65, and KiwiSaver hardship rules were designed to only drip-feed enough cash to pay savers' essential living expenses.

Smith called on the Government, which has been spending vast amounts of taxpayer money to support businesses and their employees, to let people like him doing it hard during the Covid-19 economic crisis to use their KiwiSaver money to ease their financial distress.

'We made a logical analysis of the whole situation- and sought budget advice and spoke to the bank- and it seemed the sensible, and only, thing to do was to withdraw our pension funds early due to financial hardship and pay off as much debt and mortgage as we could to reduce our outgoings to the absolute minimum,' Smith said.

'As we are both 58 years old and given the current employment climate it is entirely possible that we may never work again, but having the security of owning our own home would go a long way to providing the security in our retirement that we need.

'Our private pension did release all of our pension fund and we paid off all our debts and the vast majority of our mortgage, however our Kiwisaver manager would only pay out a few thousand to cover immediate expenses and it was not to pay off our mortgage.

'So we now have $40,000 of debt to the ASB bank via a mortgage of $8000 and a revolving credit type home loan of $32,000 all secured on our home, and $40,000 worth of kiwisaver funds that we could potentially access.'

'Anyone in their right mind would say that (clearing the debt) is a very sensible thing to do.'

'What possible public interest is there to constrain people's access to their funds at a time when they need it most?' said retirement policy expert Michael Littlewood.

'This drip-feed payment also means that our kiwisaver funds will fall below $40,000 and with no payments going in we will have no chance of paying off our mortgage. And if we can't pay our mortgage, the bank will simply keep adding interest to our loans so our debt will go over $40,000.'

The hardship rules seem to have been written to benefit the financial institutions more than savers, he said.

'It's nuts. It just seems to be propping up the banks, utility companies and councils with our kiwisaver funds.'

Pensions expert Michael Littlewood said: 'It's easy to criticise the bank, but all they are doing is applying the rules.'

The Government should be prepared to move to much more flexible arrangements for KiwiSaver hardship withdrawal.

'What possible public interest is there to constrain people's access to their funds at a time when they need it most?' he said.

'The public policy interest should be to allow him (Smith) to alleviate his stress.'

Littlewood urged the Government to look to Australia, which had passed emergency changes to its pensions rules to let people access up to A$10,000 (NZ$21,444) this year, and A$10,000 next year, if they are struggling.

The Government is being urged to relax KiwiSaver hardship withdrawal rules.

Commerce Minister Kris Faafoi has been approached for comment.

Following the Australian example was not something New Zealand should do, said Fisher Funds chief executive Bruce McLachlan.

In Australia, the average balance was around A$100,000, he said. In New Zealand it was about $20,000.

So while people in Australia could spend up to 20 per cent of the average balance, a similar amount here would wipe savers out entirely.

'We are so new into the long-term savings game, and we are so far behind the 8-ball,' McLachlan said.

HOW TO MAKE A KIWISAVER HARDSHIP WITHDRAWAL:

* The Financial Markets Authority has released a guide on KiwiSaver hardship withdrawals.

* Applying for a KiwiSaver hardship withdrawal requires completing a statutory declaration about your assets and liabilities, as well as showing you have explored other options for funding, it says.

* Hardship is defined as not being able to meet your living expenses and rent or mortgage payments, the FMA said.

* It recommends people with debts to talk to their lenders. 'Borrowers have a legal right to ask for changes to their repayments when they are experiencing unforeseen hardship,' it said.

* People who wanted to make withdrawals should contact their KiwiSaver provider, which would provide them with the paperwork they needed to complete.

* The Government had passed an emergency order to allow people to make statutory declarations over systems like Zoom and Skype. A declaration was needed to complete a KiwiSaver hardship withdrawal.