KiwiSaver may be tempting for people who are in financial trouble to access their money. Photo/Steven McNicholl.
KiwiSaver may be tempting for people who are in financial trouble to access their money. Photo/Steven McNicholl.
Healthy KiwiSaver balances could be tempting more people to raid their retirement savings to bail themselves out of financial difficulty.
A report from the Financial Markets Authority shows the value of financial hardship claims jumped 37.5 per cent in the year to June 30 increasing from $31.2 million to $42.9 million.
The number of people tapping up their retirement savings grew by nearly 11 per cent to 8911 outstripping the 8 per cent growth in KiwiSaver members.
The average amount people are withdrawing has increased from $3878 to $4814.
Dennis Church, general manager of corporate trustee services at Public Trust - a KiwiSaver supervisor which fields applications for financial hardship grants, said the amount being withdrawn reflected growing account balances.
Church said many people who applied for hardship grants did not have any savings other than KiwiSaver.
"Even though Kiwisaver is a retirement savings scheme, it is often their only savings and a last resort to meet other commitments."
Church said part of the problem was that people did not seem to understand what long-term savings meant.
A lot of it is around budgeting. A lot of people [we see] just can't afford it.
"I'm not sure people really understand what that means."
In other cases people simply couldn't afford to be in KiwiSaver and should not have signed up to it.
"A lot of it is around budgeting. A lot of people [we see] just can't afford it."
Church said the three key reasons for people applying to take their money out came down to an inability to meet minimum living expenses, inability to service debt or a sudden or unexpected change in income or the family unit.
"Many members who submit withdrawal requests have loans with finance companies, credit cards, and bank loans.
"In some instances members have multiple loans and credit cards and are unable to meet the minimum required payments which also impacts their ability to meet their minimum living expenses."
In other cases people had lost their jobs or were going through a divorce.
Church said he had also noticed that people who were automatically enrolled in KiwiSaver and ended up in a default scheme were more likely to apply for hardship grants.
"There appears to be higher withdrawal rates for default schemes.
"As membership to default schemes is automatic and members must opt out within a defined period of being enrolled, it is possible that people become members due to inertia."
It is really hard. Some situations are very genuine - they've lost their job and have a family to bring up. They don't need much in the way of professional advice.
Church said more should be done to provide budgeting advice and education around long-term saving at the point at which people join KiwiSaver.
Bryan Connor, general manager of corporate trusts at Guardian Trust, said he also felt more budgeting advice should be given and planned to speak to the regulator - the Financial Markets Authority - about it.
"It is really hard. Some situations are very genuine - they've lost their job and have a family to bring up. They don't need much in the way of professional advice.
"But there are others that for some reason can't manage their own finances."
Connor said he would like to see stronger encouragement for those people to get professional budgeting advice.
"I think people need to very carefully consider their situation before joining KiwiSaver. It is a fantastic tool but there are some people that just can't afford to be in it.
