KiwiSaver: No bucks for your banger

KiwiSaver is designed to help you save for your retirement, not buy a second-hand car. Photo / Sarah Ivey

Q: My 29-year-old daughter has been living in Melbourne for three years. How can she get her $3,000 KiwiSaver out as she wants to buy a car?

A: These days, it's pretty easy to know how much is in your KiwiSaver account. Any KiwiSaver provider worth its salt will give you regular updates on your account balance and it may even appear alongside your bank balance in internet banking.

But remember, KiwiSaver is not a regular savings account. Savings accounts pay interest at a set rate (fairly low at present) that is added to your balance. KiwiSaver funds are invested in a range of assets, such as shares, property or even interest-bearing investments and you are paid an investment return. How well your fund grows depends on the types of investments.

It is possible for your KiwiSaver account to go backwards, but over time those highs and lows will smooth out to a steady gain.

The other difference between a regular savings account and KiwiSaver is that, generally, KiwiSaver can't be dipped in to until you turn 65.

There are some exceptions and I asked Nigel Jackson, Westpac's head of investment products, to step me through the options if you want to buy a car.

"If your daughter has moved to Australia permanently, she will not be able to withdraw the money from her KiwiSaver to buy a car.

"When moving permanently to Australia there are two options for KiwiSaver balances.

"A person can either a) leave their funds in a New Zealand KiwiSaver scheme, or b) transfer their funds to an Australian complying superannuation scheme.

"If you leave your balance in your KiwiSaver scheme after emigrating, the standard KiwiSaver withdrawal types continue to apply.

"These permitted early withdrawals include serious illness, significant financial hardship, first-home withdrawal or permanent emigration," says Jackson.

It's likely a chunk of the $3,000 in your daughter's account came from the Government - $1,000 from the initial kickstart payment when she opened the account and possibly some member tax credit payments of up to $522.

The rules around KiwiSaver withdrawals are there to ensure the money chipped in by taxpayers is put to good use and ensures New Zealanders benefit in retirement.

It is possible to get some or nearly all of the money out earlier to buy a first home or if you are under extreme financial pressure.

Claims under the financial hardship category, in particular, are given a thorough going-over to ensure the person making the claim has exhausted all financial avenues and is still unable to meet basic living costs, such as housing, food, power and phone bills or unexpected medical or funeral costs, for example.